Datasets:

kmfoda

/

gov_report

like 3

Introduction The Rural Education Achievement Program (REAP) is authorized by Part B of Title V of the Elementary and Secondary Education Act of 1965 (ESEA), as amended by the Every Student Succeeds Act (ESSA, P.L. 114-95 ) in 2015. Congress created this program to address the unique needs of rural schools that disadvantage them relative to non-rural schools. To compensate for the challenges facing rural schools, REAP awards two types of formula grants. The Small, Rural School Achievement (SRSA) program provides funds to rural local educational agencies (LEAs) that serve small numbers of students. The Rural and Low-Income School (RLIS) program provides funds to rural LEAs that serve high concentrations of low-income students, regardless of the LEA's size. Funds appropriated for REAP are divided equally between the SRSA and RLIS programs. The ESSA reauthorization of the REAP statute made major changes to the program by 1. updating the locale codes used for determining the eligibility of LEAs, 2. clarifying that LEAs within educational service agencies are to be considered for SRSA eligibility, 3. extending to RLIS the alternative state certification option for meeting the rural criterion that already existed for SRSA, and 4. giving LEAs the option to choose which program to receive funds under if eligible for both SRSA and RLIS. This report discusses the challenges facing rural schools and the manner in which REAP attempts to address these challenges. Strengths and Limitations of Rural Schools According to their proponents, rural schools have some advantages over their urban and suburban counterparts. Rural teachers are key members of the community and tend to know students and their families well. Rural schools often have less complex organizational structures with fewer layers than non-rural school systems, and they may be able to adjust or adapt relatively quickly to change. Additionally, the schools within rural communities are very visible and strongly connected with the community. However, rural schools also confront significant challenges. Many face fiscal limitations due to tax base constraints. Resource shortages contribute to various perceived problems, including a limited range of curricular options (such as a lack of advanced placement course offerings) and difficulties providing competitive salaries to attract and retain highly qualified teachers. Rural schools tend to have declining enrollment due to net out-migration and aging of the population. Rural schools' low population density can result in other problems, such as high transportation costs and limited access to cultural and educational resources. In addition to these general challenges, rural school districts may face particular problems meeting ESEA requirements related to academic accountability and teacher quality. While ESSA provided greater funding use flexibility, rural districts may find it difficult to implement ESEA's requirements for schools identified as in need of improvement (such as providing public school choice). Rural districts may also face difficulty in meeting the ESEA requirement that students receive instruction in the core academic subjects from teachers who are fully certified by the state and have demonstrated competency in the subjects they teach. Additionally, where ESEA funds are concerned, rural LEAs may be at a relative disadvantage compared to non-rural LEAs in both seeking competitive awards and utilizing small formula grant amounts from varied programs. The Rural Education Achievement Program (REAP) Congress created REAP to meet many of the challenges facing rural schools. According to the statute, the purpose of REAP is to address "the unique needs of rural school districts that frequently (1) lack the personnel and resources needed to compete effectively for Federal competitive grants; and (2) receive formula grant allocations in amounts too small to be effective in meeting their intended purposes." REAP authorizes two rural education programs under ESEA Title V-B. Subpart 1 authorizes the SRSA program, which focuses on LEAs with less than 600 students. Subpart 2 authorizes the RLIS program, which focuses on larger rural LEAs with relatively high poverty rates (at least 20% of children from families below the poverty line). Recipients of grants from these programs may use their funds to support a fairly broad set of educational programs and activities authorized by several ESEA programs. ESSA authorized REAP at $169,840,000 for the fiscal years 2017 through 2020, to be distributed equally between subparts 1 and 2. However, in the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ) Congress appropriated $175,840,000 for REAP. Table 1 shows the history of appropriations for the program. Program Eligibility To be eligible for REAP funds, LEAs must be designated rural by the U.S. Department of Education (ED). The National Center for Education Statistics (NCES) has devised a typology to classify schools based on their geographic locations. Using Census Bureau geographic data, NCES assigns "locale codes" to each school. Based on their proximity to urbanized areas and urban clusters, schools are classified along a 12-point urban-to-rural scale as follows (locale codes in parentheses): Large City (11) : Territory inside an urbanized area and inside a principal city with population of 250,000 or more. Midsize City (12) : Territory inside an urbanized area and inside a principal city with population of less than 250,000 and greater than or equal to 100,000. Small City (13) : Territory inside an urbanized area and inside a principal city with population of less than 100,000. Large Suburb (21) : Territory outside a principal city and inside an urbanized area with population of 250,000 or more. Midsize Suburb (22) : Territory outside a principal city and inside an urbanized area with population of less than 250,000 and greater than or equal to 100,000. Small Suburb (23) : Territory outside a principal city and inside an urbanized area with population of less than 100,000. Fringe Town (31) : Territory inside an urban cluster that is less than or equal to 10 miles from an urbanized area. Distant Town (32) : Territory inside an urban cluster that is more than 10 miles and less than or equal to 35 miles from an urbanized area. Remote Town (33) : Territory inside an urban cluster that is more than 35 miles from an urbanized area. Fringe Rural (41) : Census-defined rural territory that is less than or equal to 5 miles from an urbanized area, as well as rural territory that is less than or equal to 2.5 miles from an urban cluster. Distant Rural (42) : Census-defined rural territory that is more than 5 miles but less than or equal to 25 miles from an urbanized area, as well as rural territory that is more than 2.5 miles but less than or equal to 10 miles from an urban cluster. Remote Rural (43) : Census-defined rural territory that is more than 25 miles from an urbanized area and is also more than 10 miles from an urban cluster. Small Rural School Achievement Program Eligibility An LEA is eligible for the SRSA program if all schools served by the LEA have a locale code of 41, 42, or 43 and either its average daily attendance (ADA) is less than 600 or the county or counties in which the LEA is located has a population density of fewer than 10 people per square mile. The SRSA statute allows the Secretary of Education to waive the locale code requirement (but not the ADA or population density requirements) based on a state government agency's determination that the LEA is located in a rural area. The ESSA amendments made otherwise eligible LEAs within educational service agencies eligible for SRSA funds. LEAs that lost SRSA eligibility due to the ESSA amendments are provided a declining share of prior grant amounts through FY2019 under a hold harmless provision. Rural Low-Income School Program Eligibility An LEA is eligible for the RLIS program if all its schools have locale codes of 32, 33, 41, 42, or 43 and at least 20% of the children the LEA serves are from families below the poverty line. The ESSA amendments provided the Secretary with waiver authority for the locale code requirement based on state determination that the LEA is located in a rural area, which previously only existed for the SRSA program. Grant Determination Amounts that LEAs receive and aggregate state amounts are determined differently under the SRSA and RLIS programs. Under the SRSA program, an initial amount is calculated for each eligible LEA and then funds are added based on enrollment and subtracted based on "offsetting" amounts received from other ESEA programs. Under RLIS, grants are first made to states based on a formula and then subgranted to LEAs on either a formula or competitive basis. SRSA Grants Congress intended the SRSA program to be a supplement to certain other ESEA grant funds. Thus, an LEA's final SRSA grant amount is based on adjusting its initial amount by the total amount it received from other ESEA programs. The initial SRSA amount is equal to a base grant of $20,000 plus an additional amount for LEAs with enrollments of more than 50 students. The additional amount is equal to $100 for each student in excess of 50 students; however, generally, no grant amount may exceed $60,000. The following are some examples of initial amount calculations: LEAs with 50 students or fewer have initial grant amounts equal to the base amount of $20,000. An LEA with 55 students has an initial amount of $20,500 (i.e., the base amount of $20,000 plus $500, which is $100 times the five students in excess of 50 students). An LEA with 449 students has an initial amount of $59,900 (i.e., the base amount of $20,000 plus $39,900, which is $100 times the 399 students in excess of 50 students). LEAs with between 450 and 599 students have initial amounts of $60,000 (e.g., the calculation for an LEA with 451 students would be the base amount of $20,000 plus $40,100, which is $100 times the 401 students in excess of 50 students; since this exceeds the maximum amount of $60,000, the amount of the initial award would be $60,000). The final SRSA grant amount is equal to the initial award minus the amount an LEA received from two ESEA grant programs in the prior fiscal year: (1) the Supporting Effective Instruction program, Title II, Part A, and (2) the Student Support and Academic Enrichment Grants, Title IV, Part A. As a result of this offset provision, an LEA whose initial SRSA grant amount is less than what it received from these two ESEA programs in the prior fiscal year would not receive funds under the SRSA program. RLIS Grants Unlike under the SRSA program, the Secretary must reserve funds from the total RLIS appropriation for Bureau of Indian Education (BIE) schools (0.5%) and for outlying areas (0.5%). The remainder is allotted to states based on each state's share of students attending schools in eligible LEAs nationwide. For example, a state with 2% of the national enrollment in RLIS-eligible LEAs would receive 2% of funds remaining after reserving BIE and outlying area funds. States award subgrants to eligible LEAs either competitively or based on a formula selected by the state, and approved by the Secretary. The ESSA amendments provide that LEAs in a state that does not participate in the RLIS program may submit an application directly to the Secretary as a "specially qualified agency." Dual Eligibility ESSA provided new authority allowing an LEA eligible under both the SRSA and RLIS programs to choose the program from which to receive funds; the Secretary is to determine the date by which notification must be given to ED. Table 2 shows the number of LEAs in each state that are eligible for REAP funds for FY2017, and a map of these LEAs is displayed in the Appendix . Use of Funds Recipients of REAP grants may use funds for activities authorized by several ESEA programs: Improving Basic Programs Operated by Local Educational Agencies (Title I, Part A); Supporting Effective Instruction (Title II, Part A); Language Instruction for English Learners and Immigrant Students (Title III); and Student Support and Academic Enrichment Grants (Title IV, Part A). REAP-Flex Under the "alternative use of funds authority" (commonly known as REAP-Flex), LEAs that are eligible for SRSA grants (whether or not they receive any SRSA funds) have the flexibility to use offsetting funds from ESEA Title II-A and Title IV-A programs for any activities authorized by the SRSA program. For example, under REAP-Flex an LEA may use funds received under the Supporting Effective Instruction program (Title II-A) to provide language acquisition and services to immigrant students authorized under the Language Instruction for English Learners and Immigrant Students Program (Title III). Possible Implementation Issue Changes made by the ESSA amendments may present implementation issues. One possible area concerns the impact of dual eligibility on the awarding of grants. ESSA provided new authority allowing an LEA eligible under both the SRSA and RLIS programs to choose the program from which they prefer to receive funds. This could greatly complicate grant administration at both the federal and state levels. The new law requires the Secretary to establish a date by which LEAs must declare their choice; however, this may be a difficult decision to make by a certain date because estimated grant amounts will change due to the number and characteristics of other participating LEAs. Specifically, the ratable reduction and hold harmless provisions in SRSA will be greatly impacted by the number of LEAs that choose this program. Similarly, RLIS amounts will depend largely on the popularity of this choice. Currently, SRSA awards are much larger than RLIS awards. In FY2016, the average per pupil grant amount was $78 for SRSA, compared to $23 for RLIS. However, that could change substantially if a large number of former RLIS recipients decided to take SRSA funds. Even though it appears that most dual-eligible LEAs were formerly not in the RLIS program, there still may be a significant impact due to the ESSA changes. Perhaps most importantly, the changes appear to force a choice based upon limited information. This is likely to create some uncertainty for LEAs and administrative complications for ED and state officials. Appendix. REAP-Eligible LEAs, FY2017

The Rural Education Achievement Program (REAP) is authorized by Part B of Title V of the Elementary and Secondary Education Act of 1965, as amended by the Every Student Succeeds Act (ESSA, P.L. 114-95) in 2015. To compensate for the challenges facing rural schools, REAP awards two types of formula grants. The Small, Rural School Achievement (SRSA) program provides funds to rural local educational agencies (LEAs) that serve small numbers of students. The Rural and Low-Income School (RLIS) program provides funds to rural LEAs that serve high concentrations of low-income students, regardless of the LEA's size. The ESSA reauthorization of the REAP statute made several major changes to the way funds are allocated to rural LEAs. Most notably, ESSA amended the scheme used to identify rural LEAs that may be eligible for REAP funds and gave LEAs the option to choose which program to receive funds under if eligible for both SRSA and RLIS. REAP funds are divided equally between the SRSA and RLIS programs at the national level, but at the local level, award amounts to LEAs under each program vary widely. In FY2016, the average per pupil grant amount was $77 for SRSA awards, compared to $22 for RLIS awards. Given that final award amounts under each program depend greatly on the number of LEAs eligible for funds, the new option to choose the program from which to receive funds may raise important implementation issues. This report provides a detailed description of eligibility rules and formula allocation procedures for SRSA and RLIS and discusses issues that may arise as ESSA amendments are implemented.

Introduction This report briefly poses and answers several frequently asked questions in relation to the floor proceedings used to elect a Speaker of the House. For a more detailed treatment of these election procedures, as well as data on elections of the Speaker in each Congress since 1913, see CRS Report RL30857, Speakers of the House: Elections, 1913-2017 . For a list of all Speakers of the House and their periods of service, as well as additional discussion of selection procedures, see CRS Report 97-780, The Speaker of the House: House Officer, Party Leader, and Representative . When Does an Election for Speaker Occur? Upon convening at the start of a new Congress, the House elects a Speaker by roll call vote. If a Speaker dies, resigns, or is removed during a Congress, the House elects a new Speaker at that time. In the most recent cases of an election held during the middle of a Congress, the practice has been to elect a new Speaker using the same process as at the start of a Congress. Who Presides over the Proceedings to Elect a New Speaker? When a Speaker is selected at the start of a new Congress, the Clerk of the House presides; the Clerk may also preside over an election to replace a Speaker who had died during a Congress. A sitting Speaker could preside over the election of his or her successor. However, under clause 8(b)(3) of House Rule I (adopted in the 108 th Congress), the Speaker must provide the Clerk a list of Members designated to act as Speaker pro tempore in the case of a vacancy in the office. It is possible that a Member on this list could preside over an election in the case of a vacancy during a Congress. How Are the Party Nominees Selected? In current practice, each House party caucus selects, prior to the floor vote, a candidate whose name is placed in nomination immediately before the vote. Are Nominations Formally Made on the Floor? Typically, the election commences with a Member from each party caucus placing in nomination the party's candidate for Speaker. Other names may also be placed in nomination on the floor. In What Form Do Members Vote? Since 1839, the election has been by roll-call vote, a quorum being present. Votes are cast v iva voce , meaning that each voting Member states aloud the surname of the candidate whom he or she favors for Speaker. The presiding officer appoints several Members as tellers, who tally the votes. For Whom May a Member Vote? Members are not required to vote for one of the candidates nominated by each major party (or even for some other candidate formally nominated on the floor); they may vote for any individual. Although the U.S. Constitution does not require the Speaker to be a Member of the House, all Speakers have been Members. However, some individuals not serving in the House have received votes. How Many Votes Must a Candidate Receive to Be Elected Speaker? The long-standing practice of the House is that electing a Speaker requires a numerical majority of the votes cast by Members "for a person by name." This does not mean that an individual must necessarily receive a majority (currently 218) of the full membership of the House, because some Members may not be present to vote (or may instead answer "present"). What Happens If No Member Receives Sufficient Votes? If no candidate receives the requisite majority of votes cast, the roll call is repeated. No restrictions are imposed on who may receive votes in the subsequent ballots. (For instance, no candidate is eliminated based on receiving the fewest votes in the floor election, and a Member's vote is not limited to individuals who received votes in previous ballots. )

This report briefly poses and answers several "frequently asked questions" in relation to the floor proceedings used to elect a Speaker of the House. Current practice for electing a Speaker, either at the start of a Congress or in the event of a vacancy (e.g., death or resignation), is by roll-call vote, during which Members state aloud the name of their preferred candidate. Members may vote for any individual. If no candidate receives a majority of votes cast, balloting continues; in subsequent ballots, Members may still vote for any individual. For a more detailed treatment of these election procedures, as well as data on elections of the Speaker in each Congress since 1913, see CRS Report RL30857, Speakers of the House: Elections, 1913-2017. For a list of all Speakers of the House and their periods of service, as well as additional discussion of selection procedures, see CRS Report 97-780, The Speaker of the House: House Officer, Party Leader, and Representative.

Introduction On March 16, 2016, President Obama nominated Judge Merrick Garland of the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) to fill the vacancy on the Supreme Court left by the death of Justice Antonin Scalia on February 13, 2016. Judge Garland was appointed to the D.C. Circuit in April 1997, and since February 2013 has served as the circuit court's Chief Judge, an administrative position that rotates among the active judges on the circuit. During his nearly two decades on the bench, Judge Garland has served on three-judge or en banc D.C. Circuit panels that have made rulings in well over 1,000 cases. He has also served on a few panel decisions at the district court level. Cases considered by Judge Garland have concerned a wide range of legal topics ranging from rulemaking by federal administrative agencies, to criminal law and procedure, to the review of legal challenges arising under the local laws of the District of Columbia. To assist Members and committees of Congress and their staff in their ongoing research into Judge Garland's approach to the law, this report identifies and briefly summarizes each of the more than 350 cases in which Judge Garland has authored a majority, concurring, or dissenting opinion. Arguably, these written opinions provide the greatest insight into Judge Garland's judicial approach, as a judge's vote in a case or decision to join an opinion authored by a colleague may be based upon a number of considerations and may not necessarily represent full agreement with a joined opinion. This report does not address instances when Judge Garland sat on a reviewing judicial panel but did not author an opinion. Accordingly, instances where Judge Garland was part of a panel that issued a per curiam opinion, which did not credit a particular judge as the author, are omitted from this report. The report also does not address subsequent legal proceedings that may have occurred after a cited decision was issued. The opinions listed in this report are categorized into two tables: one table identifying opinions authored by Judge Garland on behalf of the reviewing court, and the other table identifying opinions authored by Judge Garland separate from the majority opinion. Cases are listed in reverse chronological order by date of decision. In each case, the key ruling or rulings of the case are succinctly described. Judicial opinions discussed in this report are categorized using the following 19 legal subject areas: Administrative law Civil liability (e.g., tort preemption, arbitration, class actions, statutory right to sue) Civil rights Criminal law/procedure D.C. local government Election law Environmental law Energy Federalism Federal courts (e.g., standing to sue, civil procedure) First Amendment (e.g., freedom of speech, freedom of the press) Government information (e.g., claims concerning the Freedom of Information Act) Health care (e.g., Medicare or Medicaid reimbursement) International law Labor law National security Separation of powers Tax law Transportation Where appropriate, multiple subject areas are identified as relevant to a particular case. The list above is not an exhaustive accounting of all possible subject areas addressed by the cases below, but focuses on those legal topics that have most frequently arisen in cases adjudicated by Judge Garland. Moreover, the fact that a case is categorized under a particular legal subject area does not necessarily mean that some observers might not deem other categories to be pertinent. For example, several cases concerning the disposition of challenges brought by wartime detainees held at the U.S. Naval Station at Guantanamo Bay, Cuba, are categorized solely under the legal subject area of "National security," though some observers may believe that such cases also could be deemed to fall under the "Separation of powers" category (because they arguably concern judicial review of executive discretion in wartime matters) or the "Administrative law" category (because such cases often involve review of determinations made through an administrative process employed by the U.S. military to assess whether a person is properly detained as an enemy belligerent). Accordingly, while the categorizations employed by this report may provide a helpful guide to readers in locating decisions dealing with particular topics, they do not necessarily reflect the full range of legal issues raised by a judicial opinion. While this report identifies and briefly describes those opinions authored by Judge Garland during his tenure on the federal court, it does not analyze the implications of his judicial opinions or suggest how he might approach legal issues if appointed to the Supreme Court. Those matters are discussed in CRS Report R44479, Judge Merrick Garland: His Jurisprudence and Potential Impact on the Supreme Court , coordinated by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. Methodology The cases included in this report were compiled utilizing the following methodology: The majority opinions were found by searching the District of Columbia Circuit—U.S. Court of Appeals database on Lexis for OpinionBy(Garland). The concurring opinions were found by searching the District of Columbia Circuit—U.S. Court of Appeals database on Lexis for ConcurBy(Garland) . The dissenting opinions were found by searching the District of Columbia Circuit—U.S. Court of Appeals database on Lexis for DissentBy(Garland) . Concurring or dissenting opinions issued in cases where Judge Garland wrote the majority opinion were found by searching the District of Columbia Circuit—U.S. Court of Appeals database on Lexis for OpinionBy(Garland ) , and limiting those results by searching for Judges(concur! or dissent!) . District court opinions in which Judge Garland is credited as an author were found by searching the District of Columbia Circuit—U.S. District Court Cases database on Lexis for Judges(Garland) . Not all results from these searches ultimately proved to be relevant, such as when the D.C. Circuit declined a petition for en banc rehearing in a one-sentence decision joined by all of the reviewing judges. That decision and similar rulings are not discussed in this report. Ultimately, this methodology resulted in the identification of 355 instances in which Judge Garland is credited as an author of a judicial opinion in cases either before the D.C. Circuit (354 cases) or the U.S. District Court for the District of Columbia (a single case).

On March 16, 2016, President Obama nominated Judge Merrick Garland of the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) to fill the vacancy on the Supreme Court left by the death of Justice Antonin Scalia on February 13, 2016. Judge Garland was appointed to the D.C. Circuit in April 1997, and since February 2013 has served as the circuit court's Chief Judge, an administrative position that rotates among the active judges on the circuit. To assist Members and committees of Congress and their staff in their ongoing research into Judge Garland's approach to the law, CRS attorneys have prepared tabular listings of cases in which Judge Garland authored an opinion. These opinions are categorized into two tables: one table identifying opinions authored by Judge Garland on behalf of the reviewing court, and the other table identifying opinions authored by Judge Garland that concur with or dissent from the majority opinion. While this report identifies and briefly describes judicial opinions authored by Judge Garland during his tenure on the federal court, it does not analyze the implications of his judicial opinions or suggest how he might approach legal issues if appointed to the Supreme Court. Those matters are discussed in CRS Report R44479, Judge Merrick Garland: His Jurisprudence and Potential Impact on the Supreme Court, coordinated by [author name scrubbed], [author name scrubbed], and [author name scrubbed].

Seafood Safety Risks Studies and dietary recommendations have suggested that increased consumption of seafood can contribute to a more healthful diet. Nonetheless, seafood consumption is not without risk. Although hazards caused by microbes and naturally occurring toxins in seafood have been well characterized, the public health burden has been difficult to quantify or to assess over time due to data limitations. Foodborne illness data are prone to under-reporting, and in many cases the cause of the illness (called the food vehicle) may not be determined. In 2007, the U.S. Centers for Disease Control and Prevention (CDC) reported 1,097 outbreaks, which resulted in 21,244 cases of illness. Among the 235 outbreaks that could be attributed to a single commodity, seafood (finfish or shellfish) was reported as the cause for 57 outbreaks (24.2% of the total) and 318 illnesses. In comparison, red meats were reported in 54 outbreaks (23%), and poultry in about 40 outbreaks (17%). To put these data in context, annual U.S. per capita consumption of seafood was about 16 pounds in 2008, compared with 108 pounds for red meats and 73 pounds for poultry. Therefore, when compared to the consumption levels of beef and poultry, seafood is responsible for a disproportionate number of outbreaks. However, an average outbreak related to seafood consumption generally affects a smaller number of people (i.e., fewer individual cases per outbreak). Naturally occurring toxins were the cause of most seafood-associated outbreaks in 2007. Such toxins are primarily ciguatera, from certain tropical reef-dwelling finfish, and scombroid poisoning, which develops in some species after harvest due to inadequate refrigeration. Other common problems are norovirus, the bacterium Vibrio parahaemolyticus in raw shellfish, and various other pathogens, such as Clostridium botulinum, in processed seafood products. The Institute of Medicine (IOM) has cited other risks of consuming seafood: that of high levels of chemical and heavy metal pollutants from the environment such as mercury, lead, polychlorinated biphenyls (PCBs), and pesticides. Some of these problems, such as high mercury levels, are more evident in carnivorous fish at the top of the food chain, such as shark, swordfish, and bluefin tuna. But the IOM also has noted that it has been difficult to quantify the risks of some of these hazards due to incomplete data, the complexity of dietary and nondietary contaminant exposures, and the fact that certain health effects such as cancer develop over a much longer period than microbial illnesses. Recently concerns have been raised about potential contamination of seafood harvested from the Gulf of Mexico due to the Deepwater Horizon oil spill. Worldwide, nearly one-half of all seafood consumed as food comes from aquaculture. Aquacultured (farm-raised) seafood also may contain potentially harmful chemicals. This was illustrated on June 28, 2007, when the Food and Drug Administration (FDA, in the U.S. Department of Health and Human Services) issued an import alert for the "Detention Without Physical Examination" of aquacultured products of certain fish species from China. FDA said it issued the notice after targeted sampling in the prior year "repeatedly found that farm-raised seafood imported from China were contaminated with antimicrobial agents that are not approved for this use in the United States." The import alert remains in effect except for firms that have provided evidence demonstrating that their products are free of unapproved animal drugs. As of September 30, 2010, eleven Chinese firms have been exempted from the alert for "Detention Without Physical Examination." Increased imports, including from many other Asian countries in addition to China, have complicated efforts to protect consumers from unsafe fish and shellfish. In 1995, imports already constituted more than half of U.S. per-capita seafood consumption; by 2008 they reached 83%. By 2005, more than 150 countries were exporting seafood to the United States, FDA observed. Current Inspection Programs FDA Safety Inspection FDA has primary responsibility for the safety of all domestic and imported foods, including seafood, under the Federal Food, Drug, and Cosmetic Act (FFDCA), as amended (21 U.S.C. Sec. 301 et seq .). Excepted are most meat and poultry products, which the U.S. Department of Agriculture's Food Safety and Inspection Service (FSIS) inspects under other statutory authorities. The FFDCA requires that all such foods be safe, wholesome, and accurately labeled. FDA-regulated foods may be deemed adulterated or misbranded for a variety of statutorily prescribed reasons. FDA also sets maximum safe levels of unavoidable toxic substances in foods, including fish, and requires that all domestic and foreign food manufacturing facilities adhere to Good Manufacturing Practices (GMPs; 21 C.F.R. Part 110), which address safe handling and plant sanitation. Generally exempt from GMPs are establishments such as farms, including fish farms, that merely raise and/or harvest a raw commodity. Seafood is one of the few FDA-regulated food groups further regulated under a system of risk prevention controls known as HACCP, for Hazard Analysis and Critical Control Points. Under HACCP, domestic processors are to prepare site- and product-specific plans that analyze potential safety hazards, find where they are likely to occur during processing, identify control points and how they will be monitored, and determine how hazards will be controlled. Importers of foreign seafood must take steps to verify that the products obtained from foreign processors are in compliance with the HACCP rules. As the 2001 GAO report (see footnote 5 ) noted, if a processor determines and FDA inspectors agree that a particular product is of low risk, no plan is needed; therefore not all firms necessarily will have a plan. Moreover, fishing vessels are exempt, unless they do more than minimal processing. Following publication of its HACCP rule, FDA sought to inspect all regulated seafood establishments to ensure that HACCP was being implemented, and to continue to visit each one annually. The agency recently reported that there are approximately 11,848 domestic seafood processing establishments, and that it had inspected a total of 3,415 in 2007, 3,265 in 2008, and 3,013 in 2009. The FFDCA empowers FDA to refuse entry to any food import if it "appears," based on a physical examination or otherwise, to be adulterated, misbranded, or in violation of the law. In exercising its oversight, the agency relies on a system of bonding and of prior notifications by importers and document reviews at points of entry (ports). From lists of these entries, the agency selects products for physical examination and/or testing to determine whether they contain adulterants. In FY2007, FDA processed approximately 868,000 entries of imported seafood and performed approximately 14,000 physical examinations. Foreign seafood processors are subject to the same requirements, including HACCP, as domestic firms, and the U.S. importers of their products must take "affirmative steps" to help ensure that these requirements are being met. FDA conducts inspections to check compliance of these importers and of selected foreign processors (81 processors inspected in 10 countries in 2004, 72 in 10 countries in FY2005, and 68 in 8 countries in 2006), focusing on those that are major exporters to the United States and on developing countries less likely to have sophisticated safeguards. FDA counted approximately 14,900 registered foreign exporters of seafood to the United States, but observed that "a great many more foreign firms are involved in the processing of the products that eventually are shipped to the U.S." FDA is exploring the potential use of third parties to certify foreign processors of aquacultured shrimp for compliance with FDA's seafood HACCP regulations. During Phase I of the pilot program, FDA screened requests from third-party certification bodies (private, nongovernmental, other federal government, and state government) to participate in the pilot; it announced six participants in late 2008. During Phase II, FDA is conducting onsite audits of programs by accompanying inspectors during certification inspections. FDA would use third parties to augment agency efforts, determine inspection priorities, and adjust "may proceed" rates (i.e., entry without FDA staff review) for imports of aquacultured shrimp or other food products. As of October 2010, FDA was still in the process of evaluating potential use of the pilot program. NOAA Voluntary Inspection Within the Department of Commerce, the National Marine Fisheries Service (NMFS) of the National Oceanic and Atmospheric Administration (NOAA) administers the voluntary seafood inspection program under authority of the Agricultural Marketing Act of 1946 (7 U.S.C. Sec. 1621 et seq .). The program offers additional levels and types of inspection that exceed the FDA HACCP-based requirements, which program participants also must meet. Examples include on-site NOAA inspections during production hours, certification that plants or vessels meet specified sanitation requirements, quality inspections of individual product lots, and/or laboratory testing of products, among other services. These services are provided on a fee-for-service basis and entitle participants to use various official grading and labeling marks, which are viewed as making their products more attractive to buyers. Exporters are often users of these services, in part because of foreign buyer requirements. In 2009, NOAA reported active seafood inspection contracts with 282 firms and 40 foreign participants. The number of participating firms is a small fraction of all seafood facilities, but they produce a significant portion of the total volume: In 2009, the NOAA voluntary program inspected 1.6 billion pounds or 34% of the total seafood consumed in the United States. In January 2008, the Government Accountability Office (GAO) issued a report on federal oversight of food safety. The report included a recommendation for NOAA and FDA to develop an agreement to use NOAA's inspection program resources to carry out inspections on FDA's behalf and to augment FDA's program for imported seafood with inspection training and product sampling services. On October 26, 2009, NOAA and FDA issued a memorandum of understanding to reinforce the agencies' cooperative efforts. The agreement formalizes procedures for sharing information and for FDA to consider the results of NOAA inspections when determining the frequency of FDA seafood inspections. GAO Report on Seafood Fraud GAO in February 2009 reported that the three principal U.S. agencies that share responsibility for detecting and preventing seafood fraud—Customs and Border Protection (CBP) within the Department of Homeland Security, NMFS, and FDA—"do not effectively collaborate with each other. Specifically, they have not identified a common goal, established joint strategies, or agreed on roles and responsibilities." GAO observed that "CBP and NMFS conduct several activities to help detect and prevent seafood fraud, but FDA told GAO that it focuses on food safety and undertakes few fraud-related activities. Nonetheless, fraud can result in food safety problems. For example, fish that was mislabeled as a different species for financial gain has caused illnesses due to the presence of a potentially deadly toxin." The GAO report offered a number of recommendations to improve the detection and prevention of seafood fraud, including the addition of fraud detection provisions to the FDA seafood HACCP regulations. Shellfish Safety Under provisions of the FFDCA and the Public Health Service Act, FDA cooperates with 23 coastal shellfish-producing states and some foreign countries in a National Shellfish Sanitation Program (NSSP) to promote the safe production of fresh and frozen molluscan shellfish—oysters, clams, and mussels—for human consumption. FDA works through the Interstate Shellfish Sanitation Conference (ISSC), an organization of state shellfish regulators who in turn adopt state and local laws, based on an NSSP "model ordinance," to ensure that shellfish in their jurisdictions are safe and sanitary. An objective of these laws is to ensure that products can be traced to harvest waters that are safe. Generally, dealers must be listed with their state regulatory agency in order to ship shellfish products commercially. On October 17, 2009, at the biennial meeting of the ISSC, FDA announced its intention to implement new requirements for post-harvest processing of Gulf of Mexico oysters to reduce the number of illnesses resulting from Vibro vulnificus . V. vulnificus is a species of pathogenic bacteria found naturally in marine environments. Infections are more likely to occur during warm months, when bacteria counts are higher. V. vulnificus causes disease in individuals who eat contaminated oysters that are raw or undercooked. In healthy people, V. vulnificus can cause diarrhea, vomiting, and abdominal pain, but usually without long-term consequences. However, in immunocompromised individuals, V. vulnificus can invade the bloodstream and cause life-threatening symptoms. According to FDA, 30 severe cases occur each year, with a 50% mortality rate. Since 2001, collaborative efforts of the ISSC to reduce illness associated with V. vulnificus have included disseminating educational materials and refrigerating oysters after harvests. However, according to FDA, the program goal of a 60% reduction in severe illnesses and death has not been attained. During the 2009 biennial meeting of the ISSC, FDA announced that the changes to its policy on raw shellfish would be included in the update of Fish and Fishery Products Hazards and Controls Guid ance . FDA would require the application of post-harvest processing (PHP) technologies such as individual quick freezing with frozen storage, high hydrostatic pressure, mild heat, and low-dose gamma irradiation. Although FDA plans to require PHP by the summer of 2011 for oysters harvested during April through October, as of October 2010 FDA had taken no action on this issue. According to Gulf of Mexico seafood industry representatives, PHP infrastructure is not in place and the PHP requirements would be costly to implement and would threaten jobs. The industry estimates that oyster prices could double or triple. According to FDA, 40% of Gulf oysters are harvested during the warm months and about half are eaten raw. The Gulf Coast oyster industry already subjects about 15% of oysters to PHP methods, and the cost of PHP has been estimated to be three to four cents per oyster. Restaurant owners contend that PHP makes oysters less desirable to their customers because it changes the texture and flavor of the oyster. FDA counters that a study of oyster consumers has shown that most cannot recognize the difference between PHP-treated and raw oysters. Several bills were introduced in response to this controversy, including identical House and Senate versions of the Gulf Oyster Protection Act of 2009 ( S. 2735 and H.R. 4022 ) as well as the Gulf Oyster Industry Jobs Protection Act ( S. 2752 ). All three bills would prohibit the use of federal funds to implement the FDA policy to require PHP. S. 2752 would also require the Secretary of Heath and Human Services to conduct an education campaign to increase awareness of the risks associated with consuming raw oysters and to develop analyses for the appropriate committees of Congress when regulation or guidance is proposed that affects the harvesting, processing, or transportation of seafood harvested in the United States. Although no action has been taken on any of these bills, S. 510 , a comprehensive food safety bill, has passed the Senate with a section that would require the Secretary of HHS to submit a report to Congress before issuing guidance, regulation, or suggested amendments requiring PHP. Gulf Oil Spill On April 20, 2010, the Deepwater Horizon oil drilling platform under contract to BP was destroyed by an explosion and fire and the well began releasing oil into the Gulf of Mexico. On May 2, 2010, NOAA closed oil-affected federal waters of the Gulf of Mexico to commercial and recreational fishing. The closure was implemented to ensure that potentially contaminated seafood would not enter markets and pose a risk to human health. The closure grew to include portions of Louisiana, Mississippi, Alabama, and Florida state waters and, at its maximum, 88,522 square miles, or nearly 37%, of federal waters in the Gulf of Mexico. Since the flow of oil was slowed and eventually stopped in July, significant portions of Louisiana state waters and all of Mississippi, Alabama, and Florida state waters have been re-opened to fishing. As of November 19, 2010, 87,481 square miles of federal waters had been re-opened and 1,041 square miles remained closed. However, public and fishing industry concerns with the safety of seafood have continued, in part because of the volume of oil that escaped the damaged well and the volume of dispersants used during the oil spill response. Crude oil and other petroleum products contain a mixture of chemicals, including polycyclic aromatic hydrocarbons (PAHs), that may bio-accumulate in the tissues of marine organisms. The level of bio-accumulation depends on a number of factors, including the type of organism, length of exposure, concentration of oil, and the type of oil. The presence of PAHs can make seafood unfit for human consumption because some PAHs are carcinogens. Petroleum products may also cause taint, an oily smell and taste. Tainted seafood is classified as adulterated by the FDA and is not permitted to be sold as food. Dispersants have a lower potential to bio-accumulate in fish because they can be quickly diluted in water and will likely biodegrade in weeks to months. An FDA memorandum concluded that "the available information indicates that dispersants have little or no effect on the bio-accumulation potential of oil contaminants, nor do they themselves accumulate in seafood." Of more than 2,500 water samples analyzed for dispersants, two samples indicated dispersant contamination, and they were not from areas under consideration for re-opening. However, some scientists oppose the use of dispersants and have voiced concerns related to the potential effect of dispersants on marine organisms. According to their consensus statement, the use of Corexit dispersants (one of the dispersants used in the Gulf of Mexico) increases the concentration of hydrocarbons in the water column. The statement added that the combination of Corexit and crude oil can increase the toxicity of oil because dispersants may allow dispersed oil to be taken up by organisms more readily. According to a recent National Research Council report, "[i]n many instances where a dispersed plume may come into contact with sensitive water column or benthic organisms or populations, the current understanding of key processes and mechanisms is inadequate to confidently support a decision to apply dispersants." The report's recommendations included setting priorities for research, such as the need to fund a series of toxicity studies to determine the mechanisms of both acute and sublethal toxicity to organisms from exposure to dispersed oil. FDA, NOAA, and coastal states have established a protocol to determine when areas may be re-opened to fishing. Once areas have been determined to be free of oil from the spill, re-opening may be considered on a species-by-species basis. Seafood samples of the species in question must pass both sensory and chemical analyses to ensure there are no harmful oil residues. For sensory testing, edible portions of the species are reviewed by a panel of experts who check for oil and dispersant odor and taste. If all tested samples for a given site pass the sensory test, additional samples undergo chemical analysis to test for PAHs. All seafood samples from the area must pass both tests before an area may be reopened to fishing. FDA and NOAA also have added chemical testing to detect dispersants in seafood. NOAA has collected samples from federal waters while state personnel have collected samples from state waters. On August 19, 2010, FDA stated the following in congressional testimony: "To date all samples have passed sensory testing for oil or dispersants and, as with the surveillance sampling, the results of all chemical analyses have shown PAH levels well below the levels of concern, usually by a factor of 100 to 1,000 below those levels, essentially at the same level as were seen before the spill." For federal waters re-opened through October 22, 2010, sensory analyses have found no detectable oil or dispersant odors or flavors and results of chemical analyses have been well below levels of concern. Further, NOAA and FDA sampling from commercial landing sites and markets have not found seafood contaminated by oil or dispersants. According to the FDA, "fish and shellfish harvested from areas re-opened or unaffected by the oil spill are considered to be safe to eat." The Supplemental Appropriations Act of 2010 ( P.L. 111-212 ) provides funds for a $15 million strategic marketing plan and health and safety assurance program for Gulf Coast seafood. This funding responds to the fishery disaster that was declared by the Secretary of Commerce on May 24, 2010, for conditions resulting from the Deepwater Horizon oil spill. BP also has agreed to provide Louisiana with $18 million over a three-year period for seafood testing. Selected Legislation in Congress Until the mid-1990s through the 104 th Congress, many seafood safety proposals sought to put fish inspection on a par with that of meat and poultry. USDA's FSIS is required, under the Federal Meat Inspection Act (FMIA; 21 U.S.C. 601 et seq .) and the Poultry Products Inspection Act (PPIA; 21 U.S.C. 451 et seq. ), to inspect all livestock and poultry both before and after they are slaughtered, and to be present whenever plants are processing meat and poultry products. Jurisdictional differences were among the reasons previous bills were not enacted. USDA and the House and Senate Agriculture Committees have long been responsible for meat and poultry inspection, while FDA, the Senate Committee on Health, Education, Labor, and Pensions (HELP), and the House Committee on Energy and Commerce have asserted jurisdiction over the safety of seafood (and other foods). Others such as the Senate Committee on Commerce, Science, and Transportation, also have had roles. Seafood safety began to garner new attention in the 110 th Congress, following a number of reports of contaminated foods, some from foreign sources, entering the food supply. Numerous congressional hearings and media reports in 2007 and 2008 brought wider public recognition of the role foreign producers now play in meeting U.S. demand for fish and shellfish. Underlining this awareness was the issuance of the Food and Water Watch report in May 2007, and the FDA action on Chinese seafood in June 2007. 2007 FDA Legislation Wide-ranging FDA legislation ( P.L. 110-85 ) adopted in 2007 includes a provision (§1006) requiring the Secretary of the Department of Health and Human Services to submit a report to Congress that (1) describes the specifics of the aquaculture and seafood inspection program; (2) describes the feasibility of developing a traceability system for all catfish and seafood products, both domestic and imported, for the purpose of identifying the processing plant of origin of such products; and (3) provides for an assessment of the risks associated with particular contaminants and banned substances. The report was completed on November 20, 2008. HHS also may enter into partnerships with states on inspection, under §1006. Under §1007, FDA must consult with NOAA on a report on environmental risks associated with genetically engineered seafood products, including the impact on wild fish stocks. 2008 Farm Bill In June 2008, Congress enacted an omnibus farm bill ( P.L. 110-246 ), with a section (§11016(b)) that newly designates "catfish," as defined by the Secretary of Agriculture, as an "amenable species"—that is, subject to mandatory inspection under the FMIA. The provision applies to companies that process catfish for food. It also directs USDA to "take into account the conditions under which the catfish is raised and transported to a processing establishment," and to consult with FDA. The inspection provision reportedly was urged by the U.S. catfish industry, which has faced strong competitive pressure from foreign catfish producers, particularly in Asia, where, U.S. interests allege, unacceptable types and levels of veterinary drugs are more frequently used. The conference report states the intent of Congress "that catfish be subject to continuous inspection and that imported catfish inspection programs be found to be equivalent under USDA regulations before foreign catfish may be imported into the United States." The report also noted that the Secretary already has authority under the FMIA to mandate inspection for other seafood species if he deems it appropriate. To date, the Secretary has not used this authority. FSIS did not meet a December 2009 legislative deadline for implementing final regulations; and as of October 2010 proposed regulations have not yet been published. In 2008, the agency reportedly estimated that it would have needed $5.3 million and 91 staff in FY2009, and $16.5 million and 95 staff in FY2010, to implement the program. FSIS estimated that at least 22 processing plants, primarily in the southern United States, would have to be inspected, and at least 15 foreign countries would have to apply for an FSIS determination that their inspection systems were equivalent to the U.S. safety systems before any of their establishments could ship catfish to the United States. Also, §11016(a) of the farm bill amends the Agricultural Marketing Act of 1946 (7 U.S.C. 1622) to require USDA to establish a voluntary grading program for catfish, which producers could opt into and pay for with user fees (as exists in other USDA quality grading programs authorized by the 1946 act). The section further authorizes producers of other farm-raised fish and shellfish species to apply for voluntary grading services. Legislation in the 111th Congress In the 111 th Congress, several food safety bills have been introduced, and comprehensive legislation ( H.R. 2749 ) has passed the House. H.R. 2749 is a revised version of H.R. 759 , both introduced by Representative Dingell. The Senate comprehensive bill ( S. 510 ) was introduced by Senator Richard Durbin and reported by the Senate Health, Education, Labor, and Pensions Committee on December 18, 2009. In November the Senate resumed consideration of its bill and on November 30, 2010, S. 510 passed in the Senate. H.R. 2749 and S. 510 would focus primarily on FDA-regulated foods, including seafood, and would achieve their proposed reforms through the agency's existing structure and authorities. Both bills seek to increase the frequency of inspections, tighten record-keeping requirements, and mandate product recalls. Although H.R. 2749 and S. 510 would impose similar requirements, they would achieve them in different ways. Selected changes proposed by both bills include registration of all facilities; new requirements for record-keeping and for tracing products; mandatory FDA recall authority; authority for the agency to require imports to be certified as to their safety; and a requirement that all facilities have food safety plans that include hazard analyses and risk-based preventive controls. The Senate HELP Committee also adopted an amendment that would require FDA to update guidelines in Fish and Fisheries Products Hazards and Controls Guidance within 180 days. Three seafood-related provisions have been added to the Senate bill that focus on (1) establishing interagency agreements to improve seafood safety (§ 201); (2) assessing changes to regulations for post-harvest processing of raw oysters (§ 114); and (3) sending inspectors to assess production of seafood imported into the United States (§ 306). The scope of interagency agreements identified in § 201 includes examining and testing seafood; coordinating inspections; standardizing data; modifying existing processes; sharing enforcement and compliance information; and conducting joint training and outreach. Section 114 would require the Secretary of HHS to submit a report to Congress before issuing guidance, regulation, or suggested amendments related to post-harvest processing of oysters. It would also require GAO to review the Secretary's report and report its findings to Congress. These reports would be waived if a consensus agreement is reached among federal and state regulators and the oyster industry, acting through the Interstate Shellfish Sanitation Conference. Section 306 would permit the Secretary of Commerce, in coordination with the Secretary of HHS, to send inspector(s) to a country or facility of an exporter of seafood imported into the United States to assess practices and processes used in farming, cultivation, harvesting, preparation for market, and transportation of seafood. Inspectors also may provide technical assistance related to these activities. Reports would be required for each inspection to provide findings to the country or exporter and for use by the Secretary of HHS. Another bill that would impact seafood producers and processors, particularly those participating in the NOAA-NMFS program, is H.R. 875 , introduced by Representative DeLauro. This bill would create a new independent Food Safety Administration within HHS but separate from FDA, to which all current food safety functions, personnel, and assets now at FDA would be transferred. Additionally, the DeLauro bill would move to the new agency all personnel and assets used to administer the NMFS seafood inspection program. At this time, however, it appears that since H.R. 2749 has passed the House, H.R. 875 may not see further House action. As of November 2010, three bills focusing specifically on seafood safety had been introduced. A measure ( S. 92 ) introduced by Senator Vitter would require the HHS Secretary to refuse all imports of seafood or seafood products from a country or exporter that does not meet requirements of the FFDCA or is not likely to meet the requirements of any other federal food safety law. It also contains notification requirements for shipments that are refused entry. S. 2934 , also introduced by Senator Vitter, would amend the FFDCA to prohibit seafood imports unless the importing country complies with U.S. standards for seafood manufacturing, processing, and holding. The bill would require annual inspections of foreign facilities and requirements for inspection of seafood entering the United States. It would also establish a program for states to conduct inspection, tests, and certification of U.S. seafood imports. In the House, H.R. 1370 , introduced by Representative Weiner, would require the Secretaries of Commerce and HHS to enter into a memorandum of understanding for more cooperation and coordination on seafood safety activities, require an increase in the number of laboratories certified to analyze seafood for compliance with federal law, and authorize $15 million in each of FY2010 through FY2014 to fund these and other activities outlined in the bill.

Although seafood consumption can contribute to a healthy diet, some fish and shellfish can cause foodborne illnesses or contain environmental contaminants. Are current food safety programs sufficiently protecting consumers, and if not, what changes should be considered? A complicating factor is that most of the seafood consumed in the United States is from imports. The Food and Drug Administration (FDA) within the Department of Health and Human Services plays the lead role in ensuring the safety of both domestic and imported fish and shellfish, but other agencies, including the National Marine Fisheries Service (NMFS) in the Department of Commerce and the Food Safety and Inspection Service in the U.S. Department of Agriculture, also have notable responsibilities. The Deepwater Horizon oil spill caused state and federal officials to close extensive areas of the Gulf of Mexico to commercial and recreational fishing. As areas have been reopened, concerns have been voiced by some fishermen and consumers regarding the safety of seafood from the Gulf. The FDA and NMFS have been testing areas before reopening them to fishing and no contaminated samples have been found in these areas. In the 111th Congress, the food safety bills specific to seafood include S. 92 and S. 2934, aimed at violative seafood imports, and H.R. 1370, authorizing $15 million annually to strengthen coordination between agencies on seafood safety and quality, particularly regarding imports. On July 30, 2009, the House approved H.R. 2749, a revised version of H.R. 759. H.R. 2749 takes a comprehensive approach to food safety, including seafood. On November 30, 2010, the Senate passed S. 510, another comprehensive approach to food safety. The Senate bill includes four provisions specific to seafood that focus on (1) establishing interagency agreements to improve seafood safety; (2) assessing changes to regulations for post-harvest processing of raw oysters; (3) sending inspectors to assess production of seafood imported into the United States; and (4) requiring FDA to update guidelines in Fish and Fisheries Products Hazards and Controls Guidance within 180 days.

Introduction This report provides background information on options for technologies that could reduce the Navy's dependence on oil for its ships. It is based on testimony prepared for a hearing on alternative Navy ship propulsion technologies held on April 6, 2006, before the Projection Forces Subcommittee of the House Armed Services Committee, which granted permission for the testimony to be converted into this report. The report discusses four general strategies for reducing the Navy's dependence on oil for its ships: reducing energy use on Navy ships; alternative hydrocarbon fuels; nuclear propulsion; and sail and solar power. Following this discussion is a section on legislative activity. A July 2006 Government Accountability Office (GAO) report discusses the status of Navy studies on alternative ship propulsion methods and certain Navy efforts for developing new ship-propulsion technologies. Reducing Energy Use on Navy Ships One strategy for reducing the Navy's dependence on oil would be to reduce energy use on Navy ships. General The Department of Defense (DOD) testified in September 2006 that its energy use represents about 1.2% of total U.S. energy use, and that DOD in FY2005 consumed roughly 125 million barrels of oil. Of total DOD energy use, DOD testified, mobility fuels for aircraft, ships, and vehicles account for about 74%. Jet fuel, which is used not only by aircraft, but also by tanks, other ground vehicles, and electrical generators, accounts for 58% of DOD's consumption, DOD testified, while marine diesel fuel accounts for 13%. The Navy stated in October 2006 that it uses about 41 million barrels of oil per year for all purposes (about 33% of the above-mentioned DOD figure of 125 million barrels in FY2005), and that in FY2005, the Navy spent $900 million for fuel for its ships and aircraft, or about 32% of the DOD total of $2.83 billion for that year. For fossil-fueled Navy ships, reducing energy use can reduce fuel costs and increase cruising range. Increasing cruising range can improve operational flexibility by increasing the time between refuelings and the distance that the ship can operate away from its next refueling point. It might also reduce the ship's infrared signature, and thus increase its survivability, by reducing emissions of hot exhaust gasses. If applied to a significant number of ships, an increase in cruising range might permit a reduction in Navy costs for fuel-related force structure (e.g., oilers) and infrastructure (e.g., storage facilities). A 2001 report by a Defense Science Board (DSB) task force on improving the fuel efficiency of DOD weapon platforms stated: The Navy has had a program since 1977 to improve weapon platform fuel efficiency, focused primarily on legacy systems. The Navy staff estimates it has reduced the fuel consumption of the ship and aircraft fleet by 15 and 6 percent respectively. Deployment of the technologies and products has been primarily through no- and low-cost routes, such as the normal overhaul process or procedural changes. However, fuel efficiency has not been given a high priority in future system design. Fuel consumption enters design tradeoffs as one of many components of operating cost, and in most cases is one of the least important components because its benefits are so undervalued for reasons presented [elsewhere in the report]. As a result of this undervaluation and split incentives, new fuel saving technologies that promise increased performance and positive return on investment do not compete well for funding if the initial investment is high and the savings do not appear for several years.... A portion of the Navy's Development, Test and Evaluation (DT&E) program (Categories 6.4 and 6.5) is specifically dedicated to improving the fuel efficiency of ships, primarily legacy ships. This program began in the late 1970s, with funding peaking at about $35M in 1984. After fuel prices dropped in 1985 the program was funded at a more modest level, settling to around $8M per year through the 1990s. The DSB report listed options for power-plant improvements that could improve fuel efficiency by 3% to 8%, options for hull-system hydrodynamic improvements that could improve fuel efficiency by another 3% to 8%, and options for improvements to hull coatings and cleaning, auxiliary systems, sensors, controls, and procedures, and "hotel loads" (functions such as lighting and fresh water production) that could lead to further improvements in fuel efficiency. Some of the options listed in the DSB report are discussed in greater detail below. Hotel-Load Electrical Systems Dr. Amory Lovins, the director of the Rocky Mountain Institute (RMI) and a member of the DSB task force, estimated in 2001 that as much as 30% of the Navy's non-aviation fuel appears to be used to generate power for hotel loads. A study conducted by RMI for the Navy in 2001 of energy use on the Aegis cruiser Princeton (CG-59) found that hotel loads on these ships could be substantially reduced. According to the DSB report, the RMI study "found retrofittable hotel-load electric savings potential on the order of 20 to 50 percent, with significant further opportunities still to be assessed. Many of the savings opportunities were purely operational, requiring little or no investment." In an online article about the RMI study, Dr. Lovins stated: The Naval Sea Systems Command's [NAVSEA's] able engineers had estimated that 19 percent could be saved on ships of this class, of which Princeton was in the top one fourth for efficiency.... Our preliminary survey found gratifyingly large potential savings: perhaps, if found feasible, as much as several times NAVSEA's expectations. Princeton uses nearly $6 million worth of diesel-like turbine fuel each year. Her gas turbines, akin to those on an older passenger jet aircraft, use about $2-3 million worth of oil to make up to 2.5 megawatts of electricity, the rest for 80,000 horsepower of propulsion. The RMI team found that retrofitting motors, pumps, fans, chillers, lights, and potable water systems could save an estimated 20-50 percent of the ship's electricity. That could cut total fuel use by an estimated 10-25 percent.... Just as in civilian facilities ashore, the RMI team started by calculating what it's worth to save a kilowatt-hour. Since the electricity is being made inefficiently from fuel that's mainly delivered by "oiler" ships, the answer is an eye-popping 27 cents, six times a typical industrial tariff ashore. This high cost makes "negawatts" really juicy. For example, each percentage point of improved efficiency in a single 100-horsepower always-on motor is worth $1,000 a year. Each chiller could be improved to save its own capital cost's worth of electricity (about $120,000) every eight months. About $400,000 a year could be saved if—under noncritical, low-threat conditions—certain backup systems were set to come on automatically when needed rather than running all the time. Half that saving could come just from two 125-horsepower firepumps that currently pump seawater continuously aboard, around the ship, and back overboard. In a critical civilian facility like a refinery, where one wanted to be equally certain the firefighting water was always ready, one would instead pressurize the pipes (usually with freshwater) with a 2-hp pump, and rig the main pumps to spring into action the instant the pressure dropped. Princeton's total electricity-saving potential could probably cut her energy costs by nearly $1 million a year, or about $10 million in present value [over the ship's life cycle], while improving her warfighting capability. Bulbous Bows A bulbous bow ( Figure 1 ) can reduce a ship's wavemaking resistance and thereby increase its fuel efficiency. The Taylor Bow—an early form of the bulbous bow developed by U.S. naval architect and engineer David W. Taylor—was installed on the battleship Delaware (BB-28), which entered service in 1910, and subsequently on other large, higher-powered U.S.-built ships. The Inui Bow—a new form of the bulbous bow developed by Takao Inui of Japan in the late 1950s and early 1960s—is widely used on large commercial ships, where it typically reduces fuel consumption by about 5% at cruising speeds, and is now being applied to smaller commercial ships. Navy aircraft carriers, amphibious ships, and auxiliary ships and DOD sealift ships now feature bulbous bows, and the Navy has examined the idea of incorporating them into other ships, such as surface combatants. A study by the Navy's David Taylor Model Basin estimated that fitting a bow bulb onto an Arleigh Burke (DDG-51) class destroyer could reduce its fuel use by 3.9%, saving 2,400 barrels of fuel per year. An earlier (1994) study by the same organization estimated that 79 existing Navy cruisers and destroyers could be fitted with bow bulbs for a total development and installation cost of less than $30 million, and that the constant-dollar life-cycle fuel savings of the 79 ships would be $250 million. DOD stated in 2000 that fitting bulbous bows onto 50 DDG-51s (a total of 62 DDG-51s have been procured) could save $200 million in life-cycle fuel costs. The near-surface bow bulb designed for the DDG-51 ( Figure 2 ) accommodates the ship's existing bow sonar dome. A developer of the bow bulb stated that "Due to funding cut backs, the [DDG-51] bow bulb has not yet been transitioned to sea." Stern Flaps A stern flap ( Figure 3 ) is a relatively small plate that extends behind a ship's transom, lengthening the bottom surface of the hull. A stern flap alters the water flow at the stern in ways that reduce the ship's resistance and increase fuel efficiency by a few or several percent. A stern flap for a Navy surface combatant in 2000 cost about $170,000 to fabricate and install. Preliminary tests of stern flaps on DDG-51s showed an annual fuel reduction of 3,800 to 4,700 barrels, or about 6.0% to 7.5%, per ship. DOD testified in September 2006 that the savings for DDG-51s would be about 7.5%, resulting in a potential savings of almost $195,000 per year per ship. As of November 2004, the Navy had installed stern flaps on 98 ships (primarily surface combatants) and planned to install them on an additional 85. The 98 ships equipped as of November 2004 had accumulated 403 ship-years of service and saved $44 million in fuel costs. The Department of Energy stated in 2003 that by 2005, stern flap installations on Navy ships would save 446,000 barrels of fuel, or $18 million, per year. DOD testified in September 2006 that the use of bulbous bows and stern flaps on surface ships has resulted in a 15% increase in fuel efficiency on selected ships. Propeller Coatings DOD testified in September 2006 that applying special coatings to Navy ship propellers might reduce ship fuel use by 4% to 5%, and possibly also reduce maintenance requirements. The change, DOD testified, might pay for itself within about one year. The U.S. Navy and other navies, as well as commercial ship operators, have experimented in the past with such coatings, which can reduce a propeller's friction and prevent corrosion of its surface (helping to maintain higher efficiency and reduce maintenance requirements). At least one maker of such a coating states the Navy intends to test its product on scale models of Navy ships. Higher-Efficiency Gas Turbines Gas turbines with greater efficiencies than the simple-cycle gas turbines currently used in Navy ships could substantially reduce Navy ship fuel use. An example of such an engine is the WR-21 intercooled recuperated (ICR) gas turbine engine, which was jointly developed between 1991 and 2000 by the U.S., UK, and French governments for potential use on future warships at a shared total cost of $400 million. The industry team for the project included Northrop Grumman Marine Systems as the prime contractor, Rolls-Royce as the major subcontractor responsible for the design of the gas turbine, and other firms. Compared to the simple-cycle General Electric LM-2500 gas turbine used in Navy surface combatants, the WR-21 is bulkier and more expensive to procure, but could reduce fuel use on a mechanical-drive surface combatant by an estimated 25%-30%. The Navy in the late 1990s considered the WR-21 for the DD-21 destroyer program (now the DDG-1000 destroyer program). A 1998 article stated that with the WR-21: Each DD-21 vessel, for example, would save about $1.5 million a year in fuel and operating costs, [Northrop Grumman's ICR program manager] said. The savings provided by the new technology could pay back the premium on the original purchase of [the] WR-21 in two to six years. Improved fuel economy can translate into a range of enhanced mission capabilities as well. These benefits could include a 30-percent increase in weapons payload for the DD-21, a 27- to 30-percent reduction in fuel tankage, increased speed, additional days on station, or greater range. Supporters of the WR-21 also argued that the ICR engine would result in a lower exhaust temperature, which could reduce the ship's infrared signature. The Navy ultimately selected a design for the DDG-1000 whose propulsion system employed the LM-2500. The UK in 2000 selected the WR-21 for its new 7,500-ton Type 45 destroyer, which, like the DDG-1000, will employ an integrated electric drive system (see discussion below). Other advanced turbines with even higher efficiencies are viewed as technically possible. Integrated Electric-Drive Propulsion Compared to a traditional mechanical-drive propulsion system with two separate sets of turbines (one for propulsion, the other for generating electricity for shipboard use), an integrated electric-drive propulsion system can reduce a ship's fuel use by permitting the ship's single combined set of turbines to be run more often at their most fuel-efficient speeds. A 2000 CRS report that surveyed electric-drive propulsion technology stated: Depending on the kind of ship in question and its operating profile (the amount of time that the ship spends traveling at various speeds), a Navy ship with an integrated electric-drive system may consume 10 percent to 25 percent less fuel than a similar ship with a mechanical-drive system. The Navy estimates a savings of 15 to 19 percent for a ship like a surface combatant. In addition, electric drive makes possible the use of new propeller/stern configurations, such as a podded propulsor ... that can reduce ship fuel consumption further due to their improved hydrodynamic efficiency. Estimates of additional savings range from 4 percent to 15 percent, depending on the ship type and the exact propeller/stern configuration used. The Navy's TAKE-1 class cargo ships use an integrated electric-drive system derived from a commercially available system that has been installed on ships such as cruise ships. The Navy's lead DDG-1000 destroyers are to use an integrated electric-drive system with a more advanced motor type known as the advanced induction motor (AIM). The Navy submarine community has expressed an interest in shifting from mechanical-drive to electric-drive technology but requires a technology that is more torque-dense (i.e., more power-dense) than the AIM technology to be used on the lead DDG-1000s. Candidates for a more torque-dense technology include a permanent magnet motor (PMM) and a high-temperature superconducting (HTS) synchronous motor. DRS Technologies, a maker of electric-drive propulsion equipment, has proposed increasing the planned scope of the Navy's program for modernizing its DDG-51s to include the adding some electric-drive propulsion equipment to the ships' existing mechanical-drive propulsion plants. The added equipment, which would include permanent magnet auxiliary motor-generators, would more fully interconnect the mechanical-drive components on each ship. Supporters of the proposal argue that the modification would reduce DDG-51 fuel use by about 15%, increase the ship's electrical power, permit electrical power from the ship's main engines to be used for other purposes, reduce maintenance on the ship's engines, increase the propulsion plant's ability to continue working after being damaged by attack, and reduce the ship's susceptibility to attack by reducing the ship's infrared signatures. DRS estimates that the proposal would have a non-recurring design and engineering cost of about $15.5 million, and a recurring procurement and installation cost of about $11.5 million per ship. DRS estimates that installation costs on each ship would be recovered by reduced fuel costs in about three years, and that installing the equipment on 20 of the Navy's 62 DDG-51s would generate a net-present-value (NPV) life-cycle savings of about $200 million. Fuel Cells Fuel cell technology, if successfully developed for Navy shipboard application, could reduce Navy ship fuel use substantially by generating electricity much more efficiently than is possible through combustion. Figure 4 is a Navy briefing slide comparing the relative efficiency of combustion and fuel cell electric power plants. The Navy states that "the Navy's shipboard gas turbine engines typically operate at 16 to 18 percent efficiency, because Navy ships usually sail at low to medium speeds that don't require peak use of the power plant. The fuel cell system that ONR [the Office of Naval Research] is developing will be capable of between 37 to 52 percent efficiency." As a result of these relative efficiencies, the Navy states that a DDG-51 gas turbine generator operating for 3,000 hours would consume 641,465 gallons of fuel while ship-service fuel cell plant with a built-in fuel processor (i.e., a fuel reformer) for forming hydrogen from Navy diesel fuel would, if operated for the same period, consume 214,315 gallons, or 33% as much. The Navy has estimated, using past fuel prices, that shifting to fuel cell technology could save more than $1 million per ship per year in ship-service fuel costs. Other potential advantages of fuel cell technology include reduced maintenance costs, reduced emissions (and thus reduced infrared signature), reduced acoustic signature, reduced radar cross section (perhaps because of reduced-size exhaust stack structures), increased ship survivability due to distributed power reduction, and greater ship design flexibility. There is strong interest in Europe, Japan, and the United States in developing shipboard fuel cell technology for both powering shipboard equipment and ship propulsion. In Europe, fuel cell technology has been incorporated into non-nuclear-powered submarines, such as the German Type 212 submarine, and is starting to be applied to civilian surface ships. ONR and the Naval Sea Systems Command (NAVSEA) have a shipboard fuel cell program for developing fuel cell power systems for Navy ships with an acquisition cost, weight, and volume comparable to other market options. A July 2006 GAO report states: Office of Naval Research officials stated that fuel cell technology is promising for naval application and has already completed some prototype testing. However, officials stated that the technology is at least 3 to 5 years away from acquisition consideration. Alternative Hydrocarbon Fuels A second strategy for reducing the Navy's dependence on oil would be to shift to alternative hydrocarbon fuels. Navy Ground Vehicles And Installations The Department of the Navy (DON) in recent years has taken steps to increase its use of alternative hydrocarbon fuels, particularly biodiesel—an alternative diesel fuel produced from vegetable oils or animal fats—at installations and in non-tactical ground vehicles. In May 2000, the federal government opened its first alternative-fuel service station at the Navy Exchange at Arlington, VA, near the Pentagon. The station initially provided E85 fuel—a blend of 85% ethanol (i.e., grain alcohol) and 15% gasoline—and compressed natural gas. In 2001-2002, the services began using B20 fuel (a blend of 20% biodiesel and 80% petroleum diesel) to fuel non-tactical vehicles and other equipment at various bases and installations. In late 2003, the Navy started making its own biodiesel fuel in a demonstration project at the Naval Facilities Engineering Services Center, Port Hueneme, CA. In December 2004, the Navy added biodiesel to the list of fuels provided at the alternative-fuel service station at the Navy Exchange, Arlington, VA. On January 18, 2005, DON issued a memorandum requiring all Navy and Marine Corps non-tactical diesel vehicles to operate on B20 fuel by June 1, 2005, where B20 can be supplied by the Defense Energy Support Center, adequate fuel tanks are available, and the use of biodiesel is allowable and practical in light of local, state, and federal regulations. The requirement does not apply to tactical military equipment or deployable commercial equipment intended to support contingency operations. In June 2005, the National Biodiesel Board presented the Navy with an award for its leadership in the use of biodiesel. National Park Service Boat Since about 2001, the Channel Islands National Park has been using B100 (100% biodiesel fuel) to fuel its 56-foot boat Pacific Ranger . 2005 NRAC Study The 2005 NRAC study cited at the start of this report was sponsored by the Marine Corps Combat Development Command and was tasked to "Identify, review, and assess technologies for reducing fuel consumption and for militarily useful alternative fuels, with a focus on tactical ground mobility.... Two main focus areas to be considered in this effort are alternative fuels, and improving fuel efficiency (to include examination of alternative engine technologies)." The study recommended making a long-term commitment to manufactured liquid hydrocarbon fuels made from domestically abundant feedstocks. The briefing referenced "Hubbert's Peak," also known as the peak oil theory, and included a discussion of the German-discovered Fischer-Tropsch (FT) process for converting coal into manufactured liquid hydrocarbon fuels. The NRAC study concluded the following regarding manufactured fuels: "Liquid hydrocarbon fuel production using domestic energy sources is feasible "Commercial financing and infrastructure development will drive this process "DoD action needed to catalyze development & ensure US military takes advantage of manufactured fuels "Need to ensure military platforms can use manufactured fuels." As recommended actions for the longer term (defined in the study as 2015 and beyond), the NRAC study said that DOD should catalyze a manufactured liquid hydrocarbon fuels infrastructure, and characterize the compatibility of manufactured liquid hydrocarbon fuels with DON equipment. Among the specific steps to be taken, the study recommended that the Assistant Secretary of the Navy for Research, Development and Acquisition (ASN [RDA]) should, with the Services, advocate the use of multiyear procurement [MYP] authority that was granted to the Secretary of Defense in the Energy Policy Act of 2005 ( H.R. 6 , P.L. 109-58 of August 8, 2005) to catalyze commercial financing of large-scale FT plants for producing transportation fuels. The study also recommended that the Chief of Naval Research (CNR) monitor the status of the FT plant authorized by P.L. 109-58 and use fuel produced by the plant to conduct tests on current and future vehicles. ONR Interest In Synthetic Fuels In October 2005, an official from the Office of Naval Research (ONR) stated that ONR intends to explore methods for producing synthetic fuels, perhaps at sea. A press report stated: ONR would like to explore how [Germany's World War II fuel] processing technology could be miniaturized for land- and sea-based platforms, [George Solhan, ONR's director of naval expeditionary maneuver warfare and combating terrorism science and technology] said Oct. 26 at the National Defense Industrial Association's expeditionary warfare conference in Panama City, FL. "We can't predict energy availability in an operational sea base in a construct that's far away from home," he said. "This is something we're investigating right now. We're in the preliminary stages but this may well end up being one of the programs in our" Innovative Naval Prototype effort. The idea originated from recommendations the Naval Research Advisory Committee made in a recent study, Solhan told Inside the Navy in a brief interview.... "We know that this can be done," Solhan said of synthetic fuel production. "The Germans did it. They did it in a big physical plant. Can you miniaturize it? Can you do it in an environment where gravity doesn't always point straight down," where choppy waters could affect a ship-based processing system. ONR would also investigate whether such a processing system could be scalable, so that several miniaturized systems could be linked for expanded production capacity, he added. A notional demonstration project could start with a land-based pilot project and eventually move to a sea-based system, perhaps on an offshore drilling platform or a ship, he speculated. But there is no program now, he pointed out. "I wouldn't call it [being in] the planning phase," Solhan said. "I'd call it just the idea, brain-storm phase." In the event petroleum supplies or refining capacity is disrupted, synthetic fuel could be produced from sources, such as methane and coal, he noted. And a worldwide infrastructure for coal mining and delivery already exists, he said. Ships carrying 500,000 metric tons of coal sail around the world on a regular basis. "So diverting one of those haulers into the sea base and offloading the coal in bulk onto this plant would probably be doable," he said. "One thing that is readily available is coal. There is a huge global industry in coal." 2006 Air Force Scientific Advisory Board Study A January 2006 "quick look" study by the Air Force Scientific Advisory Board examined several potential alternative fuels for Air Force use. The one option it listed as available in the near term (defined as the next 0 to 5 years) was conversion of coal into synthetic fuel using the FT process. Other options—oil shale, liquified natural gas, ethanol blends, and biodiesel—were presented as mid-term options (defined in the study as the next 5 to 15 years). Two more options—biomass black liquor fuels and hydrogen fuel for turbine engines—were presented as far-term options (defined as more than 15 years from now). The study noted that FT fuels offered certain "significant benefits" in terms of their technical properties, and stated that the "Air Force has [the] ability to catalyze large-scale transition to alternative fuels." As one of its recommendations for the near term, the study said the Air Force should "Ramp up development and utilization of F-T fuels" and "take the lead in DOD's transition to new fuels via blends. One of its recommendations for the mid- and far-term was "Alternative fuels, e.g., ethanol, [and] alternative HC [hydrocarbon] fuel blends." Nuclear Propulsion A third strategy for reducing the Navy's dependence on oil would be to shift to a greater reliance on nuclear propulsion. 2005 Naval Reactors Quick Look Analysis A 2005 "quick look analysis" conducted by the Naval Nuclear Propulsion Program, also known as Naval Reactors, concluded that total life-cycle costs (i.e., procurement plus life-cycle operating and support costs) for nuclear- and fossil-fueled versions of large-deck aircraft carriers would equalize when the price of diesel fuel marine (DFM) delivered to the Navy reached $55. The break-even figures for LHA/LHD-type large-deck amphibious assault ships and large surface combatants (i.e., cruisers and destroyers) were $80 and $205 per barrel, respectively. As of February 2006, the price of DFM delivered to the Navy was $84 per barrel. Since the cost of DFM delivered to the Navy is roughly 15% greater than that of crude oil, these figures correspond to crude-oil costs of about $48, $70, and $178 per barrel, respectively. The difference in the break-even points results in part from the different amounts of energy used by each type of ship over its life time. The Naval Reactors study was based on a 40-year ship life, which is roughly consistent with the expected service life of an amphibious assault ship, but five years longer than the 35-year life the Navy now plans for its cruisers and destroyers. If the calculation were done on a 35-year basis for the surface combatants, the break-even figure for those ships might shift somewhat. The results for the surface combatants are for a ship roughly equal in size to the Navy's past nuclear-powered cruisers (CGNs). Since most of these CGNs were smaller than the 14,500-ton DDG-1000/CG(X) design, the break-even point for a nuclear-powered version of the DDG-1000/CG(X) design might be somewhat different, and perhaps somewhat lower. The study did not attempt to quantify the mobility-related operational advantages of nuclear propulsion. These include the ability to transit long distances at high speeds (so as to respond quickly to distant contingencies) without having to slow down for refueling, the ability to commence combat operations immediately upon arrival in the theater of operations without having to first refuel, and the ability to maneuver at high speeds within the theater of operations without having to refuel. Nuclear-powered ships also lack the hot exhaust gasses that contribute to the infrared detectability of fossil-fueled ships. Since this was a "quick look" study that excluded or made simplifying assumptions about certain factors, a more comprehensive analysis might be required to decide whether to shift from fossil-fueled large-deck amphibious assault ships or large surface combatants to nuclear-powered versions of these ships. The results of the quick look study, however, suggest that the option may be worth further exploration, at least for the large-deck amphibious assault ships. It may also be worth exploring the option for large surface combatants, particularly if oil prices are expected to rise from current levels, and if the operational advantages of nuclear propulsion are also taken into account. Past Nuclear Ships Other than Carriers and Submarines The Navy has not previously built nuclear-powered large-deck amphibious assault ships. One approach for doing so would be to take one-half of the twin reactor plant designed for the new CVN-21 class aircraft carriers and install it on an LHA/LHD-type hull. Another option would be to design a new plant specifically for this type of hull. Table 1 shows the nine nuclear-powered cruisers (CGNs) previously built by the Navy. The ships include three one-of-a-kind designs followed by the two-ship California (CGN-36) class and the four-ship Virginia (CGN-38) class. Procurement of nuclear-powered cruisers was halted after FY1975 due largely to a desire to constrain the procurement costs of future cruisers. In deciding in the late 1970s on the design for the new cruiser that would carry the Aegis defense system, two nuclear-powered Aegis-equipped options—a 17,200-ton nuclear-powered strike cruiser (CSGN) and a 12,100-ton derivative of the CGN-38 class design—were rejected in favor of the option of placing the Aegis system onto the smaller, conventionally powered hull developed for the Spruance (DD-963) class destroyer. The CSGN was estimated to have a procurement cost twice that of the DD-963 option, while the CGN-42 was estimated to have a procurement cost 30%-50% greater than that of the DD-963 option. The option based on the DD-963 hull became the 9,500-ton Ticonderoga (CG-47) class Aegis cruiser. The first Aegis cruiser was procured in FY1978. Since one-half of the CVN-21 class twin reactor plant might be too large to install in the hull of a cruiser or destroyer, even one as large as the DDG-1000/CG(X), a nuclear-powered cruiser or destroyer might be likely to incorporate a new-design reactor plant. This plant could incorporate many of the cost-reducing features of the Virginia (SSN-774) and CVN-21 class reactor plants. Implications for Procurement Costs of Other Ships Naval Reactors estimates that building a nuclear-powered amphibious assault ship every three years or so could reduce the procurement cost of each nuclear-powered carrier (CVN) by about $65 million and each nuclear-powered attack submarine (SSN) by about $20 million due to increased economies of scale in the production of nuclear propulsion components. Naval Reactors further estimates that if nuclear-powered surface combatants were then added to this mix of nuclear-powered ships, it would reduce the cost of each CVN by an additional $80 million or so, and each SSN by an additional $25 million or so. Naval Reactors also states that the additional work in building nuclear-propulsion components could help stabilize the nuclear-propulsion component industrial base by providing extra work to certain component makers whose business situation is somewhat fragile. If nuclear-powered amphibious assault ships or surface combatants are built partially or entirely by the two nuclear-construction yards—Northrop Grumman Newport News (NGNN) and General Dynamics' Electric Boat division (GD/EB); see discussion below—it might further reduce the cost of CVNs and SSNs built at those yards by spreading the fixed overhead costs at those yards over a wider workload and enabling more efficient rollover of workers from one ship to another. By the same token, it might increase the cost of other ships being built at Ingalls and GD/BIW by having the obverse effects in those yards. Implications for Construction Shipyards Large-deck amphibious assault ships are currently built by the Ingalls shipyard that forms part of Northrop Grumman Ship Systems (NGSS), and large surface combatants are currently built by Ingalls and General Dynamics' Bath Iron Works (GD/BIW). These yards, however, are not certified to build nuclear-powered ships. Shifting amphibious assault ships or large surface combatants from fossil-fuel propulsion to nuclear-propulsion might therefore shift at least some of the construction work for these ships away from these yards and toward one or both of the nuclear-construction yards. If Ingalls or GD/BIW do not become certified to build nuclear-powered ships, then future nuclear-powered amphibious assault ships or nuclear-powered large surface combatants might be partially built by Ingalls or GD/BIW. Under this scenario, non-nuclear portions of the ships would be built by Ingalls or GD/BIW, while the reactor compartment would be built by NGNN or possibly GD/EB. Naval Reactors is currently uncertain whether final assembly would occur at NGNN or at the yard that built the non-nuclear portions of the ship. Alternatively, if Ingalls (which built nuclear-powered submarines until the early 1970s at its East Bank facility) or GD/BIW became certified to build nuclear-powered ships, then future nuclear-powered amphibious assault ships or nuclear-powered large surface combatants could be built entirely at Ingalls or GD/BIW. Implications for Ship Maintenance Shifting large-deck amphibious assault ships or large surface combatants from fossil-fuel propulsion to nuclear-propulsion would shift some portion of the maintenance work for these ships away from non-nuclear-certified yards and toward the nuclear-certified yards, which include NGNN, GD/EB, and the four government-operated naval shipyards. Implications for Port Calls and Forward Homeporting Shifting large-deck amphibious assault ships or large surface combatants from fossil-fuel propulsion to nuclear-propulsion might make them potentially less welcome in the ports of countries with strong anti-nuclear sentiments. The Navy works to minimize this issue in connection with its CVNs and SSNs, and these ships make calls at numerous foreign ports each year. Given their occasional need for access to nuclear-qualified maintenance facilities, shifting large-deck amphibious assault ships or large surface combatants from fossil-fuel propulsion to nuclear-propulsion might reduce the number of potentially suitable locations for forward-homeporting the ships, should the Navy decide that forward homeporting them would be desirable for purposes of shortening transit times to and from operating areas. The Navy plans to homeport the George Washington (CVN-73) at Yokosuka, Japan, the Navy's principal forward homeporting location, in 2008. In light of this decision, Yokosuka might be suitable as a potential forward homeporting location for nuclear-powered amphibious assault ships or surface combatants. Sail and Solar Power A fourth strategy for reducing the Navy's dependence on oil would be to make use of sail and solar power, perhaps particularly on Navy auxiliaries and DOD sealift ships. Sails and Wingsails Sails on masts include both traditional sails and wingsails, which are airfoil-like structures that are similar to airplane wings that have been stood on end. A November 2004 magazine editorial notes that: In the late 1970s and early 1980s, huge oil price hikes stimulated much interest in wind-assistance for merchant ships, and several interesting vessels were built from new or converted. These include a 1600dwt tanker Shin Aitoku Maru and a 26,000dwt bulk/log carrier Usuki Pioneer [ Figure 5 ]. In Denmark, Knud E Hansen has designed a 50,000dwt-class bulk carrier, and today in Germany, more research is being handled by Sail Log into a 50,000dwt Panamax bulker with 20,000m 2 of sail. Traditional square rigs have been chosen by this company because they are known to work satisfactorily, but alternatives do exist, including the more revolutionary Walker Wingsail [ Figure 6 ]. The long-haul bulk trades (traditionally not in need of express service) have been identified by the German team as most suitable for sail assistance, or even full sail, because the principal bulk trades run more or less in a north-south direction in parallel with the globe's principal wind systems. Sail Log is part of Schwab-Orga GmbH, which holds the patent to a modern square-rigged design with automated sails.... Sail Log claims that the running costs of an automated sail-assisted bulk carrier could be 22% lower than those of a fully diesel-powered vessel, although in general, it has to be said that figures appear to vary quite dramatically, depending on the source. Sail Log estimates that sails could normally be used for two-thirds of a voyage. A model has been built and has confirmed all propulsive predictions. Cooke Associates, an engineering consulting firm in Cambridge, England, that has worked with wingsail developers, states that in evaluations conducted between 1984 and 1993, the Usuki Pioneer and another sail-equipped ship called the Aqua City claimed a fuel reduction of 30%-40% in ideal wind conditions, but that the projects were terminated due to falling oil prices and high maintenance costs. An 8-ton version of the Walker wingsail, Cooke states, was evaluated in 1986-1988 aboard the MV Ashington, a small commercial vessel. Due to low fuel costs at the time and limits on usable wind in the ship's trading routes, Cooke, states, the firm that operated the ship decided that wingsail did not meet the firm's payback criteria. Cooke states that the "Collapse of world oil prices destroyed the economic case for use of wingsails in commercial shipping...." Cooke also states that "Wingsails could in the future be used to drive large commercial ships." A 1982 study examined the idea of converting a 245-foot Melville (AGOR-14) class oceanographic research ship into a wingsail-assisted ship. An abstract from the report states: Operating statistics indicate that the AGOR-14 CLASS R/V KNORR spends 30% of her time in transit. Conventional research vessel cruise planning leads to wind statistics which are favorable to sail assist. A 3610 square foot wing sail retrofit to the KNORR would save 90 LT of fuel per year, and would not interfere with mission performance. Greater fuel savings would result for voyage scenarios with more time in transit. Potential benefits to oceanographic operations include increased fuel endurance, quiet propulsion, improved station keeping, motion reduction, and schedule reliability. Further consideration of sail-assist retrofit and/or new building is recommended. In 1995, the Danish Ministry of Environment and Energy funded a study by Consulting Naval Architects and Marine Engineers Knud E. Hansen A/S to explore possibilities for sail-assisted commercial ships. In response, the firm between 1995 and 1999 developed a concept, called Modern Windship, for a 200-meter (656-foot), 50,000-ton, sail-assisted dwt product carrier. The design is shown in Figure 7 . The firm's report on the project stated: A feasibility study was carried out. The impact of variations in fuel prices was stressed. The effect of varying the average speed was investigated. A product carrier was chosen as study example. The study pointed out some of the commercial limitations of WindShip-application at present time. It proved uneconomical to use WindShips on typical product carrier routes. A cost increase of approximately 10% was calculated when comparing the WindShip with an equal-sized conventional product carrier. The results showed that by lowering the average speed of a conventional ship by 1 knot a reduction of approximately 25% in fuel consumption could be achieved. However, by adding the rig of the WindShip on average an additional three tons of fuel per 24 hrs could be saved in the more windy areas. This corresponded to 10-15% of the total fuel consumption.... On the economical side the results may be less inspiring at first sight. There is no doubt that the results were both reliable and realistic. However, the main conclusion that emerged was that a product carrier is not the preferred choice for a modern WindShip. There was no economical advantage in using a WindShip, instead it cost 10% more to sail with. Worse yet, the fuel savings were marginal, under certain assumptions and conditions a WindShip even consumed more fuel than a conventional ship. However, on the route between Rotterdam, Holland and New York, USA an average HFO [heavy fuel oil] saving of 20.5 to 27% was shown, depending on average speed. It was only here that the average wind speed of 8 m/s initially estimated during phase 1 could be found. Decisions on sail area etc. were based on this estimate early on in phase 2 [1998-1999] of the project. At the same time the feasibility study showed that the comparison had been made at a sub-optimal speed for a WindShip. Calculations using 11 knots instead of 13 lowered the required freight rate with up to 5%. Due to the special requirements of the product carrier trade the larger internal volume of a WindShip was not used to its advantage in the study. Taking the above issues into account we see the potential of modern WindShips concept. If speed is reduced, but same productivity is maintained due to the larger volumes carried, money will be saved. It is in this market segment that the WindShip should operate. Careful routing, including effects of seasonal weather variations could then prove the WindShip both environmentally beneficial and economically favourable. As of 2003, there was continued interest, at least among maritime researchers in Japan, in developing oceangoing commercial ships with high-performance hybrid-sails similar to those on the Windship. Kites Sails on masts have certain potential disadvantages. One article states: In unfavourable winds, large masts create a lot of drag. In gales, masts cause ships to heel, sometimes dangerously. Masts and their pivoting sails take up valuable container space on the deck. Loading and unloading is more expensive, since the cranes that lift containers must work around the masts. Engineers designed taller (and more expensive) masts, some exceeding 100 metres in height, to reduce their number and limit the loss of storage space. But the Panama Canal limits masts to 60 metres, and collapsable masts would be prohibitively expensive to build, operate and service.... The cost of retrofitting a cargo ship with a row of masts, and strengthening its hull and deck to dissipate the additional stress, was estimated at euro10m ($12.5m). So the sails would have taken around 15 years to recoup their costs through fuel savings. The aim of kite-assisted propulsion is to reduce or avoid these issues while taking advantage of the stronger winds that are available at heights greater than those attainable by sails on masts. At least two firms—the U.S.-based firm KiteShip and the German-based firm SkySails—have developed kite-assist systems for potential application to commercial cargo ships and thus, by extension, perhaps commercial-like Navy auxiliary and DOD sealift ships. KiteShip69 Figure 8 depicts a commercial ship equipped with KiteShip's system. KiteShip states: When fuel costs become sufficiently high and/or governmental air and water quality regulations became sufficiently heinous, the commercial shipping industry will look to sail power as an assist to petroleum powered vessels. The industry has done this before, and will do so again. These worldwide economic and political conditions are upon us today. This time, there is strong evidence that recent fuel cost increases aren't going to be temporary, and environmental restrictions will become increasingly draconian. Conventional masted sail solutions have inherent limitations which will continue to delay their application long past the point where wind-assist can become cost effective. The ability to design massive sail power without need for ballast, without fixed masts interfering with loading and unloading procedures, without adding hundreds of tons and tens of millions of dollars to build costs is critical. The ability to retrofit existing vessels cheaply and efficiently is paramount. The ability to build, repair and maintain systems remote from shipboard, eliminating downtime is an important asset; KiteShip has understood these advantages for decades. We have been readying appropriate technology for commercial tethered flight sailing since 1978. One of the principals of KiteShip, Dave Culp, stated in a 2003 interview: In studying attempts to bring back commercial sailing ships in the 1980's, it struck me that they were doomed to fail for the same reasons commercial sail failed in the 19 th century. The cost of the equipment, expressed as a rate of amortization, was far higher than powered vessels, even including their fuel. Second, the fundamental inability to schedule wind power plays havoc with effectively utilizing expensive ships. Motor sailing was and is possible to fix this, but requires parallel systems on the boat—wind plus diesel—at even higher total cost. Kites, on the other hand, can be added to existing ships. They take up no deck space, require minimal retro-fitting, need no ballast, fit under bridges and can be taken in out of the weather when not in use. They can be taken off the boat for maintenance and even used on a second boat when/if adverse or no wind is expected aboard the first. These factors dramatically decrease the capital cost of the sailing rig, thus the amortization rate. If added to existing vessels, especially if the vessels are partially depreciated already, it becomes very cost effective to fit a single ship with both power (which it has) and kites (which are cheap). It can then pure sail, motor sail or straight motor, as conditions dictate. I wrote a paper on the subject, http://www.dcss.org/kitetugs.html in which I suggested such an arrangement might become cost effective when diesel fuel hits about $1/gal. KiteShip has just signed a Letter of Intent with the cruise ship company Adventure Spa Cruises ( www.adventurespacruise.com ) to design and build an 8000 sq ft kite and to use it to pull a 200' commercial cruise ship. The intent is to showcase environmentally friendly fuel[-]saving technology, further develop kites and control systems for ever[-]larger applications, and to demonstrate to Adventure Spa Cruise customers a proactive stance regarding potential near-term fuel price spikes and shortages. We are excited about the prospects for this technology and look forward to a joint venture with Adventure Spa Cruises. The kite for the cruise ship, measuring about 8,000 square feet, was to be installed on the 187-foot, 924-ton Adventurer II. SkySails74 Figure 9 depicts a commercial ship equipped with SkySails' system. SkySails states: By using a SkySails system ship operation will become more profitable, safer and independent of declining oil reserves. On annual average fuel costs can be lowered between 10-35% depending on actual wind conditions and achievable operational period. Under optimal wind conditions, fuel consumptions [sic] can temporarily be reduced up to 50%. From the second half of 2006 pilot systems for superyachts will be available. In 2007 the first SkySails-Systems for cargo vessels will be available. In 2007 series production of the SkySails-Systems for superyachts, in 2008 series production for cargo vessels will start.... Virtually all cargo ships can be retrofitted with the SkySails technology trouble-free. A March 2006 article states that for a commercial cargo ship, "The investment in a SkySails system will normally amortise within 3 to 5 years." A September 2005 article states that SkySails "says it can outfit a ship with a kite system for between [400,000 euros] and [2.5 million euros], depending on the vessel's size. Stephen Wrage, the boss of SkySails, says the fuel savings will recoup these costs in just four or five years, assuming oil prices of $50 a barrel. Figure 10 shows SkySails' calculation of potential fuel savings (or increased speed) from using a SkySails system on a 200-meter (656-foot) commercial ship. In January 2006, it was announced that Beluga Shipping of Germany had purchased a SkySails kite system to be installed on the newly built 140-meter (459-foot) heavy cargo freighter MS Beluga SkySails, with the first demonstration cruises to take place in 2007. A managing partner of the Beluga Group stated: The SkySails technology is ready for market entry exactly at the right time. The rising and continuously high price of oil is a matter that ship owners are already dealing with in order to be competitive in the present and future market. Furthermore, significantly tightened emission regulations, through which increasing costs will accrue, are being put into place. Offshore wind energy is an unbeatable cost-effective propulsion source available in large quantities, and we expect to gain a considerable competitive advantage by using the innovative SkySails system as a pioneer in this field. We are convinced that the SkySails system will revolutionize the cargo shipping industry. Solar Power Solar power might offer some potential for augmenting other forms of shipboard power, perhaps particularly in Navy auxiliaries and DOD sealift ships. Solar Sailor Ferry Boat Figure 11 depicts the Solar Sailor, a small (69-foot, 100-person) catamaran ferry whose eight maneuverable "solar wing sails" can be used for both sail-assist propulsion and for generating electricity. The ferry was built in 1999-2000 as a demonstration project and can operate on wind power, solar power, stored battery power, diesel power, or any combination. The ship was developed and built by Solar Sailor Holdings Ltd. with assistance from the Australian government, and operates in Sydney Harbor. The firm also has a concept for a hybrid-powered 400-meter (1,312-foot) water-carrying tanker ship that it calls Aquatanker. In June 2005, it was announced that UOV LLC, a Virginia-based partially-owned subsidiary of Solar Sailor Holdings, had received a Phase 1 US Navy grant for the development of its patented unmanned ocean vehicles (UOV's). The automated and networked UOV's will be used for military and coast guard purposes, and have commercial and oceanographic applications including tsunami early warning systems. The US Navy is interested in the Unmanned Ocean Vehicles in order to meet their need for surveillance vessels to roam the world's oceans. The UOV's use of solar & wind power enables it to act as an autonomous vehicle with almost unlimited range and endurance. E/S Orcelle Concept Design Figure 12 shows the E/S Orcelle, a concept design developed in 2005 by the Scandinavian shipping company Wallenius Wilhelmsen for an almost zero-emissions car carrier capable of transporting 10,000 cars (about 50% more than today's car carriers) that uses renewable energy to meet all propulsion and onboard power requirements. The pentamaran-hulled design employs fuel cells (which would generate about one-half of the ship's energy), wind power, solar power, and wave power, the last captured through 12 horizontal fins that would transform wave energy into hydrogen (for the fuel cells), electricity, or mechanical power. The fins would also act as propulsion units in combination with two podded propulsors. The developers believe a ship containing some of the Orcelle's features might be possible by 2010, and that a ship with all of its features might be possible by 2025. Legislative Activity FY2007 Defense Authorization Act (H.R. 5122/P.L. 109-364) House Section 128 of H.R. 5122 of the House version of H.R. 5122 stated: SEC. 128. SENSE OF CONGRESS THAT THE NAVY MAKE GREATER USE OF NUCLEAR-POWERED PROPULSION SYSTEMS IN ITS FUTURE FLEET OF SURFACE COMBATANTS. (a) Findings- Congress makes the following findings: (1) Securing and maintaining access to affordable and plentiful sources of energy is a vital national security interest for the United States. (2) The Nation's dependence upon foreign oil is a threat to national security due to the inherently volatile nature of the global oil market and the political instability of some of the world's largest oil producing states. (3) Given the recent increase in the cost of crude oil, which cannot realistically be expected to improve over the long term, other energy sources must be seriously considered. (b) Sense of Congress- In light of the findings in subsection (a), it is the sense of Congress that the Navy should make greater use of alternative technologies, including nuclear power, as a means of vessel propulsion for its future fleet of surface combatants. Senate Section 354 of the Senate-passed version of the FY2007 defense authorization bill ( S. 2766 ) stated: SEC. 354. REPORT ON ACTIONS TO REDUCE DEPARTMENT OF DEFENSE CONSUMPTION OF PETROLEUM-BASED FUEL. (a) Report Required- Not later than one year after the date of the enactment of this Act, the Secretary of Defense shall submit to the Committees on Armed Services of the Senate and the House of Representatives a report on the actions taken, and to be taken, by the Department of Defense to reduce the consumption by the Department of petroleum-based fuel. (b) Elements- The report shall include the status of implementation by the Department of the requirements of the following: (1) The Energy Policy Act of 2005 (Public Law 109-58). (2) The Energy Policy Act of 1992. (Public Law 102-486) (3) Executive Order 13123. (4) Executive Order 13149. (5) Any other law, regulation, or directive relating to the consumption by the Department of petroleum-based fuel. Section 375 of the Senate-passed version of S. 2766 stated: SEC. 375. ENERGY EFFICIENCY IN WEAPONS PLATFORMS. (a) Policy- It shall be the policy of the Department of Defense to improve the fuel efficiency of weapons platforms, consistent with mission requirements, in order to— (1) enhance platform performance; (2) reduce the size of the fuel logistics systems; (3) reduce the burden high fuel consumption places on agility; (4) reduce operating costs; and (5) dampen the financial impact of volatile oil prices. (b) Report Required- (1) IN GENERAL- Not later than one year after the date of the enactment of this Act, the Secretary of Defense shall submit to the congressional defense committees a report on the progress of the Department of Defense in implementing the policy established by subsection (a). (2) ELEMENTS- The report shall include the following: (A) An assessment of the feasibility of designating a senior Department of Defense official to be responsible for implementing the policy established by subsection (a). (B) A summary of the recommendations made as of the time of the report by— (i) the Energy Security Integrated Product Team established by the Secretary of Defense in April 2006; (ii) the Defense Science Board Task Force on Department of Defense Energy Strategy established by the Under Secretary of Defense for Acquisition, Technology and Logistics on May 2, 2006; and (iii) the January 2001 Defense Science Board Task Force report on Improving Fuel Efficiency of Weapons Platforms. (C) For each recommendation summarized under subparagraph (B)— (i) the steps that the Department has taken to implement such recommendation; (ii) any additional steps the Department plans to take to implement such recommendation; and (iii) for any recommendation that the Department does not plan to implement, the reasons for the decision not to implement such recommendation. (D) An assessment of the extent to which the research, development, acquisition, and logistics guidance and directives of the Department for weapons platforms are appropriately designed to address the policy established by subsection (a). (E) An assessment of the extent to which such guidance and directives are being carried out in the research, development, acquisition, and logistics programs of the Department. (F) A description of any additional actions that, in the view of the Secretary, may be needed to implement the policy established by subsection (a). Conference Report Section 128 of H.R. 5122 / P.L. 109-364 (conference report H.Rept. 109-702 of September 29, 2006) states: SEC. 128. ALTERNATIVE TECHNOLOGIES FOR FUTURE SURFACE COMBATANTS. (a) FINDINGS.—Congress makes the following findings: (1) Securing and maintaining access to affordable and plentiful sources of energy is a vital national security interest for the United States. (2) The Nation's dependence upon foreign oil is a threat to national security due to the inherently volatile nature of the global oil market and the political instability of some of the world's largest oil producing states. (3) Given the recent increase in the cost of crude oil, which cannot realistically be expected to improve over the long term, other energy sources must be seriously considered. (4) Alternate propulsion sources such as nuclear power offer many advantages over conventional power for major surface combatant ships of the Navy, including— (A) virtually unlimited high-speed endurance; (B) elimination of vulnerable refueling; and (C) reduction in the requirement for replenishment vessels and the need to protect those vessels. (b) SENSE OF CONGRESS.—In light of the findings in subsection (a), it is the sense of Congress that the Navy should make greater use of alternative technologies, including expanded application of integrated power systems, fuel cells, and nuclear power, for propulsion of future major surface combatant ships. (c) REQUIREMENT.—The Secretary of the Navy shall include integrated power systems, fuel cells, and nuclear power as propulsion alternatives to be evaluated within the analysis of alternatives for future major surface combatant ships. Section 360 states: SEC. 360. ENERGY EFFICIENCY IN WEAPONS PLATFORMS. (a) Policy- It shall be the policy of the Department of Defense to improve the fuel efficiency of weapons platforms, consistent with mission requirements, in order to— (1) enhance platform performance; (2) reduce the size of the fuel logistics systems; (3) reduce the burden high fuel consumption places on agility; (4) reduce operating costs; and (5) dampen the financial impact of volatile oil prices. (b) Report Required- (1) IN GENERAL- Not later than one year after the date of the enactment of this Act, the Secretary of Defense shall submit to the congressional defense committees a report on the progress of the Department of Defense in implementing the policy established by subsection (a). (2) ELEMENTS- The report shall include the following: (A) An assessment of the feasibility of designating a senior Department of Defense official to be responsible for implementing the policy established by subsection (a). (B) A summary of the recommendations made as of the time of the report by— (i) the Energy Security Integrated Product Team established by the Secretary of Defense in April 2006; (ii) the Defense Science Board Task Force on Department of Defense Energy Strategy established by the Under Secretary of Defense for Acquisition, Technology and Logistics on May 2, 2006; and (iii) the January 2001 Defense Science Board Task Force report on Improving Fuel Efficiency of Weapons Platforms. (C) For each recommendation summarized under subparagraph (B)— (i) the steps that the Department has taken to implement such recommendation; (ii) any additional steps the Department plans to take to implement such recommendation; and (iii) for any recommendation that the Department does not plan to implement, the reasons for the decision not to implement such recommendation. (D) An assessment of the extent to which the research, development, acquisition, and logistics guidance and directives of the Department for weapons platforms are appropriately designed to address the policy established by subsection (a). (E) An assessment of the extent to which such guidance and directives are being carried out in the research, development, acquisition, and logistics programs of the Department. (F) A description of any additional actions that, in the view of the Secretary, may be needed to implement the policy established by subsection (a). The conference report stated: The Senate amendment contained a provision (sec. 354) that would require the Secretary of Defense to report on the actions taken, and to be taken, by the Department of Defense to reduce the consumption of petroleum-based fuels. The House bill contained no similar provision. The Senate recedes. The conferees note that the implementation of current legislation and regulatory guidance should facilitate reduction of petroleum-based fuels by the Department. Therefore, the conferees direct the Secretary to submit a report, not later than September 1, 2007, to the Committees on Armed Services of the Senate and the House of Representatives on the status of implementation by the Department of the requirements contained in the following: (1) Energy Policy Act of 2005 (Public Law 109–58); (2) Energy Policy Act of 1992 (Public Law 102–486); (3) Executive Order 13123; (4) Executive Order 13149; and (5) other regulations or directions relating to the Department's consumption of petroleum-based fuels. Furthermore, the conferees are concerned that although Flexible Fuel Vehicles (FFVs) are being introduced into the Department's vehicle inventory, little reduction in petroleum-based fuel is being realized because operators continue to fuel the FFVs with gasoline rather than E85 (85 percent ethanol with 15 percent gasoline) or M85 (85 percent methanol and 15 percent gasoline). Therefore, the conferees direct the Secretary to include in the report an analysis of the reduction of petroleum-based fuels since introduction of FFVs into the inventory and an assessment of how the Department might increase the consumption of E85 or M85 in FFVs. (Page 700) FY2007 Defense Appropriations Act (H.R. 5631/P.L. 109-289) The Senate Appropriations Committee, in its report ( S.Rept. 109-292 of July 25, 2006) on H.R. 5631 , states: The Committee notes the recent developments relating to the conversion of coal to liquid fuels. Demonstration projects in the United States have produced high-quality, ultra clean synthetic diesel fuels that provide improved efficiency and improved emissions compared to traditionally produced diesel fuel. The Committee encourages the Department of Defense to continue to explore the use of Fischer-Tropsch fuels as alternative sources for DOD's fuel requirements. Further, the Committee requests that the Under Secretary for Acquisition, Technology, and Logistics prepare a report for the congressional defense committees on the Defense Department's assessment, use, and plans to continue to explore the potential of synthetic fuels, to include fuels produced through the Fischer-Tropsch process. (Page 157) Coast Guard and Maritime Transportation Act of 2006 (H.R. 889/P.L. 109-241) Section 214 of H.R. 889 / P.L. 109-241 of July 12, 2006 (conference report H.Rept. 109-413 of April 6, 2006) states: SEC. 214. BIODIESEL FEASIBILITY STUDY. (a) Study- The Secretary of the department in which the Coast Guard is operating shall conduct a study that examines the technical feasibility, costs, and potential cost savings of using biodiesel fuel in new and existing Coast Guard vehicles and vessels and that focuses on the use of biodiesel fuel in ports which have a high density of vessel traffic, including ports for which vessel traffic systems have been established. (b) Report- Not later than one year after the date of enactment of this Act, the Secretary shall submit a report containing the findings, conclusions, and recommendations (if any) from the study to the Committee on Commerce, Science, and Transportation of the Senate and the Committee on Transportation and Infrastructure of the House of Representatives. FY2006 Defense Authorization Act (H.R. 1815/P.L. 109-163) Section 130 of the conference report ( H.Rept. 109-360 of December 18, 2005) on the FY2006 defense authorization act ( H.R. 1815 , P.L. 109-163 of January 6, 2006) requires the Navy to submit a report by November 1, 2006 on alternative propulsion methods for surface combatants and amphibious warfare ships. The section states: SEC. 130. REPORT ON ALTERNATIVE PROPULSION METHODS FOR SURFACE COMBATANTS AND AMPHIBIOUS WARFARE SHIPS. (a) ANALYSIS OF ALTERNATIVES.—The Secretary of the Navy shall conduct an analysis of alternative propulsion methods for surface combatant vessels and amphibious warfare ships of the Navy. (b) REPORT.—The Secretary shall submit to the congressional defense committees a report on the analysis of alternative propulsion systems carried out under subsection (a). The report shall be submitted not later than November 1, 2006. (c) MATTERS TO BE INCLUDED.—The report under subsection (b) shall include the following: (1) The key assumptions used in carrying out the analysis under subsection (a). (2) The methodology and techniques used in conducting the analysis. (3) A description of current and future technology relating to propulsion that has been incorporated in recently-designed surface combatant vessels and amphibious warfare ships or that is expected to be available for those types of vessels within the next 10-to-20 years. (4) A description of each propulsion alternative for surface combatant vessels and amphibious warfare ships that was considered under the study and an analysis and evaluation of each such alternative from an operational and cost-effectiveness standpoint. (5) A comparison of the life-cycle costs of each propulsion alternative. (6) For each nuclear propulsion alternative, an analysis of when that nuclear propulsion alternative becomes cost effective as the price of a barrel of crude oil increases for each type of ship. (7) The conclusions and recommendations of the study, including those conclusions and recommendations that could impact the design of future ships or lead to modifications of existing ships. (8) The Secretary's intended actions, if any, for implementation of the conclusions and recommendations of the study. (d) LIFE-CYCLE COSTS.—For purposes of this section, the term "life-cycle costs" includes those elements of cost that would be considered for a life-cycle cost analysis for a major defense acquisition program.

General strategies for reducing the Navy's dependence on oil for its ships include reducing energy use on Navy ships; shifting to alternative hydrocarbon fuels; shifting to more reliance on nuclear propulsion; and using sail and solar power. Reducing energy use on Navy ships. A 2001 study concluded that fitting a Navy cruiser with more energy-efficient electrical equipment could reduce the ship's fuel use by 10% to 25%. The Navy has installed fuel-saving bulbous bows and stern flaps on many of its ships. Ship fuel use could be reduced by shifting to advanced turbine designs such as an intercooled recuperated (ICR) turbine. Shifting to integrated electric-drive propulsion can reduce a ship's fuel use by 10% to 25%; some Navy ships are to use integrated electric drive. Fuel cell technology, if successfully developed, could reduce Navy ship fuel use substantially. Alternative hydrocarbon fuels. Potential alternative hydrocarbon fuels for Navy ships include biodiesel and liquid hydrocarbon fuels made from coal using the Fischer-Tropsch (FT) process. A 2005 Naval Research Advisory Committee (NRAC) study and a 2006 Air Force Scientific Advisory Board both discussed FT fuels. Nuclear propulsion. Oil-fueled ship types that might be shifted to nuclear propulsion include large-deck amphibious assault ships and large surface combatants (i.e., cruisers and destroyers). A 2005 "quick look" analysis by the Naval Nuclear Propulsion Program concluded that total life-cycle costs for nuclear-powered versions of these ships would equal those of oil-fueled versions when oil reaches about $70 and $178 per barrel, respectively. Sail and solar propulsion. Kite-assisted propulsion might be an option for reducing fuel use on Navy auxiliaries and DOD sealift ships. Two firms are now offering kite-assist systems to commercial ship operators. Solar power might offer some potential for augmenting other forms of shipboard power, perhaps particularly on Navy auxiliaries and DOD sealift ships. FY2007 Defense Authorization Act (H.R. 5122/P.L. 109-364). Section 128 of P.L. 109-364 (conference report H.Rept. 109-702 of September 29, 2006) expresses the sense of the Congress that the Navy should make greater use of alternative technologies, including expanded application of integrated power systems, fuel cells, and nuclear power, for propulsion of future major surface combatant ships. The report directs the Navy to include integrated power systems, fuel cells, and nuclear power as propulsion alternatives to be evaluated within the analysis of alternatives for future major surface combatant ships. Section 360 makes it Department of Defense (DOD) policy to improve the fuel efficiency of weapons platforms, consistent with mission requirements, and requires a report on DOD progress in implementing the policy. This report will be updated as events warrant.

Introduction This is a brief discussion of the law associated with the mandatory minimum sentencing provisions of federal controlled substance (drug) laws and drug-related federal firearms and recidivist statutes. These mandatory minimums, however, are not as mandatory as they might appear. The governme nt may elect not to prosecute the underlying offenses. Federal courts may disregard otherwise applicable mandatory sentencing requirements at the behest of the government. The federal courts may also bypass some of them for the benefit of certain low-level, nonviolent, offenders with virtually spotless criminal records under the so-called "safety valve" provision. Finally, in cases where the mandatory minimums would usually apply, the President may pardon the offenders or commute their sentences before the minimum term of imprisonment has been served. Be that as it may, sentencing in drug cases, particular mandatory minimum drug sentencing, has contributed to an explosion in the federal prison population and attendant costs. The federal inmate population at the end of 1976 was 23,566. On January 4, 2018, the federal inmate population was 183,493. As of September 30, 2016, 49.1% of federal inmates were drug offenders and 72.3% of those were convicted of an offense carrying a mandatory minimum. In 1976, federal prisons cost $183.914 million; in 2016, federal prisons cost over $6.750 billion. Mandatory Minimums for Drug Crimes Table 1 below describes the mandatory minimum sentencing provisions for various drug and drug-related offenses. Domestic Manufacture or Distribution (21 U.S.C. § 841(a)) Section 841(a) outlaws knowingly or intentionally manufacturing, distributing, dispensing, or possessing with the intent to distribute or dispense controlled substances except as otherwise authorized by the Controlled Substances Act. Knowingly or Intentionally The government may establish the knowledge element of Section 841(a) in either of two ways. First, the "knowledge requirement may be met by showing that the defendant knew he possessed a substance listed on the [controlled substance] schedules." Second, "[t]he knowledge requirement may also be met by showing that the defendant knew the identity of the substance he possessed. Take, for example, a defendant who knows that he is distributing heroin but does not know that heroin is listed on the schedules." As long as the government proves the defendant knows he was dealing in heroin, it need not prove that the defendant knew the particular type or quantity of the controlled substance he intended to distribute. When a defendant claims no guilty knowledge, the circumstances may warrant a willful blindness instruction to the jury. The willful blindness instruction, sometimes called the deliberate ignorance or "ostrich head in the sand" instruction, is warranted if "(1) the defendant claims lack of knowledge; (2) the evidence would support an inference that the defendant consciously engaged in a course of deliberate ignorance; and (3) the proposed instruction, as a whole, could not lead the jury to conclude that an inference of knowledge is mandatory." Manufacture, Distribute, Dispense, or Possess Manufacture : For purposes of Section 841(a), "'manufacture' means the production … or processing of a drug, and the term 'production' includes the manufacture, planting, cultivation, growing, or harvesting of a controlled substance." Distribute or Dispense : The Controlled Substances Act defines the term "distribute" broadly. The term encompasses any transfer of a controlled substance other than dispensing it. It reaches both sales and transfers without compensation. To "dispense" is "to deliver a controlled substance to an ultimate user …by, or pursuant to the lawful order of, a practitioner…" The Controlled Substances Act outlaws practitioners' proscribing controlled substances for other than legitimate medical purposes. Possession with Intent to Distribute or Dispense : The government may satisfy the possession element with evidence of either actual or constructive possession. "Actual possession is the knowing, direct, and physical control over a thing." "Constructive possession exists when a person knowingly has the power and intention at a given time to exercise dominion and control over an object either directly or through others." The escalating mandatory minimums that apply to offenders with "a prior conviction for a felony drug offense" extend to offenses classified as misdemeanors under state law, but punishable by imprisonment for more than a year. They also apply even though the underlying state felony conviction has been expunged. On the other hand, there is apparently a division among the circuits over whether the government's failure to comply with the procedure for establishing a prior conviction, and therefore to alert the defendant to the prospect of an enhanced mandatory minimum, precludes imposition of the enhanced sentence. Sentencing : Sentencing for violations of Section 841(a) is governed by the nature and volume of the substance involved, the defendant's criminal record, and injuries attributable to the offense. The most severe penalties are reserved for high-volume trafficking of the eight substances thought most susceptible to abuse and least appropriate for medicinal use without tight controls and that are assigned to Controlled Substance Schedules I and II. The eight substances are heroin, powder cocaine, cocaine base (crack), PCP, LSD, fentanyl, methamphetamine, and marijuana. Each comes with one set of mandatory minimums for trafficking in a very substantial amount listed in Section 841(b)(1)(A) and a second, lower set of mandatory minimums for trafficking in a lower but still substantial amount listed in Section 841(a)(1)(B). The first set (841(b)(1)(A) level) features the following thresholds: heroin - 1 kilogram; powder cocaine - 5 kilograms; crack - 280 grams; PCP - 100 grams; LSD - 10 grams; fentanyl - 400 grams; methamphetamine - 50 grams; marijuana - 1,000 kilograms. The second set (841(b)(1)(B) level) has thresholds that are one-tenth of those of the higher set: heroin - 100 grams; powder cocaine - 500 grams; crack - 28 grams; PCP - 100 grams; LSD - 1 gram; fantanyl - 40 grams; methamphetamine - 5 grams; marijuana - 100 kilograms. A Section 841(a) violation involving one of the eight drugs at the higher 841(b)(1)(A) level is punishable by imprisonment for: not less than 10 years; not less than 20 years if the offense results in death or serious bodily injury or if the offender has a prior felony drug conviction; and a mandatory term of life imprisonment if the offender has a prior felony drug conviction and the offense resulted in death or serious bodily injury or if the offender has two or more prior felony drug convictions. A Section 841(a) violation involving one of the eight drugs at the lower 841(b)(1)(B) level is punishable by imprisonment for: not less than 5 years; not less than 10 years, if the offender has a prior felony drug conviction; not less than 20 years if the offense results in death or serious bodily injury; and a mandatory term of life imprisonment if the offender has a prior felony drug conviction and the offense resulted in death or serious bodily injury. A Section 841(a) violation involving one of the eight drugs in lesser amounts, or some other Schedule I or II drug, or a date rape drug is punishable by imprisonment for: not less than 20 years if death or serious bodily injury results; and life if the offender has a prior felony drug conviction and death or serious bodily injury results. The felony drug convictions that trigger the sentencing enhancement include federal, state, and foreign convictions. The "serious bodily injury" enhancement is confined to bodily injuries which involve "(A) a substantial risk of death; (B) protracted and obvious disfigurement; or (C) protracted loss or impairment of the function of a bodily member, organ, or mental faculty." And, the "if death results" enhancement is available only if the drugs provided by the defendant were the "but-for" cause of death; it is not available if the drugs supplied were merely a contributing cause. The same "but for" standard presumably applies with equal force to the "serious bodily injury" enhancement. Attempt, Conspiracy, and Aiding and Abetting : The mandatory minimums of Section 841 apply with equal force to those who attempt to possess with intent to distribute; who conspire to do so; or who aid and abet a violation of Section 841 by others. To prove an attempt to violate Section 841(a), "the government must establish beyond a reasonable doubt that the defendant (a) had the intent to commit the object crime and (b) engaged in conduct amounting to a substantial step towards its commission. For a defendant to have taken a substantial step, he must have engaged in more than mere preparation, but may have stopped short of the last act necessary for the actual commission of the substantive crime." Conspiracy is an agreement to commit a crime. "To establish that a defendant conspired to distribute drugs under 21 U.S.C. § 846, the government must prove: (1) that there was a conspiracy, i.e., an agreement to distribute the drugs; (2) that the defendant knew of the conspiracy; and (3) that the defendant intentionally joined the conspiracy." The existence of the conspiracy need not be shown by written agreement or any other form of direct evidence, but may be inferred from the circumstances. Moreover, each of the conspirators need not be fully aware of the roles or activities of all of their cohorts. Each conspirator, however, is punishable for the foreseeable offenses committed in furtherance of the common scheme. Although it technically demonstrates an agreement to distribute a controlled substance, proof of a small, one-time sale of a controlled substance is ordinarily not considered sufficient for a conspiracy conviction. "[T]he factors that demonstrate a defendant was part of a conspiracy rather than in a mere buyer/seller relationship with that conspiracy include: (1) the length of affiliation between the defendant and the conspiracy; (2) whether there is an established method of payment; (3) the extent to which transactions are standardized; (4) whether there is a demonstrated level of mutual trust; (5) whether transactions involved large amounts of drugs; and (6) whether the defendant purchased his drugs on credit." Accomplices who aid and abet the crime of another receive the same punishment as the offender they assist. To prove, aiding and abetting, the government must show that the defendant knowingly embraced and assisted in the commission of the crime. Special Circumstances Trafficking offenses that ordinarily do not trigger mandatory minimum sentences may do so if they involve special circumstances. Thus, trafficking to pregnant women, children, or in proximity of a school, playground or other prohibited location, or using a child to manufacture or traffic, are punishable with a one-year mandatory minimum term of imprisonment and in most instances a three-year mandatory minimum for repeat offenders. Import/Export Offenses Sections 960 and 963 of the Controlled Substances Import and Export Act, and by cross- reference Section 70506 of the Maritime Drug Law Enforcement Act (MDLEA), largely track the penalties found in the Section 841(b) of the Controlled Substances Act, including the mandatory minimum sentences of imprisonment. Section 960 : Section 960 sets the penalties for three categories of offenses: (1) importing or exporting a controlled substance in violation of 21 U.S.C. § 825 (labeling and packaging), § 952 (importing controlled substances), § 953 (exporting controlled substances), or § 967 (smuggling controlled substances); (2) possession of a controlled substance aboard a vessel or aircraft in violation of 21 U.S.C. § 955; and (3) possession with intent to distribute in violation of 21 U.S.C. § 959. Of these, violations of Sections 952 and 959 appear to be the most commonly prosecuted. "To sustain a conviction for the importation of a controlled substance[under Section 952], the government must prove: (1) the defendant played a role in bringing a quantity of a controlled substance into the United States; (2) the defendant knew the substance was controlled; and (3) the defendant knew the substance would enter the United States." The government, however, need not prove that the defendant knew which controlled substance was being imported or its quantity. Section 959 proscribes two offenses: manufacturing or distributing a controlled substance for import purposes and possession aboard an aircraft by a U.S. citizen or aboard a U.S. aircraft. The section specifically states that it governs offenses committed outside the territory of the United States. Attempt, Conspiracy, and Aiding and Abetting : Section 963 outlaws attempts and conspiracies to violate the prohibitions covered by Section 960, and calls for the same penalties, including mandatory minimums, as apply to the underlying substantive offenses. Maritime Drug Law Enforcement Act (MDLEA) (46 U.S.C. §§ 70503, 70506) : MDLEA outlaws possession of a controlled substance aboard a vessel subject to U.S. jurisdiction or attempting or conspiring to do so. Here, too, violations carry the same penalties, including mandatory minimums, as the underlying substantive offenses. The term "vessel subject to the jurisdiction of the United States" includes vessels within U.S. territorial or customs waters, and vessels of foreign registration or vessels located in foreign territorial waters when the foreign nation has consent to application of U.S. law, as well as vessels for which no claim of registration or false claim of registration is presented. Most of the lower federal appellate courts to consider the issue have held that the government need not establish any other nexus to the United States. The type and volume of controlled substances ordinarily involved in MDLEA cases usually trigger the more severe mandatory minimum sentences. Narco-Terrorism (21 U.S.C. § 960a) Section 960a doubles the otherwise applicable mandatory minimum sentence for drug trafficking (including an attempt or conspiracy to traffic) when the offense is committed in order to fund a terrorist activity or terrorist organization. The merging of drug trafficking and terrorism offenses in Section 960a does not preclude conviction of the defendant for drug trafficking and terrorism offenses as well. Here too, the controlled substances involved ordinarily require imposition of a mandatory minimum term of imprisonment. Drug Kingpin (21 U.S.C. § 848) Conviction of a Continuing Criminal Enterprise (CCE or Drug Kingpin) offense results in imposition of a 20-year mandatory minimum; the mandatory minimum for repeat offenders is 30 years. Drug kingpins of enormous enterprises, however, face a mandatory sentence of life imprisonment. To secure a conviction, the government must establish, "1) a felony violation of the federal narcotics laws; 2) as part of a continuing series of three or more related felony violations of federal narcotics laws; 3) in concert with five or more other persons; 4) for whom [the defendant] is an organizer, manager or supervisor; [and] 5) from which [the defendant] derives substantial income or resources." The homicide mandatory minimum found in the drug kingpin statute sets a 20-year minimum term of imprisonment for killings associated with a kingpin offense or for killings of law enforcement officers associated with certain other controlled substance offenses. Neither prohibition requires the defendant to have been manufacturing or distributing controlled substances at the time of the killing. Drug-Related Mandatory Minimums Firearm Possession in Furtherance (18 U.S.C. § 924(c)) Mandatory minimums are found in two federal firearms statutes. One, the Armed Career Criminal Act, deals exclusively with recidivists. The other, Section 924(c), attaches one of several mandatory minimum terms of imprisonment whenever a firearm is used or possessed during and in relation to a federal crime of violence or drug trafficking. Section 924(c), in its current form, establishes one of several different minimum sentences when a firearm is used or possessed in furtherance of another federal crime of violence or drug trafficking. The mandatory minimums must be imposed in addition to any sentence imposed for the underlying crime of violence or drug trafficking and vary depending upon the circumstances, i.e ., (1) imprisonment for not less than five years, unless one of the higher mandatory minimums below applies; (2) imprisonment for not less than seven years if a firearm is brandished; (3) imprisonment for not less than 10 years if a firearm is discharged; (4) imprisonment for not less than 10 years if a firearm is a short-barreled rifle or shotgun or is a semi-automatic weapon; (5) imprisonment for not less than 15 years if the offense involves the armor piercing ammunition; (6) imprisonment for not less than 25 years if the offender has a prior conviction for violation of Section 924(c); (7) imprisonment for not less than 30 years if the firearm is a machine gun or destructive device or is equipped with a silencer; and (8) imprisonment for life if the offender has a prior conviction for violation of Section 924(c) and if the firearm is a machine gun or destructive device or is equipped with a silencer. Firearm : Section 924(c) outlaws possession of a firearm in furtherance of, or use of a firearm during and in relation to, a predicate offense. A "firearm" for purposes of Section 924(c) includes not only guns ("weapons ... which will or [are] designed to or may readily be converted to expel a projectile by the action of an explosive"), but silencers and explosives as well. It includes firearms that are not loaded or that are broken. It does not include toys or imitations. Nevertheless, the government need not produce the gun itself at trial. The courts have said that it need do no more than "present sufficient testimony, including the testimony of lay witnesses, in order to prove beyond a reasonable doubt that a defendant used, possessed or carried a 'firearm' as that term is defined for purposes of §924(c)." Yet conviction must rest on some evidence of the presence of a firearm. Predicate Offenses : Section 924(c) is triggered when a firearm is used or possessed in furtherance of a predicate offense. The predicate offenses are crimes of violence and certain drug trafficking crimes. The drug trafficking predicates include any felony violation of the Controlled Substances Act, the Controlled Substances Import and Export Act, or the Maritime Drug Law Enforcement Act. A defendant may be convicted under Section 924(c), however, even though not convicted or even prosecuted for the predicate offense. Possession in Furtherance : Section 924(c) has two alternative firearm-nexus elements: (a) possession in furtherance and (b) carrying or use. The possession-in-furtherance version of the offense requires that the defendant "(1) committed a drug trafficking crime; (2) knowingly possessed a firearm; and (3) possessed the firearm in furtherance of the drug trafficking crime [or other predicate offense]." The "possession" component may take the form of either actual or constructive possession. "Constructive possession exists when a person does not have possession but instead knowingly has the power and the intention at a given time to exercise dominion and control over an object, either directly or through others." The in-furtherance component compels the government to show some nexus between possession of a firearm and a predicate offense – that is, to show that the firearm furthered, advanced, moved forward, promoted, or in some way facilitated the predicate offense. This requires more than proof of the presence of a firearm in the same location as the predicate offense. Most circuits have identified specific factors that commonly allow a court to distinguish guilty possession from innocent "possession at the scene," particularly in a drug case, they include "(1) type of criminal activity that is being conducted; (2) accessibility of the firearm; (3) the type of firearm; (4) whether the firearm is stolen; (5) the status of the possession (legitimate or illegal); (6) whether the firearm is loaded; (7) the time and circumstances under which the firearm is found; and (8) the proximity to the drugs or drug profits." Although the Supreme Court has determined that acquiring a firearm in an illegal drug transaction does not constitute "use" in violation of Section 924(c), several of the circuits have found that such acquisition may constitute "possession in furtherance." Use or Carry : The "use" outlawed in the use-or-carriage branch of Section 924(c) requires that a firearm be actively employed "during and in relation to" a predicate offense – that is, either a crime of violence or a drug trafficking offense. A defendant "uses" a firearm during or in relation to a drug trafficking offense when he uses it to acquire drugs in a drug deal; when he uses it as collateral in a drug deal; or when he sells both drugs and firearms; but not when he accepts a firearm in exchange for drugs in a drug deal. The "carry[ing]" that the section outlaws encompasses instances when a firearm is carried on the defendant's person as well as when it is simply readily accessible in a vehicle during and in relation to a predicate offense. A firearm is used or carried "during and in relation" to a predicate offense when it has "some purpose or effect with respect" to the predicate offense; "its presence or involvement cannot be the result of accident or coincidence." The government must show that the availability of the firearm played an integral role in the predicate offense. It need not show that the firearm was used "in furtherance" of the predicate offense. Discharge and Brandish : The basic 5-year mandatory minimum penalty for using, carrying, or possessing a firearm in the course of a predicate offense becomes a 7-year mandatory minimum if a firearm was brandished during the course of the offense and becomes a 10-year mandatory minimum if a firearm is discharged during the course of the offense. The discharge provision applies even if the firearm is discharged inadvertently. Whether a firearm is discharged or brandished is a question that after Alleyn e v. United States must be presented to the jury and proven beyond a reasonable doubt. A firearm is brandished for these purposes when (1) it is displayed or its presence made known (2) in order to intimidate another. Intimidation is a necessary feature of brandishing, but it is no less present when the fear is induced by using a gun as a club rather than merely displaying it. Short Barrels, Semiautomatics, Machine Guns, and Bombs : For some time, Section 924(c) consisted of a single long paragraph. When Congress added the "possession in furtherance" language, it parsed the section. Now, the general, brandish, and discharge mandatory penalties provisions appear in one part. The provisions for offenses involving a short-barreled rifle or shotgun, a semiautomatic assault weapon, a silencer, a machine gun, or explosives appear in a second part. The provisions for second and consequent convictions appear in a third part. The circuits are apparently divided over the question of whether the government must show that the defendant knew that the firearm at issue was of a particular type ( i.e ., short-barreled rifle or shotgun, machine gun, or bomb). Prior to the division, the Supreme Court had identified as an element of a separate offense (rather than a sentencing factor) the question of whether a machinegun was the firearm used during and in relation to a predicate offense. The use of a short-barreled rifle, semiautomatic assault weapon, silencer, machine gun, or bomb is not a sentencing factor, but an element of a separate offense to be charged and proved to the jury beyond a reasonable doubt. The question of whether a second or subsequent conviction has occurred, however, remains a sentencing factor. Aiding, Abetting, and Conspiracy : As a general rule, anyone who commands, counsels, aids, or abets the commission of a federal crime by another is punishable as though he had committed the crime himself. The Supreme Court has said that "in order to aid and abet another to commit a crime it is necessary that a defendant in some sort associate himself with the venture, that he participate in it as in something that he wishes to bring about, that he seeks by his action to make it succeed." The Supreme Court has said in Rosemon d v. United States that to aid or abet a violation of Section 924(c), the assistance may be shown to have advanced either the predicate offense or the firearm use. However, the defendant must be shown to have intended his efforts to contribute to the success of the Section 924(c) violation – that is, commission of a predicate offense while armed. Thus, the defendant must be shown to have known before the commission of the predicate offense that his confederate was armed. In similar manner, conspirators are liable for any foreseeable crimes committed by any of their co-conspirators in furtherance of the conspiracy. The rule applies when a defendant's co-conspirator has committed a violation of Section 924(c). Sentencing Considerations : The penalties under Section 924(c) were once flat sentences. For example, the penalty for use of a firearm during the course of a predicate offense was a five-year term of imprisonment. Now, they are simply mandatory minimums, each carrying an unspecified maximum term of life imprisonment. A court may not avoid the mandatory minimums called for in Section 924(c)(1) by imposing a probationary sentence, or by ordering that a Section 924(c)(1) minimum mandatory sentence be served concurrently with some other sentence. A court may, however, take Section 924(c)'s mandatory minimum into account when calculating the appropriate sentence for the underlying predicate offense. If a criminal episode involves more than one predicate offense, more than one violation of Section 924(c) may be punished. Moreover, the second or subsequent convictions which trigger enhanced mandatory minimum penalties need not be the product of separate trials, but may be part of the same verdict. Thus, a defendant charged and convicted in a single trial on several counts may be subject to multiple, consecutive, mandatory minimum terms of imprisonment. A number of defendants have sought refuge in the clause of Section 924(c), which introduces the section's mandatory minimum penalties with an exception: "[e]xcept to the extent that a greater minimum sentence is otherwise provided by this subsection or by any other provision of law." Defendants at one time argued that the mandatory minimums of Section 924(c) become inapplicable when the defendant was subject to a higher mandatory minimum under the predicate drug trafficking offense under the Armed Career Criminal Act (18 U.S.C. § 924(e)), or some other provision of law. The Supreme Court rejected the argument in Abbot t v. United States . The clause means that the standard five-year minimum applies except in cases where the facts trigger one of Section 924(c)'s higher minimums. Armed Career Criminal Act (18 U.S.C. § 924(e)) In the case of a person who violates section 922(g) of this title and has three previous convictions by any court referred to in section 922(g)(1) of this title for a violent felony or a serious drug offense, or both, committed on occasions different from one another, such person shall be fined under this title and imprisoned not less than fifteen years.... 18 U.S.C. 924(e)(1). Section 922(g) outlaws the possession of firearms by felons, fugitives, and various other categories of individuals. The Armed Career Criminal Act (ACCA), quoted above, visits a 15-year mandatory minimum term of imprisonment upon anyone who violates Section 922(g), having been convicted three times previously of a violent felony or serious drug offense. The section most often ensnarls felons found in possession of a firearm who have three qualifying prior convictions. More often than not, the prior convictions are for violations of state law. Section 924(e) begins with unlawful possession of a firearm ("a person who violates section 922(g)"). The threshold possession offense need not itself involve a drug or violent crime. Section 924(e)'s 15-year mandatory minimum term of imprisonment instead flows as a consequence of the offender's prior criminal record ("three prior convictions ... referred to in section 922(g)(1) ... for a violent felony or a serious drug offense"). Not all violent felonies or serious drug offenses count. Certain convictions, principally those which have been overturned, pardoned, or otherwise set aside as a matter of state law, are exempt by definition. Moreover, the qualifying violent felonies or serious drug offenses must have been committed on different occasions. "[T]o trigger a sentence enhancement under the ACCA, a defendant's prior felony convictions must involve separate criminal episodes. However, offenses are considered distinct criminal episodes if they occurred on occasions different from one another. Two offenses are committed on occasions different from one another if it is possible to discern the point at which the first offense is completed and the second offense begins." Thus, separate drug deals on separate days will constitute offenses committed on different occasions though they involve the same parties and location. The fact that two crimes occurred on different occasions, however, must be clear on the judicial record; recourse to police records will not do. There is "no authority to ignore [an otherwise qualified] conviction because of its age or its underlying circumstances. Such considerations are irrelevant ... under the Act." Moreover, application of Section 924(e) provides no opportunity to challenge the validity of the underlying predicate offenses. The section defines serious drug offenses as those violations of state or federal drug law punishable by imprisonment for 10 years or more. Conviction under a statute which carries a 10-year maximum for repeat offenders qualifies, even though the maximum term for first-time offenders is 5 years. It is the maximum permissible term which determines qualification, even when discretionary sentencing guidelines calls for a term of less than 10 years, or when the defendant was in fact sentenced to a lesser term of imprisonment. To qualify as a predicate drug offense, the crime must have been at least a 10-year felony at the time of conviction for the predicate offense. The term "serious drug offense" includes attempts or conspiracies to commit a serious drug offense, as long as the attempt or conspiracy is punishable by imprisonment for 10 years or more. By the same token, there is no need to prove that the defendant knew of the illicit nature of the controlled substance involved in his predicate serious drug offense if the serious drug offense satisfied the 10-year requirement and, in the case of state law predicate, involved the manufacture, distribution, or possession with intent to distribute a controlled substance. The Supreme Court in Johnso n v. United States found unconstitutionally vague Section 924(e)'s violent felony residual clause ("the term 'violent felony' means any crime punishable by imprisonment for a term exceeding one year … that … involves conduct that presents a serious potential risk of physical injury to another."). The decision raises no question as to the validity of the mandatory minimum sentences imposed under the serious drug offense prong of Section 924(e). Safety Valve Low-level drug offenders can escape some of the mandatory minimum sentences for which they qualify under the safety valve found in 18 U.S.C. § 3553(f). Congress created the safety valve after it became concerned that the mandatory minimum sentencing provisions could have resulted in equally severe penalties for both the more and the less culpable offenders. It is available to qualified offenders convicted of violations of the possession-with-intent, simple possession, attempt, or conspiracy provisions of the Controlled Substances or Controlled Substances Import and Export Acts. For the convictions to which the safety valve does apply, the defendant must convince the sentencing court by a preponderance of the evidence that he satisfies each of the safety valve's five requirements. He may not have more than one criminal history point. He may not have used violence or a dangerous weapon in connection with the offense. He may not have been an organizer or leader of the drug enterprise. He must have provided the government with all the information and evidence at his disposal. Finally, the offense may not have resulted in serious injury or death. One Criminal History Point : More than one "criminal history point" is safety valve disqualifying. The criminal history point qualification refers to the defendant's criminal record. The Sentencing Guidelines assign criminal history points based on a defendant's past criminal record. Two or more points are assigned for every prior sentence of imprisonment or juvenile confinement of 60 days or more, or for offenses committed while the defendant was in prison, was an escaped prisoner, or was on probation, parole, or supervised release. A single point is assigned for every other federal or state prior sentence of conviction, subject to certain exceptions. Foreign sentences of imprisonment are not counted; nor are sentences imposed by tribal courts; nor summary court martial sentences; nor sentences imposed for expunged, reversed, vacated, or invalidated convictions; nor sentences for certain petty offenses or minor misdemeanors. Only the Nonviolent : The safety valve has two disqualifications designed to reserve its benefits to the nonviolent. One involves instances in which the offense resulted in death or serious bodily injury. The other involves the use of violence, threats, or the possession of weapons. The weapon or threat of violence disqualification turns upon the defendant's conduct or the conduct of those he "aided or abetted, counseled, commanded, induced, procured, or willfully caused." It is not triggered by the conduct of a co-conspirator unless the defendant "aided, abetted, [or] counsel ..." the co-conspirator's violence or possession. Disqualifying firearm possession may be either actual or constructive. Constructive possession is the dominion or control over a firearm or the place where one is located. Disqualification requires that the threat of violence or possession of a firearm be "in connection with the offense," and may include threats against witnesses. In many instances, possession of a firearm in a location where drugs are stored or transported, or where transactions occur, will be enough to support an inference of possession in connection with the drug offense of conviction. The Sentencing Guidelines define "serious bodily injury" for purposes of Section 3553(f)(3) as an "injury involving extreme physical pain or the protracted impairment of a function of a bodily member, organ, or mental faculty; or requiring medical intervention such as surgery, hospitalization, or physical rehabilitation." On its face, the definition would include serious bodily injuries, such one that required hospitalization, suffered by the defendant as a result of the offense. Unlike the gun and violence disqualification in Section 3553(f)(2), the serious injury disqualification in Section 3553(f)(3) may be triggered by the conduct of a co-conspirator. Only Single or Low Level Offenders : The Guidelines disqualify anyone who acted as a manager of the criminal enterprise or who receives a Guideline level increase for his aggravated role in the offense. Thus, by implication, it does not disqualify a defendant to have received a Guideline decrease based on his minimal or minor participation in a group offense or a defendant who acted alone. Tell All : The most heavily litigated safety valve criterion requires full disclosure on the part of the defendant. The requirement extends not only to information concerning the crimes of conviction, but also to information concerning other crimes that "were part of the same course of conduct or of a common scheme or plan," including uncharged related conduct. Neither Section 3553(f) nor the Sentencing Guidelines explains what form the defendant's full disclosure must take. At least one court has held that under rare circumstances disclosure through the defendant's testimony at trial may suffice. The stipulation of facts in a plea bargain without more ordinarily will not qualify. Most often, the defendant provides the information during an interview with prosecutors or by a proffer. The defendant must disclose the information to the prosecutor, however. Disclosure to the probation officer during preparation of the presentence report is not sufficient. Moreover, a defendant does not necessarily qualify for relief merely because he has proffered a statement and invited the prosecution to identify any additional information it seeks; for "the government is under no obligation to solicit information from a defendant." A defendant's proffer must be "truthful." On the other hand, past lies do not render a defendant ineligible for relief under the truthful disclosure criterion of the safety valve, although they may undermine his credibility. Substantial Assistance Upon motion of the Government, the court shall have the authority to impose a sentence below a level established by statute as a minimum sentence so as to reflect a defendant's substantial assistance in the investigation or prosecution of another person who has committed an offense. Such sentence shall be imposed in accordance with the guidelines and policy statements issued by the Sentencing Commission pursuant to section 994 of title 28, United States Code. 18 U.S.C. § 3553(e). Upon the Motion of the Government : As a general rule, a defendant is entitled to a sentence below an otherwise applicable statutory minimum under the provisions of Section 3553(e) only if the government agrees. The courts have acknowledged that due process or equal protection or other constitutional guarantees may provide a narrow exception. A defendant is entitled to relief if the government's refusal constitutes a breach of its plea agreement. A defendant is also "entitled to relief if the prosecutor's refusal to move was not rationally related to any legitimate Government end." Some courts have suggested that a defendant is entitled to relief if the prosecution refuses to move under circumstances that "shock the conscience of the court," or that demonstrate bad faith, or for reasons unrelated to substantial assistance. The court is under no obligation to grant the government's substantial assistance motion and the defendant is not entitled to be heard on the issue. To Reflect a Defendant's Substantial Assistance : Any sentence imposed below the statutory minimum by virtue of Section 3553(e) must be based on the extent of the defendant's assistance; it may not reflect considerations unrelated to such assistance. The district court appears to have some latitude as to the method used to calculate the reduction for substantial assistance, e.g. , "offense-level-based reductions, month-based reductions, and percentage-based reductions." The substantial assistance exception makes possible convictions that might otherwise be unattainable. Yet, it may also lead to "inverted sentencing," that is, a situation in which "the more serious the defendant's crimes, the lower the sentence – because the greater his wrongs, the more information and assistance he had to offer to a prosecutor"; while in contrast, the exception is of no avail to the peripheral offender who can provide far less substantial assistance. Constitutional Considerations Defendants sentenced to mandatory minimum terms of imprisonment have challenged their sentences on a number of constitutional grounds beginning with Congress's legislative authority and ranging from cruel and unusual punishment through ex post facto and double jeopardy to equal protection and due process. Each constitutional provision defines outer boundaries that a mandatory minimum sentence and the substantive offense to which it is attached must be crafted to honor. Thus far, constitutional challenges have largely been to no avail.

As a general rule, federal judges must impose a minimum term of imprisonment upon defendants convicted of various controlled substance (drug) offenses and drug-related offenses. The severity of those sentences depends primarily upon the nature and amount of the drugs involved, the defendant's prior criminal record, any resulting injuries or death, and in the case of the related firearms offenses, the manner in which the firearm was used. The drug offenses reside principally in the Controlled Substances Act or the Controlled Substances Import and Export Act. The drug-related firearms offenses involve the possession and use of firearms in connection with serious drug offenses and instances in which prior drug convictions trigger mandatory sentences for unlawful firearms possession. The minimum sentences range from imprisonment for a year to imprisonment for life. Although the sentences are usually referred to as mandatory minimum sentences, a defendant may avoid them under several circumstances. Prosecutors may elect not to prosecute. The President may choose to pardon the defendant or commute his sentence. The defendant may qualify for sentencing for providing authorities with substantial assistance or under the so-called "safety valve" provision available to low-level, nonviolent, first-time offenders. Over time, defendants, sentenced to mandatory terms of imprisonment for drug- related offenses, have challenged Congress's legislative authority to authorize them and the government's constitutional authority to enforcement. The challenges have met with scant success. Generally, courts have concluded that the provisions fall within congressional authority under the Commerce, Necessary and Proper, Treaty, and Territorial Clauses of the Constitution. By and large, courts have also found no impediment to mandatory minimum sentences under the Due Process, Equal Protection, or Cruel and Unusual Punishment Clauses, or the separation-of- powers doctrine. Proposals to amend drug-related mandatory minimum sentence provisions surfaced during the 114th Congress. In the 115th Congress, Senator Grassley introduced the successor to those proposals for himself and a bi-partisan list of co-sponsors as S. 1917, the Sentencing Reform and Corrections Act of 2017. Many of the same issues are addressed in H.R. 4261 introduced by Representative Scott of Virginia. This is an overview of the law from which those proposals spring. This report is an abridged version of a longer report, CRS Report R45074, Mandatory Minimum Sentencing of Federal Drug Offenses, without the citations to authority and origin of quotations found in the parent report.

Introduction In January 2005, federal white-collar employees received a 2.5% annual pay adjustment anda 1.0% locality-based comparability payment under Executive Order 13368, issued by PresidentGeorge W. Bush on December 30, 2004. (1) The payincrease is authorized by Section 640 of Title VIof Division H of the Consolidated Appropriations Act for FY2005 ( H.R. 4818 ), whichwas signed by the President on December 8, 2004, and became P.L. 108-447 . The Office ofPersonnel Management (OPM) published the salary tables for 2005 on its website on December 31,2004, and these are available at http://www.opm.gov . Table 1 shows the recommended localitypayments, the authorized locality payments, and the net annual and locality pay increases. Federal white-collar employees are to receive an annual pay adjustment and a locality-based comparability payment, effective in January of each year, under Section 529 of P.L. 101-509 , theFederal Employees Pay Comparability Act (FEPCA) of 1990. (2) Although the federal pay adjustmentsare sometimes referred to as cost-of-living adjustments, neither the annual adjustment nor the localitypayment is based on measures of the cost of living. FEPCA has never been implemented asoriginally enacted. The annual pay adjustment was not made in 1994, and in 1995, 1996, and 1998,reduced amounts of the annual adjustment were provided. For 1995 through 2005, reduced amountsof the locality payments were provided. Table 2 shows annual and locality pay adjustments underFEPCA for the years 1991 through 2005. Federal white-collar employees received an average 4.1%pay adjustment in January 2004. (3) The nationwideaverage net pay increase in January 2004, if theEmployment Cost Index (ECI) and locality-based comparability payments had been granted asspecified by FEPCA, would have been 15.15%. In 2005, federal white-collar employees receiveda 3.5% combined annual and locality pay adjustment. The nationwide average net pay increase inJanuary 2005, if the ECI and locality-based comparability payments had been granted as specifiedby FEPCA, would have been 13.06%. This report discusses the January 2005 annual adjustment and locality payments. It does not cover salary adjustments for federal officials, federal judges, or Members of Congress. (4) 2005 Pay Adjustments Annual Pay Adjustment Federal employees under the General Schedule (GS), Foreign Service Schedule, and Veterans Health Administration Schedule receive an annual pay adjustment. The President may annuallyadjust salaries of administrative law judges. Individuals in senior-level (SL) and scientific andprofessional (ST) positions may receive the annual adjustment at the discretion of agency heads. (5) Annual adjustments for contract appeals board members depend on whether Executive Schedule payis adjusted. The annual pay adjustment is based on the Employment Cost Index (ECI), which measures change in private sector wages and salaries. Basic pay rates are to be increased by an amount thatis 0.5 percentage points less than the percentage by which the ECI, for the quarter ending September30 of the year before the preceding calendar year, exceeds the ECI for that same quarter of thesecond year (if at all). The ECI shows that the annual across-the-board pay adjustment would be2.5% in January 2005, reflecting the September 2002 to September 2003 change in private sectorwages and salaries of 3.0%, minus 0.5%. (6) The payadjustment is effective as of the first day of thefirst applicable pay period beginning on or after January 1 of each calendar year. FEPCA authorizes the President to issue an alternative plan, calling for a different percentage than the ECI requires, in the event of a national emergency or serious economic conditions affectingthe general welfare. The alternative plan must be submitted to Congress before the September 1preceding the scheduled effective date. (7) ThePresident did not issue an alternative plan. Locality-Based Comparability Payments GS employees receive the locality-based comparability payments; the Pay Agent (8) may alsoextend these payments to employees in the Foreign Service and in senior-level, scientific andprofessional, administrative law judge, administrative appeals judge, and contract appeals boardmember positions. (9) The Pay Agent determines theapplicable pay cap level for certain non-GeneralSchedule employees to whom locality pay is extended. (10) OPM published final regulations inDecember 2001 to clarify and redefine the limitations. (11) Blue-collar workers under the Federal WageSystem (FWS) receive a prevailing rate adjustment that is generally capped at the average percentagepay adjustment received by federal white-collar employees. (12) For 2004, notwithstanding the cap, theblue-collar pay adjustment in a particular location will be no less than the increase received by GSemployees in that location. Blue-collar workers in Alaska, Hawaii, and other non-foreign areas willreceive a pay adjustment in 2004 that is no less than the increase received by GS employees in theRUS pay area. (13) Special rate employees receiveeither the special rate or the locality payment,whichever is higher. Law enforcement officers receiving special rates under Section 403 of FEPCAreceive both special rates and locality pay. Federal employees in Alaska and Hawaii, and outsideof the continental United States, receive a cost-of-living (COLA) allowance rather than locality pay. Under an interim rule published by OPM in the Federal Register on August 5, 2004, a locality rate of pay would be considered as basic pay in computing danger pay allowances and postdifferentials for certain employees who are temporarily assigned to foreign areas and for whom theDepartment of State has established allowances for danger. (14) The locality-based comparability payments procedure was established by FEPCA. It provides that payments are to be made within each locality determined to have a non-federal/federal paydisparity greater than 5%. When uniformly applied to GS employees within a locality, theadjustment is intended to make their pay rates substantially equal, in the aggregate, to those ofnon-federal workers for the same levels of work in the same locality. FEPCA authorizes the President to fix an alternative level of locality-based comparability payments if, because of a national emergency or serious economic conditions affecting the generalwelfare, he considers the level that would otherwise be payable to be inappropriate. At least onemonth before these comparability payments would be payable (by November 30, 2004), he wouldhave to prepare, and transmit to Congress, a report describing the alternative level of payments heintended to provide, including the reasons why this alternative level would be necessary. (15) PresidentBush issued an alternative plan on November 29, 2004, stating that the locality pay percentagesauthorized in 2004 would remain in effect in 2005. (16) (See the discussion under "The President'sRecommendation," below.) Bureau of Labor Statistics (BLS) Surveys. Under the law, the BLS conducts surveys that document non-federal rates of pay in each pay area. InJanuary 2005, there will be 32 pay areas nationwide. Until October 1996, the surveys wereconducted under the Occupational Compensation Survey Program (OCSP), which had beenapproved by the Federal Salary Council and the Pay Agent. Since then, the surveys had beenconducted under the National Compensation Survey (NCS) program, which was not approved foruse with the January 2000, January 2001, January 2002, and January 2003 locality payments. Forthe January 2004 locality payments, a phase-in of NCS survey data was approved, and this phase-inwill continue for January 2005 by applying a weight of 75% to NCS results and a weight of 25% toOCSP results. The survey results are submitted to the Office of Personnel Management (OPM),which serves as the staff to the Federal Salary Council and the Pay Agent. OPM documents federalrates of pay in each of the pay areas and compares non-federal and GS salaries, by grade, for eachpay area. The average salaries at each grade, both federal and non-federal, are then aggregated andcompared to determine an overall average percentage pay gap for each area. By law, the disparitybetween non-federal and federal salaries is to be reduced to 5%. Therefore, the overall averagepercentage pay gap for each pay area is adjusted to this level each year by OPM. This adjusted gapis called the target gap. FEPCA also stipulates that a certain percentage of the target gap between GS average salaries and non-federal average salaries in each pay area is to be closed each year. Twenty percent of thegap was closed in 1994, the first year of locality pay, as authorized by FEPCA. An additional 10%of the gap was to be closed each year thereafter, meaning that 30% of the gap was to be closed in1995, 40% in 1996, 50% in 1997, 60% in 1998, 70% in 1999, 80% in 2000, and 90% in 2001. Ineach of these years, the locality pay increase has been implemented at a much lower percentage,reducing the gap slowly; 23.5% of the gap was closed in 1995, 25.9% in 1996, 28.3% in 1997,29.2% in 1998, 31% in 1999, 33.5% in 2000, 38.1% in 2001, 42.3% in 2002, 44% in 2003, and53.7% in 2004. These percentages represent the gap as recalculated after each adjustment. ByJanuary 2002, and continuing each year thereafter, FEPCA specified that amounts payable could notbe less than the full amount necessary to reduce the pay disparity of the target gap to 5%. Thispercentage is applied to the target gap in each pay area to determine the locality rates recommendedby the Pay Agent to the President, after receiving advice from the Federal Salary Council. (17) The pay gaps on which the locality payments are based are 22 months old by the effective date of the adjustment; thus, March 2003 gaps determine the January 2005 locality payments. Due to thefact that the NCS surveys were not approved for use in determining the January 2000, January 2001,January 2002, and January 2003 locality payments, that the NCS surveys were being phased in forthe January 2004 locality payments, and that the phase-in continues for the January 2005 localitypayments, the gaps were determined by the following means. The March 2003 gaps were determinedby using the most recent OCSP survey data and NCS survey data which ranged from December 2001through October 2002 for each pay area. Since the BLS had discontinued the OCSP program inOctober 1996, the OCSP pay survey data for some of the largest pay areas were about eight yearsold. Specifically, the New York data were as of July 1995; the Washington, DC, data were as ofOctober 1995; and the Los Angeles data were as of November 1995. Survey data for each of theother pay areas varied from January 1996 to November 1996. The data for the "Rest of the UnitedStates" pay area were as of November 1996. In its report on the 2005 locality payments, the PayAgent explained how the pay gaps were determined, stating that, "To ensure that local pay disparitiesare measured as of one common date, it is necessary to 'age' the BLS survey data [using the ECIbased on wages and salaries for white-collar civilian workers, excluding those in sales] to a commonreference date [March 2003] before comparing [them] to GS pay data of the same date." (18) Report of the Federal Salary Council. The council reported the following results from the application of this methodology. As of March 2003,the overall gap between GS average salaries (excluding existing locality payments, special rates, andcertain other payments) and non-federal average salaries was 31.82%. The amount needed to reducethis disparity to 5%, as mandated by FEPCA, averages 25.54% for 2005. The calculation of the paygaps excludes existing locality payments. After considering the 12.12% average locality rate paidin 2003, the overall average pay gap in 2003 was 17.57%. (19) Locality Payments. In order to meet the target for closing the pay gap, the council recommended locality pay raises ranging from 18.14% in the "Restof the United States" (RUS) pay area to 47.96% in the San Jose-San Francisco pay area. Thepayment recommended for the Washington, DC, pay area is 29.66%. Because the new locality ratereplaces the existing locality rate, the change in locality rates is derived by comparing 2004 localitypayments with those recommended for 2005. This comparison results in recommended net increasesfor 2005, if the ECI and locality-based comparability payments were granted as required by law, of9.19% in the RUS pay area to 22.10% in the San Jose-San Francisco pay area, and 15.94% in theWashington, DC, pay area. The nationwide average net pay increase, if the ECI and locality-basedcomparability payments were granted as required by law, would have been 13.06% in 2005. Locality Pay Areas and Boundaries for 2005. The council recommended continuation of 29 of the 32 locality pay areas that existed in 2004. TheKansas City, Orlando, and St. Louis locality pay areas were recommended to become part of the"Rest of the United States" pay area, as discussed below under the section on locations with pay gapsbelow RUS. The council also recommended that the new Office of Management and Budget (OMB)definitions for metropolitan statistical areas be used to define locality pay area boundaries. Underthis recommendation, the largest defined areas, called Combined Statistical Areas (CSAs) would beused; the new Micropolitan Statistical Areas would be used only when part of larger CSAs; and theOMB definitions for counties in New England would be used. (20) Locations with Pay Gaps Below the "Rest of the United States" Pay Area. In previous years, the council recommended that areas with pay gapsbelow the pay gap in RUS receive the same adjustment as RUS. Under the methodology which hasbeen used since locality pay was first implemented in 1994, areas with little data available in BLSsurveys and pay gaps that were two-tenths of a percentage point (0.2%) or more below RUS or belowthe RUS pay area for three surveys were to be dropped as surveyed discrete pay areas, and theresources used to conduct these surveys were to be redirected to survey new locations. Under theOCSP surveys, pay gaps in four areas -- Huntsville, Indianapolis, Kansas City, and Orlando -- arebelow RUS in 2003 and have been below or close to RUS for several years. Under the NCS surveys,pay gaps in five areas -- Columbus, Dayton, Kansas City, Orlando, and St. Louis -- are below RUSin 2003. Kansas City, Orlando, and St. Louis are below RUS under the weighted averages of both the OCSP and NCS surveys. For 2005, the council recommended that salary surveys in these areas bediscontinued and that the three areas become part of RUS. The resources previously used to conductsurveys in Kansas City, Orlando, and St. Louis would be used to carry out surveys "in as many ofthe following locations as possible": Phoenix-Mesa-Scottsdale, AZ MSA; Memphis, TN-MS-ARMSA; Austin-Round Rock, TX MSA; Louisville-Elizabethtown-Scottsberg, KY-IN CSA;Buffalo-Cheektowaga-Tonawanda, NY MSA; and Raleigh-Durham-Cary, NC CSA. These six areashave more than 2,500 General Schedule (GS) employees, a nonfarm workforce of more than375,000, and a BLS pay differential of greater than five percent when compared to the RUS paydifferential. The additional areas listed above are ranked by GS employment totals. The councilrecommended that the additional areas be surveyed in the order in which they are listed. (21) Evaluating Areas in the Vicinity of Locality Pay Areas. To evaluate areas currently in the "Rest of the United States" payarea for possible inclusion in adjacent locality pay areas, the council recommended the followingcriteria. For adjacent MSAs and CSAs : To be included in an adjacent locality pay area, an adjacent MSA or CSA currently in the RUS locality pay area must haveat least 1,500 GS employees and an employment interchange measure (22) of at least 7.5percent. For adjacent counties that are not part of a multi-county MSA or CSA : To be included in an adjacent locality pay area, an adjacent county thatis currently in the RUS locality pay area must have at least 400 GS employees and an employmentinterchange measure of at least 7.5 percent. For federal facilities that cross locality pay area boundaries : To be included in an adjacent locality pay area, that portion of a federal facility outsideof a higher-paying locality pay area must have at least 750 GS employees; the duty stations of themajority of these employees must be within 10 miles of the separate locality pay area; and asignificant number of these employees must commute to work from the higher-paying locality payarea. (23) For counties currently included in an MSA-based locality pay area that would be excluded under the new MSA and CSA definitions : To continueto be included in the locality pay area, any county (or portion of a county in the case of York County,ME, where the full county was never in the adjacent locality pay area), must have an employmentinterchange rate of at least 15% . (24) The council also recommended that "areas already included in a locality pay area as a result of the new criteria should not be subject to further review." (25) Requests for Changes in Locality Pay Area Boundaries. Under another council recommendation, requests for changesin the boundaries of locality pay areas, to be considered by the council, would have to include thefollowing information. The credentials of the requesting group establishing how the group represents GS employees in the area. Identification of the geographic area covered by theproposal. The number of GS employees in the area by agency. A detailed explanation of why the area should be added to the adjacent localitypay area. Current job vacancy rates in the area for GS positions. Documentation of recruitment or retention problems for GS employees in thearea. Documentation that agencies have tried other pay flexibilities, includingrequests for special salary rates and use of recruitment, retention, and relocation payments, and thatthese flexibilities did not solve recruitment and retention problems. An indication that the headquarters of affected agencies know about andsupport the request. Distance measures by road between the requesting area and the locality payarea. A summary of transportation facilities linking the requesting area and thelocality pay area, including commuter rail or other mass transit facilities. Agency organizational relationships between activities covered by the proposaland activities in another locality pay area. (26) Methodology of the BLS Surveys. The council, in its memorandum to the Pay Agent on the 2001 locality payments (submitted on October 22, 1999),recommended that five improvements be made in the BLS National Compensation Survey program. The council provided a progress report on the improvements in its memorandum to the Pay Agenton the 2005 locality payments. The improvements and progress to date are the following. Use three factors, rather than nine, to assign the correct federal grade levels to the non-federal jobs surveyed, and provide grade level guides for occupational families. "OPM hascompleted development of a four-factor evaluation system for use in the surveys, and BLS hassuccessfully used the new approach in field tests and has already begun to use the Knowledge FactorGuide. BLS will begin to phase the new approach into BLS surveys in the next surveycycle." Develop a model to estimate missing data. "BLS has designed and implemented an econometric model to estimate salaries for jobs not randomly selected in thesurveys. The model is derived from survey data and estimates pay for missing jobs as a function oflocation, occupation, and grade level." Improve the matching of federal survey jobs with non-federal survey jobs, and provide subcategories for occupations which are "not elsewhere classified." "OPM formed aninteragency working group that developed a crosswalk between Federal job classifications and thenew Standard Occupational Classification System. BLS used the new crosswalk ... for data deliveredthis year." For supervisory occupations, grade the highest level of work supervised. Adjust the grade level based on the level of supervision, instead of grading the supervisory job itself. "BLS and Pay Agent staffs have designed a new approach based on grading the highest level of worksupervised and adding one, two, or three grades based on the level of supervision ... BLS will beginto phase in the new approach in surveys conducted in the next survey cycle." Develop criteria to identify and exclude jobs that would be classified above GS-15 in government. "BLS has developed methods for identifying and excluding non-Federal jobsthat would be classified above GS-15. These data were excluded from the data delivered to the PayAgent" in 2003. (27) Pay Agent Report. After considering the council's recommendations, the Pay Agent endorsed them in its December 4, 2003, annual reportto the President on the 2005 locality payments. The Pay Agent stated that "it would be unwise toallow the locality pay increases shown in [its] report to take effect in January 2005" because of "thecurrent national emergency." (28) The endorsementof the council's recommendations on defininglocality pay areas was tentatively approved. According to the Pay Agent, OPM, on the Agent'sbehalf, will publish a notice in the Federal Register in 2004 to explain the proposed changes to thelocality pay area boundaries and solicit public comments. The final rule will be published in timefor implementation in January 2005. (29) On September 22, 2004, OPM published proposed regulations in the Federal Register to link the definitions of General Schedule locality pay area boundaries to the geographic scope of metropolitan area definitions established by [OMB]. Thisproposal makes use of new criteria for evaluating areas adjacent to locality pay areas. The proposedregulations would retain all of the existing locality pay areas, which would be expanded to includea number of additional locations. (30) According to OPM, under the proposed changes, about 15,000 (31) General Schedule (GS)employees would move from the Rest of the United States pay area to metropolitan locality pay areasand "about 16,000 GS employees [would be retained] in metropolitan locality pay areas that wouldhave been excluded if only the new MSA definitions were used." (32) OPM accepted comments on theproposed regulations through November 8, 2004. The final regulations were published in the Federal Register on December 17, 2004, and became effective immediately upon publication so as to be applicable for the January 2005 payadjustment. In its discussion accompanying the regulations, OPM noted that on October 21, 2004,the Federal Salary Council recommended to the Pay Agent that the York-Hanover-Gettysburg, PACSA, having met the criteria for inclusion, be added to the Washington-Baltimore locality pay area. The Pay Agent endorsed this recommendation and it was incorporated into the final rule. (33) The Pay Agent estimated that the cost of the January 2005 locality-based comparability payments would be about $8 billion if the full amount necessary to reduce the pay disparity of thetarget gap to 5% were provided in January 2005 as required by FEPCA. (34) Table 1 shows thecouncil's and the Pay Agent's recommended locality payments for January 2005. As for the recommended improvements in the BLS National Compensation Survey Program, the Pay Agent reiterated that those focused on matching federal and non-federal jobs, excludingrandomly selected non-federal jobs that would be classified above GS-15 in the government, andproblems associated with random selection of survey jobs, have been implemented. Improvementsfocused on assigning GS grades to randomly selected survey jobs and to randomly selected surveyjobs with supervisory duties will be phased-in beginning in 2004. (35) In endorsing the council's recommendation that Kansas City, Orlando, and St. Louis become part of the "Rest of the United States" pay area, the Pay Agent asked the BLS to discontinue salarysurveys in these three areas as soon as feasible and begin augmenting existing surveys in as manyof the six areas identified by the council as possible. (The six areas, as stated above, arePhoenix-Mesa-Scottsdale, AZ MSA; Memphis, TN-MS-AR MSA; Austin-Round Rock, TX MSA;Louisville-Elizabethtown-Scottsberg, KY-IN CSA; Buffalo-Cheektowaga-Tonawanda, NY MSA;and Raleigh-Durham-Cary, NC CSA.) BLS is to formulate a survey plan and report to the Pay Agentin August 2004 "on how many of the new areas could be surveyed for locality pay purposes andunder what timeline." (36) OPM's proposed regulations on locality pay area boundaries published in the Federal Register on September 22, 2004, state that further review revealed that "it would be advisable to continue tomonitor the disparity between Federal and non-Federal pay levels in the Kansas City, Orlando, andSt. Louis areas before determining whether those areas should be discontinued." (37) The finalregulations note that the Federal Salary Council recommended to the Pay Agent on October 21,2004, that the Kansas City, Orlando, and St. Louis pay areas be discontinued in 2006. OPM, onbehalf of the Pay Agent, will publish proposed regulations to implement this recommendation in2005. (38) The Pay Agent stated that, while it supported updating the boundaries of locality pay areas, such changes were "an interim measure, pending fundamental reforms in the Federal white-collar paysystem." The Agent has "serious concerns about the utility of a process that requires a singlepercentage adjustment in the pay of all white-collar civilian Federal employees in each locality payarea without regard to the differing labor markets for major occupational groups or the performanceof individual employees." (39) The methodology for setting federal pay adjustments has been questioned since FEPCA's enactment. In 1993, a draft memorandum from the Pay Agent to the Federal Salary Councilconcluded that "the current methodology is flawed because the completeness of the data variesgreatly among survey areas, because the gaps are not credible in light of other labor marketindicators, and because the single percentage adjustment for all jobs in a locality is a poor reflectionof market realities." (40) Despite these concerns,OPM has never submitted a legislative proposal toCongress to amend FEPCA. A white paper on compensation issued by OPM in April 2002 reviewedcurrent policies and the need for more flexibility in setting General Schedule pay, but did not includeany recommendations. (41) In August 2004, the Coalition for Effective Change (42) released a paper which strongly endorsedimplementation of a pay-for-performance system in the federal government. Among the factors thegroup identified as essential to establishing such a system are that it be flexible, reviewable,periodically evaluated and adjusted, and adequately funded. (43) Reform of the federal government'spay and performance management systems is identified as a top priority in a report entitled "OPM'sGuiding Principles for Civil Service Transformation," posted on the agency's website on October25, 2004. The report advocates government-wide legislation that provides personnel flexibilitiessimilar to those provided to the Departments of Homeland Security and Defense to other executivebranch agencies. Broad pay bands are one such flexibility. (44) Once both the annual and locality pay percentage amounts are determined, the actual pay rates are calculated as follows. First, the basic General Schedule (GS) is increased by the annualadjustment percentage, resulting in a new GS schedule. These new basic GS rates are then increasedby the locality payment. The resulting pay rates (annual + locality) are compared with the 2004 payrates (annual + locality) to derive the net increase in pay for 2005. The President's Recommendation for FY2005 President George W. Bush issued his Administration's FY2005 budget on February 2, 2004. The budget proposed a 1.5% federal civilian pay adjustment, but did not state how the increasewould be allocated between the annual and locality adjustments required by FEPCA in January2005. (45) The statutory annual pay adjustmentrequired in January 2005 is 2.5%. If the Presidentwanted to change the required rate of the annual adjustment, he would have had to submit analternative plan for the annual adjustment to Congress by September 1, 2004. He did not issue analternative plan. To change the amount of locality-based comparability payments, he had to submitan alternative plan for the locality payments to Congress by November 30, 2004; otherwise thedouble-digit percentages stated in the Pay Agent report for the locality payments would have becomeeffective. The President issued such an alternative plan on November 29, 2004, which stated that the locality pay percentages in effect for 2004 would continue for 2005. According to the President, heissued the plan because the nation is in the midst of a national emergency, which includes operationsin Afghanistan and Iraq, and the locality pay adjustments required by law would "divert resourcesfrom and interfere with our Nation's ability to fight the war on terror." He stated that the localitypayments would average 10.6 percent, would cost about $9.8 billion in FY2005, and when coupledwith the 2.5% annual adjustment would result in an overall average pay increase of some 13.1%. This increase, said the President, would far exceed the 1.5% pay adjustment that he proposed in theFY2005 budget and, since the additional amount would have to be absorbed, could result in agencieshaving to freeze hiring. The alternative plan notes that the quit rate for the federal government is "atan all-time low of 1.6 percent per year, well below the overall average quit rate in private enterprise"and that recruitment and retention bonuses and special salary rates are available to address anystaffing difficulties. (46) The President's budget also proposed an appropriation of $300 million for the Human CapitalPerformance Fund. The FY2004 appropriation ( P.L. 108-199 ) was $1 million, but after the 0.59%rescission was $994,000. The fund is designed to create performance-driven pay systems for employees and reinforce the value of employee performance management systems. It willprovide additional pay over and above any annual, across-the-board pay raise to certain civilianemployees based on individual or organizational performance and/or other critical agency humancapital needs. Ninety percent of funds appropriated are to be distributed to agencies on a pro ratabasis, upon OPM approval of an agency's plan. The remainder, and any amount withheld fromagencies due to inadequate plans, will be allocated at the discretion ofOPM. (47) The Consolidated Appropriations Act for F2005, P.L. 108-447 , does not provide an appropriation for the fund. (See discussion under "Human Capital Performance Fund," below.) The Senate Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia of the Committee on Governmental Affairs conducted a hearing toexamine the progress made in implementing human capital flexibilities on July 20, 2004. Testifyingbefore the subcommittee, OMB's Deputy Director for Management, Clay Johnson, identified payincreases targeted to meet specific recruitment or retention needs as an eventuality for the federalworkforce. According to him: Today, we have targeted, not widespread, recruitment and retention problems in our civilian workforce, and pay surveys reveal that we are currentlyoverpaying employees in some occupational groups in some locations.... [W]e certainly should notgrant all civilian employees the same increase no matter what the need because that wouldn't befocusing on the desired result: that would be providing too small an increase where we do haverecruitment and retention problems, and too large an increase where we do not have aproblem. (48) Congressional Recommendations for FY2005 The size of the federal white-collar pay adjustment is considered annually by Congress, whichmay legislate a pay adjustment that is different from the adjustment recommended by the Presidentin the budget or that might be authorized by the President in an alternative plan. The January 1999(3.6%), January 2000 (4.8%), January 2002 (4.6%), January 2003 (4.1%), and January 2004 (4.1%)overall pay adjustment amounts were set by Congress. (49) Concurrent resolutions introduced in the House of Representatives by Representative Steny Hoyer ( H.Con.Res. 356 ) on February 3, 2004, and in the Senate by Senator PaulSarbanes ( S.Con.Res. 88 ) on February 9, 2004, expressed the sense of the Congress thatthere should continue to be parity between the pay adjustments for the uniformed military and federalcivilian employees. The resolutions noted the longstanding policy of parity between both themilitary and civilian pay increases. Such resolutions are effective only in the chamber in which theyare proposed, express nonbinding opinions on policies, and do not require the President's signature. Ten Members of Congress from the Washington, DC, metropolitan area wrote a letter to President Bush on January 21, 2004, urging him to "embrace the principle of pay parity" for federalcivilian employees and the uniformed military. (50) The FY2005 budget proposes a 3.5% pay increasefor the military and a 1.5% pay increase for civilian employees. (51) Concurrent Budget Resolutions The Concurrent Resolution on the Budget for FY2005 ( S.Con.Res. 95 ) was agreed to by the Senate by a 51 to 45 vote (Record No. 58) on March 12, 2004. Section 505 includes a Senseof the Senate provision regarding pay parity that states that "the rate of increase in the compensationof civilian employees should be equal to that proposed for the military in the President's Fiscal Year2005 Budget." On March 29, 2004, the House of Representatives struck all after the resolving clauseof S.Con.Res. 95 and inserted in lieu thereof the text of H.Con.Res. 393 (theHouse version of the concurrent resolution discussed below) and then agreed to S.Con.Res.95. As agreed to by the House, the concurrent resolution does not include a pay parityprovision. The conference report on S.Con.Res. 95 ( H.Rept. 108-498 ), agreed to by theHouse by a 216 to 213 vote (Roll No. 198) on May 19, 2004, also does not include a pay parityprovision. (52) The S.Con.Res. 95 conferencepapers are being held at the desk in the Senate. The House version of the Concurrent Resolution on the Budget ( H.Con.Res. 393 ), as agreed to by the House of Representatives by a 215 to 212 vote (Roll No. 92) on March 25, 2004,does not include a Sense of the House provision on pay parity. An amendment to provide such,offered by Representative James Moran during House Budget Committee markup of the concurrentresolution on March 17, 2004, was not agreed to by a 21 to 15 vote. Representatives Jim Nussle,the Budget Committee chairman; Ernest Istook Jr., the Transportation, Treasury, and IndependentAgencies Appropriations Subcommittee chair; and William Thornberry were among those whoopposed the amendment offered by Representative Moran. One argument against supporting the payparity amendment was that the job of a member of the uniformed military is more demanding thanthat of a civilian employee and the pay adjustment should reflect this difference. During discussions surrounding the vote on H.Con.Res. 393 , the Speaker of the House, Representative Dennis Hastert, agreed to allow a separate vote in the House ofRepresentatives on a pay parity resolution ( H.Res. 581 ) offered by Representative TomDavis and 22 cosponsors. The resolution states the Sense of the House that "in fiscal year 2005,compensation for civilian employees ... should be adjusted at the same time, and in the sameproportion, as are rates of compensation for members of the uniformed services." On March 31,2004, the House agreed to H.Res. 581 by a 299 to 126 vote (Roll No. 104). Supporters ofH.Res. 581 expressed the hope that the result of the vote would be considered by theconference committee on the Concurrent Budget Resolution. The resolution does not become law, but it provides the framework within which Congress subsequently considers spending legislation. Any congressional recommendation on the civilianfederal pay adjustment has usually been included in the Treasury, Postal Service, and GeneralGovernment Appropriations bill, which, as of the 108th Congress, has been combined with theDepartment of Transportation Appropriations bill to be the Departments of Transportation andTreasury and Independent Agencies Appropriations bill. Departments of Transportation and Treasury and Independent Agencies AppropriationsBill, 2005 Annual and Locality Pay Adjustments. Section 638 of the Departments of Transportation and Treasury and Independent Agencies AppropriationsBill, 2005, H.R. 5025 , as passed by the House of Representatives on September 22,2004, on a 397-12 (Roll No. 465) vote, would provide a 3.5% pay adjustment for federal civilianemployees, including those in the Departments of Defense and Homeland Security. The bill doesnot recommend how the increase should be divided between the annual and locality pay adjustments. The House Subcommittee on Transportation, Treasury, and Independent Agencies marked up thebill on July 15, 2004, and by voice vote approved the bill, as amended, for consideration by the fullcommittee. On July 22, 2004, the House Committee on Appropriations marked up the bill and byvoice vote ordered it to be reported favorably to the House of Representatives. H.R. 5025was reported to the House by the Appropriations Committee on September 8, 2004 ( H.Rept.108-671 ). (53) During the full committee markup,the committee agreed to an amendment offered byRepresentative Steny Hoyer, joined by Representatives James Moran and Frank Wolf, to provide the3.5% pay adjustment. Section 501 would provide that the pay increase would be absorbed withinthe levels appropriated in the act or in previous appropriations acts. Under Section 636, funds couldnot be used to implement or enforce regulations for locality pay inconsistent with recommendationsof the Federal Salary Council. The House Appropriations Committee report that accompanies the House bill directs OPM "to include with the 'Annual Report on Locality-Based Comparability Payments for the GeneralSchedule' in fiscal year 2005 and all future fiscal years a report comparing the total pay and non-paycompensation packages of the Federal workforce and the private sector." (54) OMB's Statement of Administration Policy on H.R. 5025 urged the House to adopt the President's proposal for a 1.5% pay adjustment and expressed concern that the Human CapitalPerformance Fund, "a more targeted approach to move the Federal pay system into one that wouldpromote high performance," is not fully funded. It also stated the Administration's opposition torestricting its "flexibility to adjust locality pay areas to meet changing needs and conditions" and to specifying a 3.5 percent across-the-board increase for Department of Homeland Security (DHS) and Department of Defense (DOD) civilian employees. This provision would limit flexibility as DHS and DOD use the new authorities ... to design andimplement a modern personnel and pay system.... [T]he Administration opposes the provisionrelating to pay adjustments for blue-collar employees, which would disregard the results of localblue-collar wage surveys and provide a pay increase identical to local General Schedule employees. These provisions could result in paying blue-collar employees at rates higher than local labor marketsand would create a host of technical and equity problems. (55) Section 640 of S. 2806 , the Senate version of the Transportation/Treasury appropriations bill, as reported to the Senate by the Committee on Appropriations, also wouldprovide a 3.5% pay adjustment for federal civilian employees, including those in the Departmentsof Defense and Homeland Security. Like the House bill, the Senate bill does not recommend howthe increase should be divided between the annual and locality pay adjustments. The SenateSubcommittee on Transportation, Treasury, and General Government marked up the bill onSeptember 9, 2004, and by voice vote approved the bill, as amended, for consideration by the fullcommittee. On September 14, 2004, the Senate Committee on Appropriations marked up the billand on a 29-0 vote ordered it to be reported to the Senate. S. 2806 was reported onSeptember 15, 2004 ( S.Rept. 108-342 ). (56) As the second session of the 108th Congress was drawing to a close, the Departments of Transportation and Treasury and Independent Agencies appropriations bill for 2005 was incorporatedin H.R. 4818 , the Consolidated Appropriations Act for FY2005, as Division H. TheHouse of Representatives agreed to the conference report accompanying H.R. 4818 on a344-51 (1 Present) vote (Roll No. 542) on November 20, 2004, and the Senate agreed to theconference report on a 65-30 (No. 215) vote the same day. (57) The conference agreement, at Section640(a), provides a 3.5% pay adjustment for federal civilian employees, including those in theDepartments of Defense and Homeland Security. The adjustment is effective as of the first day ofthe first applicable pay period beginning on or after January 1, 2005. Section 501 of the conferenceagreement requires the pay raises to be funded within appropriated levels. The conferees also directthe OPM Director to submit a report by March 4, 2005, comparing the pay and non-paycompensation packages of the federal workforce and the private sector. President Bush signed H.R.4818 on December 8, 2004, and it became P.L. 108-447 . The pay provisions are at Section640(a) and Section 501 of the law. On December 30, 2004, President Bush issued Executive Order 13368, which allocated the 3.5% pay increase as 2.5% annual and 1.0% locality. (58) OPM published the 2005 salary tables on itswebsite the next day, and these are available at http://www.opm.gov . Table 1 shows therecommended locality payments, the authorized locality payments, and the net annual and localitypay increases. In a November 17, 2004, letter to the Chairmen and Ranking Members of the House and Senate Committees on Appropriations, the OMB Director, Joshua Bolten, stated the Administration's strongopposition to a federal civilian pay raise in excess of 2.5%. The letter stated that a 3.5% payadjustment was $2.2 billion more than the President's request and provides a percentage increase that exceeds inflation, the statutory base pay increase, and the average increase in private sector pay as measured by theEmployment Cost Index. Any recruitment or retention problems facing the Government are limitedto a few areas and occupations and do not warrant such an arbitrary across-the-board increase. Anincrease to 3.5% across-the-board would be very difficult for agencies to absorb, particularly whencombined with any other across-the-board reductions used to meet overall spending targets, and willlikely require reductions-in-force or shifts of resources away from critical programmaticpriorities. (59) Human Capital Performance Fund. The House Committee on Appropriations recommended and the House passed in H.R. 5025 anappropriation of $12.5 million for the Human Capital Performance Fund. This amount is $287.5million less than the President's request. The House bill would authorize the OPM Director todetermine and transfer to federal agencies such amounts as necessary to carry out the purposes of thefund. No funds would be obligated or transferred until the Director has notified the relevantsubcommittees of the Committees on Appropriations of the approval of an agency's performanceplan and the prior approval of such subcommittees has been obtained. OPM is directed to reportannually to the House and Senate Appropriations Committees "on the performance pay plans thathave been approved, and the amounts that have been obligated or transferred." (60) The Senate Committee on Appropriations did not recommend funding for the performance fund in S. 2806 . The committee report accompanying the Senate bill states that such aninitiative "should be budgeted and administered within the salaries and expenses of each individualagency." (61) The Consolidated Appropriations Actfor FY2005, P.L. 108-447 , does not provide anappropriation for the fund. The President's Recommendation for FY2006 President Bush issued his Administration's FY2006 budget on February 7, 2005. The budgetproposes a 2.3% federal civilian pay adjustment, but does not state how the increase would beallocated between the annual and locality adjustments required by FEPCA in January 2006. (62) Thestatutory annual pay adjustment required in January 2006 is 2.1%. If the President wants to changethe required rate of the annual adjustment, he must submit an alternative plan for the annualadjustment to Congress by September 1, 2005. To change the amount of locality-basedcomparability payments, he must submit an alternative plan for the locality payments to Congressby November 30, 2005. The nationwide average net pay increase, if the annual and locality-basedcomparability payments were granted as required by law, would be 6.93% in 2006. Congressional Recommendations for FY2006 Concurrent resolutions introduced in the House of Representatives by Representative StenyHoyer ( H.Con.Res. 40 ) on February 1, 2005, and in the Senate on the same day bySenator Paul Sarbanes ( S.Con.Res. 8 ) express the sense of the Congress that thereshould continue to be parity between the pay adjustments for the uniformed military and federalcivilian employees. The President's budget proposes a 3.1% pay adjustment for the uniformedmilitary. Such resolutions are effective only in the chamber in which they are proposed, expressnonbinding opinions on policies, and do not require the President's signature. Ten Members of Congress from the Washington, DC, metropolitan area wrote a letter to President Bush on January 25, 2005, urging him to "embrace the principle of pay parity" for federalcivilian employees and the uniformed military. (63) The letter states that the signatories "cannot expressstrongly enough the importance of continuing the tradition of pay parity" as the war on terrorismcontinues and as the retirement of the government's most experienced employees looms on thehorizon. The Members also state their willingness to explore initiatives on effectively allocatinghuman capital expenditures and ensuring that the federal government is able to recruit, retain, andreward employees. Earlier, on January 5, 2005, Representative Hoyer sent a letter to OMB DirectorClay Johnson III renewing his earlier offers "to discuss the administration's objectives regardingpay-for-performance and the implementation of FEPCA." (64) Table 1. January 2005 Recommended Locality Payments, Authorized Locality Payments, and Net Annual and Locality Pay Increase Source: Memorandum for the President's Pay Agent from the Federal Salary Council, Level ofComparability Payments for January 2005 and Other Matters Pertaining to the Locality PayProgram (Washington: Oct. 28, 2003), Attachment 1; and Report on Locality-Based ComparabilityPayments for the General Schedule, Annual Report of the President's Pay Agent (Washington: Dec.2003), p. 24. U.S. President (Bush), "Adjustments of Certain Rates of Pay," Executive Order 13368, Federal Register , vol. 70, Jan. 5, 2005, pp. 1145-1156. MSA refers to a Metropolitan StatisticalArea. CSA refers to a Combined Statistical Area. The component parts of each pay area aredescribed in U.S. Office of Management and Budget, Revised Definitions of Metropolitan StatisticalAreas, New Definitions of Micropolitan Statistical Areas and Combined Statistical Areas, andGuidance on Uses of the Statistical Definitions of These Areas , OMB Bulletin No. 03-04, June 6,2003. Table 2. Annual and Locality Pay Adjustments Under FEPCA, 1991 to 2005 Sources and Notes : Locality-based comparability payments began in 1994. For the ECI-requiredannual adjustment, see U.S. Department of Labor, Bureau of Labor Statistics, Employment CostIndex , September of each year. For the locality payments required by FEPCA, see Report onLocality-Based Comparability Payments for the General Schedule, Annual Report of the President'sPay Agent , December of each year. For the annual and locality pay adjustments authorized, see E.O.12736, Dec. 12, 1990; E.O. 12786, Dec. 26, 1991; E.O. 12826, Dec. 30, 1992; Presidentialmemorandum of Dec. 1, 1993; E.O. 12944, Dec. 28, 1994; E.O. 12984, Dec. 28, 1995; E.O. 13033,Dec. 27, 1996; E.O. 13071, Dec. 29, 1997; E.O. 13106, Dec. 7, 1998; E.O. 13144, Dec. 21, 1999;E.O. 13182, Dec. 23,2000; E.O. 13249, Dec. 28, 2001; E.O.'s 13282, Dec. 31, 2002 and 13291, Mar.21, 2003; E.O.'s 13322, Dec. 30, 2003 and 13332, Mar. 3, 2004; and E.O. 13368, Dec. 30, 2004. The net increase for each year was calculated by CRS. The actual pay rates are calculated by the following means. First, the basic General Schedule (GS) is increased by the annual adjustmentpercentage, resulting in a new GS schedule. These new basic GS rates are then increased by thelocality payment. The resulting pay rates (annual + locality) are compared with the pay rates (annual+ locality) for the previous year to derive the net increase in pay for the current year. Salary tablesfor 2005 are available on the Internet at http://www.opm.gov .

Federal white-collar employees are to receive an annual pay adjustment and a locality-based comparability payment, effective in January of each year, under Section 529 of P.L. 101-509 , theFederal Employees Pay Comparability Act (FEPCA) of 1990. The law has never been implementedas originally enacted; annual and locality payments have been reduced. In January 2005, theyreceived a 2.5% annual pay adjustment and a 1.0% locality-based comparability payment underExecutive Order 13368, issued by President George W. Bush on December 30, 2004. Although thefederal pay adjustments are sometimes referred to as cost-of-living adjustments, neither the annualadjustment nor the locality payment is based on measures of the cost of living. The annual pay adjustment is based on the Employment Cost Index (ECI), which measures change in private-sector wages and salaries. The index showed that the annual across-the-boardincrease would be 2.5% in January 2005. The size of the locality payment is determined by thePresident, and is based on a comparison of non-federal and General Schedule (GS) salaries in 32 payareas nationwide. By law, the disparity between non-federal and federal salaries was to be graduallyreduced to 5% over the years 1994 through 2002; FEPCA requires that amounts payable may not beless than the full amount necessary to reduce the pay disparity to 5% in January 2005. The FederalSalary Council and the Pay Agent recommended that, to carry out FEPCA, the 2005 localitypayments range from 18.14% in the "Rest of the United States" (RUS) pay area to 47.96% in the SanJose-San Francisco pay area. The payment recommended for the Washington, DC, pay area was29.66%. Because the new locality rate replaces the existing locality rate, the change in locality ratesis derived by comparing 2004 locality payments with those recommended for 2005. Thiscomparison results in recommended net increases for 2005, if the ECI and locality-basedcomparability payments were granted as required by law, of 9.19% in the RUS pay area to 22.10%in the San Jose-San Francisco pay area, and 15.94% in the Washington, DC, pay area. Thenationwide average net pay increase, if the ECI and locality-based comparability payments weregranted as required by law, would have been 13.06% in 2005. President Bush's FY2005 budgetproposed a 1.5% federal civilian pay adjustment. He proposed a 3.5% pay adjustment for theuniformed military, and a number of Members of Congress advocated the same pay adjustment forfederal civilians. The Departments of Transportation and Treasury and Independent Agenciesappropriations bill, 2005 -- H.R. 5025 , as passed by the House of Representatives, and S. 2806 , as reported in the Senate -- provides a 3.5% pay adjustment for federal civilianemployees, including those in the Departments of Defense and Homeland Security. Thisappropriations bill was incorporated as Division H of the Consolidated Appropriations Act forFY2005 ( H.R. 4818 ) which was signed by the President on December 8, 2004, andbecame P.L. 108-447 . The President's budget for FY2006 proposes pay adjustments of 2.3% for federal civilian employees and 3.1% for the uniformed military. The same pay adjustment for both civilians and themilitary is advocated by several Members of Congress.

Provisions of the Bill H.R. 4772 's process features, as noted, seek to facilitate access to the federal courts by property owners with certain federal constitutional claims. The process features do not affect the property owner's access to state courts for adjudicating those federal claims, which courts remain generally available. Rather, they offer the property owner a second forum for federal claims. The key process features of the bill are as follows: 1. section 2 : in an action under 28 U.S.C. § 1343 in which the facts concern the uses of real property, limits when a federal district can abstain from deciding the action, requires that the court exercise jurisdiction even if the plaintiff has not first pursued his state-court remedies , and limits when the court can " certify " a related question of state law to the state courts (asking the state court to clarify a point of state law and report back to the federal court), and 2. sections 2-4 : provides that takings actions brought under 42 U.S.C. § 1983 (against political subdivisions of states ) or under the Tucker Acts (against the United States) shall be ripe for adjudication upon a " final decision, " which exists if (a) the government makes a definitive decision as to the permissible uses of the property, and (b) one meaningful application to use the property has been denied and the property owner has applied for but been denied one waiver and one appeal, unless unavailable or futile. These process features closely track approaches used in the earlier bills. There are a host of small changes, however. For example, H.R. 1534 (105 th Congress) defines "final decision" to require the property owner to seek, but be denied, one waiver or one appeal. In contrast, H.R. 2372 (106 th Congress) and H.R. 4772 require one waiver and one appeal, seemingly a more demanding ripeness standard. H.R. 4772 's substantive features are as follows: 1. sections 5-6 : takings actions brought under 42 U.S.C. § 1983 (against political subdivisions of states) or under the Tucker Acts (against the United States) are subject to two "clarifications": (1) conditions or exactions on land development approvals shall be subject to the applicable takings test regardless of whether legislative or adjudicatory in nature, or whether in the form of a monetary fee or land dedication, and (2) each subdivided lot in a subdivision shall be regarded as a separate parcel, if so treated under state law, and 2. sections 5-6 : substantive due process actions under 42 U.S.C. § 1983 (against political subdivisions of states) or against the United States, where based on property deprivation, are subject to a "clarification": the judgment shall be based on whether the government action is " arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. " These substantive provisions have no counterpart in the earlier bills. Both H.R. 2372 (106 th Congress) and H.R. 4772 impose a "duty of notice to owners"—requiring federal agencies, when they limit the use of property in a manner that may be affected by the bill, to give notice to property owners explaining their rights under the bill. Finally, only H.R. 4772 contains a severability clause, stating that if any of the bill's provisions or their applications are held invalid, other provisions and their applications shall not be affected. Process Provisions Limitations on Abstention Abstention is a discretionary doctrine under which federal judges may decline to decide cases that are otherwise properly before them. Grounded in principles of comity and cooperative federalism, abstention holds that federal courts should not intrude on sensitive state issues unless necessary. Rather, say proponents of abstention, those controversies should be settled in the state courts. Thus, abstention is an exception to the otherwise "virtually unflagging obligation of the federal courts to exercise the jurisdiction given them." Abstention is an option for a federal judge when a local land use regulation is attacked in federal court as a taking. The federal judge may defer to the state courts using any of three types of abstention. Pullman abstention arises in federal-court challenges to state action in which resolution of an unsettled state law issue could eliminate the need to decide (or could narrow) a difficult federal question. Burford abstention counsels against federal adjudication in cases touching on a complex state regulatory scheme concerning important matters of state policy more properly addressed by state courts. Colorado River abstention instructs federal courts not to dismiss or stay a federal action in deference to a concurrent state proceeding except in "exceptional" circumstances. Courts are known to blend the various types of abstention. H.R. 4772 directs that federal courts adjudicating civil rights claims involving real property shall not abstain if the plaintiff does not allege a state law violation and no parallel proceeding is pending in state court. This narrows the grounds on which abstention currently may be invoked. Moreover, it is likely that this would preclude abstention in most cases since plaintiff, to ensure that abstention does not occur, would have only to delete any claims of state law violation from his complaint. Elimination of State Exhaustion Requirement In 1985, the Supreme Court announced that a Fifth Amendment takings claim against a state is ripe for federal court adjudication only when the plaintiff has exhausted his state court remedies, if available and not futile. The Court reaffirmed this state exhaustion prerequisite in several later decisions. The requirement has been a perennial bete noir of real estate developers and other property rights advocates, who contend that state courts in many states are less friendly to their interests than federal courts. Some scholars perceive a lesser institutional competence or neutrality in state courts to handle federal constitutional claims, though we are unaware of any authoritative, empirical study on this point. In any event, property owners and developers argue that notwithstanding the availability of state courts for vindicating their Fifth Amendment takings claims, there is a right, given the federal nature of the claim, to being able to file in the first instance in a federal forum as well. Landowners further complain that once the state exhaustion prerequisite is met, relitigating the takings claim in federal court has been barred under any of several legal doctrines. These doctrines, based on federal-state comity and considerations of judicial economy by avoiding duplicative litigation, are the federal Full Faith and Credit Act, res judicata (claim preclusion), collateral estoppel (issue preclusion), and the Rooker-Feldman doctrine. The net effect of each is the same: the landowner gets no "second bite at the apple" in federal court. Nor, says the Supreme Court, does this offend any notion that persons asserting federal rights must have access to federal courts. In a recent takings case raising this issue, the Court noted that it has "repeatedly held ... that issues actually decided in valid state-court judgments may well deprive plaintiffs of the 'right' to have their federal claims relitigated in federal court," and that "[t]his is so even when the plaintiff would have preferred not to litigate in state court, but was required to do so ...." H.R. 4772 proposes to eliminate the state exhaustion requirement, so that a takings claimant could go initially to federal court, bypassing the state courts. The question, however, is whether state exhaustion is mandated by the terms of the Fifth Amendment Takings Clause, in which case Congress cannot eliminate it by statute. The alternative is that the requirement is merely "prudential"—imposed as a matter of judicial discretion—in which case Congress can nullify it by statute. The Supreme Court has come down on both sides of the constitutional versus prudential issue. In the 1985 Supreme Court decision announcing the state exhaustion rule, the Court explained that a property owner aggrieved by a state property use restriction "has not suffered a violation of the Just Compensation Clause" until he unsuccessfully seeks compensation through state procedures, and further that "[t]he nature of the constitutional right" requires state exhaustion first. And in 1999, the Court noted that "had an adequate postdeprivation remedy been available, [the property owner] would have suffered no constitutional injury from the taking alone." In direct contradiction of these statements, the Court in 1997 referred to the state exhaustion requirement in dictum as merely prudential, neglecting to mention contrary precedent. Later in the same opinion, however, the Court arguably suggested the opposite. Most recently, in 2005, a four-justice dissent opined that the Court's adoption of the state exhaustion requirement, whether constitutional or prudential, "may have been mistaken." On balance, the Court's statements favoring a constitutional rather than prudential basis for state exhaustion may be weightier, raising doubts as to whether H.R. 4772 may validly dispense with it. Concededly, the four-justice dissent in 2005 raises the possibility that a one-justice change in the Court might produce a change in the law someday; this report, however, analyzes the law as it stands right now. Definition of "Final Decision" The same Supreme Court decision that debuted state exhaustion in 1985 imposed a second ripeness requirement on federal takings claims: "a claim that the application of government regulations effects a taking ... is not ripe until the government entity ... has reached a final decision regarding the application of the regulations to the property at issue." The following year, the Court made clear that obtaining a "final decision" might require the landowner to submit more than one development proposal: "[r]ejection of exceedingly grandiose development plans does not logically imply that less ambitious plans will receive similarly unfavorable reviews." For example, just because a developer is prohibited from building 100 houses on its tract does not necessarily mean that some lesser, but still profitable, number of houses may not be permitted. Later decisions of the Court appear to relax the requirement of formal development proposals by the land owner, recognizing that in some circumstances it is clear how much development can occur, and thus the taking claim is ripe, without multiple, or indeed any, proposals. The final decision requirement is seen by courts as essential to the court's ability to adjudicate a taking claim. Evaluation of a taking claim, they note, demands that a court know how much development is being permitted on the property, so that the fact-intensive balancing test applied to most regulatory takings claims can be applied. On the other hand, property owners accuse land-use-control agencies of exploiting the final decision concept to get landowners to abandon politically unpopular or otherwise unpopular development—by requiring multiple submissions from the landowner, each prepared at substantial expense, with no assurance that the proposal will ever be deemed satisfactory. H.R. 4772 , as noted, seeks to define "final decision." It would stipulate that a final decision has occurred when (1) a "definitive decision regarding the extent of permissible uses on the property" has been made, and (2) one "meaningful application" to use the property has been submitted but denied and the property owner has applied for but been denied one waiver and one appeal to an administrative agency, unless unavailable or futile. The two key concepts in the definition—"definitive decision" and "one meaningful application"—are undefined, and raise the spectre of much litigation before their contours are known. Still, it is clear that the "final decision" definition would benefit landowners and developers by increasing the likelihood that the initial development proposal, unless patently unreasonable, will upon denial (and denial of waiver and appeal) create a ripe taking claim that the court must address. The court would not have the option of sending the landowner back to the land-use agency for further, presumably scaled-back, proposals and/or negotiations. Such give-and-take between developer and regulating authority is currently a routine part of the land use control process in this country. Perhaps for this reason, the standard in the takings-ripeness case law is " at least one meaningful application" for development approval, not, as in the bill, "one meaningful application." H.R. 4772 reduces the possibility that municipal authorities set on discouraging a particular project could drag out the development-approval process and argue that, as a result, the development proponent remains short of a final decision, hence a viable taking claim. There are occasional reports that such bad faith dealing occurs, though again we know of no definitive studies. However, the bill also raises the legal issue of whether a court can competently assess the economic impact of the government's action—a central component of takings analysis—given that an initial denial does not necessarily convey a clear sense of what property uses will be allowed. In the Supreme Court's famous phrase: "A court cannot determine whether a regulation has gone too far unless it knows how far the regulation goes." From the municipality's point of view, the bill creates pressure to accept the first-submitted development proposal, knowing that denying it may land the municipality in federal court defending a taking claim. Substantive Provisions A Threshold Matter: Congressional "Clarification" of Constitutional Provisions It is long-settled law that under the Constitution and the separation of powers it embodies, it falls to the judiciary, not the Congress, to set forth binding prescriptions as to what constitutional provisions mean. Plainly, Congress routinely interprets the Constitution in the course of determining what legislation it may enact. But laying down binding rules for the judiciary's use is another matter. In the classic words of Chief Justice John Marshall, "It is emphatically the province and duty of the judicial branch to say what the law is." More recently, the Court has reaffirmed that "[t]he power to interpret the Constitution in a case or controversy remains in the Judiciary" and similarly that "it is the responsibility of this Court, not Congress, to define the substance of constitutional guarantees." H.R. 4772 arguably lays out such impermissible congressional prescriptions for judicial interpretation of the Constitution. Sections 5 and 6 of the bill do not use the language of mere suggestion. They say, with apparent reference to the Takings Clause, that the government "is liable" if certain circumstances obtain, and that the case "shall be decided" based on a certain parcel as a whole (see below). Those same sections instruct that an alleged deprivation of substantive due process "shall be judged" by a particular review standard. Nor do the above judicial statements appear to leave room for such congressional "clarification," as the bill labels it, when a constitutional provision has not been explicated by the courts. Indeed, there are few if any constitutional provisions that could not benefit from further clarification, so that an exception to the general prohibition where the law is unclear would easily swallow the rule. The committee report accompanying H.R. 4772 views section 5, addressing section 1983 actions against political subdivisions of states, in a different way. Rather than imposing a reinterpretation of the Constitution as posited above, the committee report notes that 42 U.S.C. section 1983, which section 5 amends, already states that cases can be heard in federal court for ... "deprivation of any rights, privileges, or immunities secured by the Constitution and laws." All that section 5 does, the report says, is further define what is a "deprivation of any rights, privileges, or immunities secured by the ... laws." Further (though not raised by the committee report), a well-settled principle of statutory construction says that where one reading of a statute raises constitutional issues, a court should construe the statute to avoid such problems unless such reading is plainly contrary to the intent of Congress. It is unclear whether the committee report statement would be sufficient to deflect a court from the possibly unconstitutional reading in the preceding paragraphs, given what seems to be the more comfortable fit between that reading and the text of section 5. Another possible circumvention of the constitutionality issue is offered, with respect to property rights claims against the United States only (section 6), by Congress's constitutional power "to pay the Debts ... of the United States ...." The Supreme Court has held that the term "Debts" includes not only legal obligations of the United States, but also "those debts or claims that rest upon a merely equitable or honorary obligation." Further, "Congress may recognize its obligation to pay a moral debt not only by direct appropriation, but also by waiving an otherwise valid defense to a legal claim against the United States." It would seem possible that a court might regard section 6's expansion of takings and substantive due process claims against the United States as in the nature of, or analogous to, "waiving an otherwise valid defense." Congress's authority under the Fourteenth Amendment, section 5, to "enforce, by appropriate legislation" the guarantees of that amendment does not alter the analysis. As the Court has made clear, Congress's power under section 5 is to "enforce" those guarantees—that is, prevent or remedy violations—not to redefine their substance. Nor has Congress shown a "history and pattern" of unconstitutional actions by the states (here, the state courts)—a predicate for invocation of Fourteenth Amendment section 5. Nor would it seem that sections 5 and 6 of the bill can be hung on Congress's authority in Article III of the Constitution to define the jurisdiction of courts created under that article. As the titles and text of sections 5 and 6 make clear, those provisions seek to address the meaning of constitutional provisions, not, in any direct sense, the jurisdiction of Article III courts to hear them. Moving past the constitutionality issue in sections 5 and 6, the following compares the three prescriptions therein with existing takings and substantive due process caselaw, to indicate the degree to which H.R. 4772 changes the law. "Clarification" of Status in Takings Law of Conditions and Exactions on Development Local governments in the United States routinely impose conditions on allowing the development of land. Some of these conditions take the form of requiring the proponent of development to transfer something to the public, on the rationale that he has some duty to offset the burdens imposed by the proposed development on the community. Such "exactions" may be either dedications of acreage by the landowner or payment of a monetary equivalent. A typical exaction might require, before a development is approved, that the developer dedicate acreage for public roads or walkways, or open space. Such exactions, not to be takings, must both (1) have an "essential nexus" to the purpose of the development approval regime to which they are attached, and (2) impose a burden on the landowner that is "roughly proportional" to the impacts of the proposed development. The burden of showing rough proportionality rests with the government, and requires an individualized determination. This Supreme Court test for "exaction takings" is generally considered to be more friendly to the property owner asserting a taking claim than the default regulatory takings tests. For that reason, the property rights bar has long sought its expansive application. H.R. 4772 seeks to further this effort by property owners. First, it would apply the exaction takings test to conditions as well as exactions. By contrast, the Supreme Court applies its exaction takings test only to exactions. In bringing in conditions generally, H.R. 4772 makes that landowner-friendly test applicable to a vast array of development prerequisites such as building code requirements. Second, H.R. 4772 would make the government liable regardless of whether the exaction or other condition was imposed adjudicatively (by a ruling specific to the landowner's parcel) or legislatively (through a generally applicable ordinance). Lower court decisions on whether the Supreme Court's exaction takings test applies only to adjudicatively imposed exactions, or to legislative exactions also, remain divided. However, twice since announcing the test, the Supreme Court has suggested that it is not to be extended beyond the factual context of the cases in which it was announced—i.e., adjudicative exactions. Thus, there is a distinct possibility that future case law may veer toward the adjudicative-only view. Third, H.R. 4772 would make the government liable regardless of whether the exaction or other condition took the form of a dedication requirement or a monetary assessment. As above, the lower courts are divided on the reach of the exactions takings test here—some saying that only physical dedication exactions are covered, others that monetary assessments are covered also. But also as above, recent Supreme Court caselaw hints at the ultimate resolution if the issue were presented: the Court might exclude monetary assessments. "Clarification" of Status in Takings Law of Subdivided Lots Takings law dictates that a court, in deciding whether a regulatory taking has occurred, must look at the property owner's loss relative to the value she retains —requiring the court to define the "parcel as a whole" for assessing that residual value. A court's definition of the parcel as a whole in a given case can easily determine whether a taking occurred. When the parcel as a whole is defined tightly around the development-restricted portion of the tract, the relative loss to the takings plaintiff is calculated as quite large (thus, a possible taking); when defined more broadly, the relative loss is calculated as small (almost certainly not a taking). Property owners and developers often contend that on a subdivided tract of land, each individual subdivided lot should be deemed a separate parcel as a whole. On this view, when a land-use agency bars development on wetlands occupying a portion of the tract, a taking of the subdivided lots within that portion will likely be found, since each such lot suffers a very large percentage of value loss. The tract owner thus would be compensated for the restricted portion. H.R. 4772 adopts this approach, instructing the courts to decide covered takings claims "with reference to each subdivided lot, regardless of ownership ...." Whether an individual subdivided lot, though surrounded by other lots in common ownership, should be seen as the parcel as a whole in a takings case has not been addressed by the Supreme Court. Indeed, the Court has not elaborated much on the parcel as a whole doctrine at all since it was announced in 1978. On the other hand, every lower court decision of which we are aware on the subdivided-lot question holds that individual subdivided lots are not to be regarded as separate parcels as a whole, at least where the landowner is seeking to develop several lots as part of a unified development plan. Thus the bill differs from existing case law. More generally, the courts, in defining the parcel as a whole in each case, have adopted an ad hoc approach. The effort, said the Court of Federal Claims, "must be to identify the parcel as realistically and fairly as possible, given the entire factual and regulatory environment." By contrast, H.R. 4772 makes one single factor, the owner's drawing of subdivision lot lines, conclusive. Of course, this does promote greater certainty than exists under the constitutional ad hoc analysis. "Clarification" of When Property Deprivation Violates Substantive Due Process For the most part, federal judges have endorsed a very deferential substantive due process standard for scrutiny of state and local land-use restrictions. An example is a recent decision for the Third Circuit by then-judge Alito adopting the strict "shocks the conscience of the court" test for such challenges. The First Circuit has said that "even an arbitrary denial of a permit in violation of state law—even in bad faith—does not rise above the [due process] threshold ...." Rather, substantive due process should be available to reign in local land use controls only in "truly horrendous situations." These standards appear to be stricter than the classic "arbitrary and capricious" standard. H.R. 4772 would lower the bar for federal substantive due process claims involving property, facilitating their being brought in federal court. It does this by adopting verbatim the standard for judicial review of federal agency action prescribed by the Administrative Procedure Act: "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Use of this standard would lower the current unconstitutionality threshold both by adopting "arbitrary, capricious" in lieu of prevalent case law applying more deferential standards, as discussed above, and by adding the criteria "an abuse of discretion, or otherwise not in accordance with law." As to the last criterion, Congress may opt to consider whether every action of a local land-use agency (or the United States) that is not in accordance with any law, even state and local ones, should be transformed into a federal constitutional violation. True enough, not all courts have adopted hands-off standards in due process challenges to local zoning. Still, our research reveals none that has declared any unlawful action unconstitutional. Moreover, the decisions that are highly resistant to involving the federal courts in local land-use matters are more recent and more numerous. The Supreme Court too has been resistant to expanding the use of substantive due process outside the context of so-called fundamental interests (which currently do not include property interests). Overarching Issues H.R. 4772 , like its precedents, raises some broad issues of legal policy. The first arises from the aversion of federal judges, expressed in numerous decisions in recent decades, to inserting themselves into local land-use disputes. For example, the Eighth Circuit cautioned that "We are concerned that federal courts not sit as zoning boards of appeals." The Ninth Circuit has said: "The Supreme Court has erected imposing barriers in [its leading takings ripeness decisions] to guard against federal courts becoming the Grand Mufti of local zoning boards." And the Eleventh Circuit echoed with "federal courts do not sit as zoning boards of review." There are many other such judicial statements. Quite recently, the Supreme Court suggested sympathy with this view, noting that "state courts undoubtedly have more experience than federal courts do in resolving the complex factual, technical, and legal questions related to zoning and land-use regulations." As this report shows, the federal judicial aversion to involvement in local land-use disputes may be manifested through use of several legal devices—abstention, certification of state law questions to state courts in the hope of a clarification that avoids the federal question in the case, declining to find a final decision by the local land-use authority, and most significantly, insisting (per Supreme Court directive) that federal takings claims be litigated first in the state courts, with the consequence that relitigation in federal court generally is barred under various legal theories. H.R. 4772 embodies the contrary view, long espoused by property rights advocates, that takings claims are entitled to the same unobstructed access to federal courts as other federal constitutional claims, such as those under the First or Fourth Amendment. They argue that a federal court would never turn away a free speech claim under section 1983 on the ground that its constitutionality had not first been tested in state court. And, as noted, they contend that a federal forum should be available for the adjudication of a federal constitutional right, whether or not the Constitution requires it. Whether this equating of the Takings Clause and other constitutional guarantees takes full cognizance of textual differences is another question, however. The broader issue is federalism and the occasional congressional rhetoric to the effect that the federal government should minimize its involvement in local matters. H.R. 4772 runs contrary to this ideal, but in doing so has much company. Congress in recent decades has fostered greater federal court involvement in formerly state court matters in such areas as product liability, criminal law, and class actions. In the land use area at issue here, Congress has articulated its own standard, enforceable in federal court, for the application of local land use restrictions to religious facilities. Finally, H.R. 4772 is likely to prompt charges that it will add more cases to an already overburdened federal judiciary. It is beyond the scope of this report to address the merits of this potential criticism, nor has it stopped Congress from approving new avenues for federal court litigation in the past.

H.R. 4772, titled the Private Property Rights Implementation Act of 2006, passed the House in September 2006 and may, if the Senate acts, move forward during the 2006 lame-duck session. The bill combines process and substance. The process provisions would ease or eliminate four current hurdles to a federal takings or substantive due process claim being adjudicated in federal court on the merits—in those cases where government interference with property rights is alleged. Those hurdles are abstention, the takings ripeness requirements that the plaintiff must first obtain a final decision from the land-use control agency and exhaust state court remedies, and certification of state law questions to the state courts. The bill does not affect the property owner's access to state courts, which are also available to vindicate such claims. The bill's limitations on federal court abstention would allow the plaintiff to preclude abstention by not including any claim of state law violation. The bill's elimination of the current state exhaustion prerequisite for a ripe takings claim may well be beyond Congress's authority if, as sound argument suggests, that prerequisite is constitutionally based. The final decision definition in the bill involves a trade-off between easing the procedural burdens on the property owner on the one hand, and the routine give-and-take of local land-use negotiations and informational needs of courts for applying the takings test on the other. The substantive provisions of the bill provide "clarification" of takings and substantive due process constraints on government interference with property rights. As for federal takings claims, the bill declares that the Supreme Court's test for when exaction conditions on development constitute takings shall apply broadly—to both exactions and other conditions on development, to both adjudicatory and legislative conditions and exactions, and to both land dedications and monetary fees. Also, when a taking claim involves a subdivided lot recognized as an individual property unit under state law, that lot shall be deemed the "parcel as a whole" in the takings analysis. As for substantive due process claims, the bill says that the criterion is whether the government action is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. The key issue with the substantive provisions is whether they are constitutional. Suggesting unconstitutionality is the principle that it is the responsibility of the courts, not Congress, to define the substance of constitutional guarantees. But there are plausible counter-arguments—e.g., that the bill is merely a statutory overlay to constitutional guarantees, not a redefinition of them. Leaving aside the constitutionality question, the provisions expand the circumstances in which property owners can prevail on takings and substantive due process claims. For example, in requiring substantive due process claims to be assessed on a "not in accordance with law" standard, the bill significantly lowers the bar relative to existing judicial standards for such violations, which are typically more deferential to government.

Introduction Background The federal government owns approximately 635 million acres of federal land in the United States. Of the total, the Bureau of Land Management (BLM) in the Department of the Interior (DOI) owns the largest amount—247.5 million acres, primarily in the West. The Forest Service (FS) in the Department of Agriculture owns the second-largest amount—193.0 million acres. The BLM manages the public lands and the FS manages the national forests for varied purposes relating to the preservation, development, and use of the lands and natural resources. These purposes include livestock grazing, wild horses and burros, recreation, timber, fish and wildlife, cultural resources, conservation, and mineral exploration and development. The preservation/use dichotomy is a focal point for debate over recreation on BLM and FS lands. Increased recreation, and allegations of overuse in some areas, contribute to disagreement on issues of access, regulation, integrity of natural and cultural resources, and extent of motorized versus nonmotorized recreational activities. Recreation debates also may arise in areas managed by other federal agencies, such as the National Park Service, and in the context of lands within cross-cutting systems, such as the National Trails System, administered by the FS, NPS, and BLM, often in cooperation with state and local authorities. The population growth and development in western states, the proximity of many urban areas to public lands, and the growing popularity of outdoor recreation have translated into high demand for a variety of recreational opportunities on federal lands and waters. BLM, for example, reported that over 55 million people live within 25 miles of its National System of Public Lands and that two-thirds of BLM-administered lands are within 50 miles of an urban area. Agency figures indicate an overall increase in recreational visits to federal lands in recent decades. The FY2013 DOI budget documents cited approximately 478 million annual recreational visits to DOI managed lands, including 57.8 million visits to BLM lands. The FS reported approximately 201.6 million annual recreational visits to National Forest System lands (including wilderness). Access to BLM, FS, and other federal lands for a variety of recreational purposes is generally viewed as important for fostering public health, public support for land management, and a stable economic base for communities that depend on recreation and tourism. Some recreational advocates have expressed support for increased access to BLM and FS lands on the grounds that in some areas lands are inaccessible or access is limited. Recreational access also has enhanced interest in protecting the ecological integrity of federal lands from environmental harm as a result of recreational use. This report concentrates on motorized recreation on BLM and FS lands. Over the last half century or so, forms of motorized recreation—snowmobiles, personal watercraft, other off-highway vehicles—and a variety of newer recreational activities, such as mountain biking, snow biking, heli-skiing, kite skiing, and hang gliding, have evolved and gained in popularity. These new forms intersect with the many popular traditional forms of recreation, including water-based activities (fishing, canoeing, kayaking, rafting, boating, etc.) and a variety of land-based pursuits (birdwatching, camping, hiking, hunting, horseback riding, rock climbing, etc.). The use of off-highway vehicles (OHVs) on federal lands and waters has been particularly contentious, and lawsuits have challenged their management. OHV supporters contend that these vehicles provide outdoor recreation opportunities for the disabled, senior citizens, and others with mobility limitations; allow visitor access to hard-to-reach natural areas; bring economic benefits to communities serving riders; and, for snowmobiles, allow increased access to sites during the winter season. They assert that technological advances do and will continue to limit noise and pollution. Critics of OHVs point to the beneficial economic impact of nonmotorized recreation on local communities. They also raise environmental concerns, including potential damage to wildlife habitat and land and water ecosystems, such as the impact of dust on winter snow melts and water supply; noise, air, and water pollution; and a diminished experience for recreationists seeking quiet and solitude and/or hunting and fishing opportunities. Clashes over off-road use could be intensifying in some areas for riders, law enforcement officers, and property owners as OHV ridership increases and the amount of land available to OHVs diminishes. For example, BLM and FS are identifying lands for OHV use and limiting or prohibiting OHV use in other areas. A 2009 Government Accountability Office (GAO) report examined OHV use and impacts on federal lands, and documented agency OHV enforcement, planning, and management challenges. Further, development has reduced availability of private lands to OHVs. As limitations on land management agency staffs and budgets, and the remoteness of many public lands, exacerbate enforcement challenges, some interest groups have worked together to identify successful enforcement strategies or to develop educational guidance for shared trail use and safety. Federal OHV challenges and approaches to their management also are reflected in individual state legislative efforts to address OHV management and law enforcement. State measures focus on a range of actions—safety, wildlife habitat and private property protection, registration requirements and fees, and collaborative approaches to enforcement. Some measures have been challenged. Authorities and Administrative Actions Two executive orders define and generally guide OHV use on federal lands. The first (E.O. 11644, February 8, 1972) defines an off-road vehicle, now commonly referred to as an off-highway vehicle, as "any motorized vehicle designed for or capable of cross country travel on or immediately over land, water, sand, snow, ice, marsh, swampland, or other natural terrain," with exceptions for any registered motorboat or authorized or emergency vehicles. It was issued to "establish policies and provide for procedures that will ensure that the use of off-road vehicles on public lands will be controlled and directed so as to protect the resources of those lands, to promote the safety of all users of those lands, and to minimize conflicts among the various uses of those lands." The order directed each agency to develop and issue regulations to carry out this purpose and to provide for the designation of areas and trails on which OHVs may be permitted, and areas in which such vehicles would not be permitted. Agencies were to monitor the effects of OHV use and amend or rescind area designations or other actions taken pursuant to the order as needed to further the policy of the executive order. A subsequent executive order (E.O. 11989, May 24, 1977) amended the 1972 order to exclude military, emergency, and law enforcement vehicles from the definition of off-road vehicles (to which restrictions would apply). It provided authority to immediately close areas or trails if OHVs were causing or would cause considerable damage to the soil, vegetation, wildlife, wildlife habitat, or cultural or historic resources of particular areas or trails. Areas could remain closed until the manager determined that "the adverse effects have been eliminated and that measures have been implemented to prevent future recurrence." Also, each agency was authorized to adopt the policy that areas could be closed to OHV use except for those areas or trails that are specifically designated as open to such use. This meant that only open areas would have to be marked, a lesser burden on the agencies. BLM and FS managers formulate guidance on the nature and extent of land uses, including OHV use, through regulations, national policies, land and resource management plans, and area-specific decisions. Guidance for each agency, the planning process for designating OHV use, and related agency actions are discussed in the respective BLM and FS "Administrative Actions" sections below. In addition, in some cases, the BLM and FS jointly address OHV use on their lands. For instance, an interagency plan governs OHV use on lands in Montana, North Dakota, and South Dakota. Also, in central Oregon, one BLM district (Pineville) and two national forests (Deschutes and Ochoco) jointly manage OHV operations on their lands. Joint management approaches, where federal lands are intermingled, can promote consistency and public understanding of OHV guidance. However, BLM and FS lands are different, and they are governed by separate authorities, making complete consistency on vehicular travel management difficult to achieve. Legislative Activity Congress has addressed motorized recreation on both BLM and FS lands (as well as other federal lands) through legislation and oversight hearings. Some measures introduced in the 112 th Congress would have established new land units with both BLM and FS lands and governed motorized recreation in these areas. For instance, H.R. 5545 and S. 3375 sought to establish the Berryessa Snow Mountain National Conservation Area in California, with BLM and FS lands, and to generally limit the use of motorized vehicles in the area to designated roads and trails. Legislation primarily or exclusively affecting only BLM or only FS lands is discussed in their respective sections below. A House subcommittee hearing on June 22, 2011, addressed opportunities for recreation on federal land and the economic impact of such recreation. A particular focus was on OHV recreation on BLM and FS lands, with issues covering the extent to which additional federal lands should be open to OHV use, agency OHV planning and designation processes, how to achieve balance among OHV and other recreational users of federal lands, the effects of OHV use on nearby communities and the economy more broadly, and sources of funding for OHV use (e.g., state OHV registration programs) and the purposes for which those funds are used. Further, the 2009 GAO report on OHV use on agency lands included several recommendations to the BLM and FS for providing OHV opportunities while protecting resources. BLM and FS actions on these recommendations also are discussed in their respective sections below. Motorized Recreation on BLM Land13 Background The proximity of BLM lands to many areas of population growth in the West has contributed to an increase in recreation on some of these lands. BLM lands are used for diverse forms of recreation, including hunting, fishing, visiting cultural and natural sites, birdwatching, hiking, picnicking, camping, boating, mountain biking, and off-road vehicle driving. The growing and diverse nature of recreation on BLM lands has increased the challenge of managing different types of recreation, such as low impact (e.g., hiking) and high impact (e.g., OHV) uses. It also has increased the challenge of managing recreation and other land uses. For instance, in some areas recreation and energy development have come in conflict, with hunters, fishermen, outfitters and guides, and other recreationists at odds with energy producing interests seeking to maintain or increase energy development on public lands. Motorized OHV use, including use of dirt bikes and all-terrain vehicles, is a major recreational use of BLM lands that has been controversial. Controversy exists in various areas throughout the West, such as the Canyonlands areas in Utah, and the Western Mojave Desert in California. While motorized user groups often have opposed restrictions on OHV use, many environmentalists have been concerned about harm to natural and cultural resources. In some areas, OHV use may conflict with those engaged in other types of recreation, such as hiking, who seek quiet and solitude on agency lands. There are also differing views on how effectively OHV authorities are being enforced. While BLM employs a variety of means of enforcement, including monitoring, law enforcement, signing and mapping, and emergency closures of routes, enforcement may be impeded in some locations due to their remoteness, insufficient signs, inadequate staff and resources, and other factors. Administrative Actions BLM manages about 247.5 million acres of land. Guidance on OHV use on BLM lands is provided in law, executive orders, and agency regulations and policies. Under agency regulations (43 C.F.R. §8340), BLM has been designating public lands as open, limited, or closed to OHV use. As of November 30, 2012, the following designations had been made: closed, where OHV use is prohibited, 13.1 million acres (6% of designated area); limited, where OHV use is in some way restricted, 146.6 million acres (65%); and open, where OHV use is permitted anywhere, 66.0 million acres (29%). The remaining acres of BLM land (mostly in Alaska) are not currently designated. Because BLM management plans do not address motorized use in these undesignated areas, there are no restrictions. Other regulations govern OHV use in particular areas. For instance, BLM has supplementary rules for its lands in Oregon and Washington, which include guidance on OHV use. On August 18, 2010, the agency issued revisions to these rules (effective September 17, 2010), in part to address OHV use in the Juniper Dunes OHV/ATV area in Washington. Over the past decade, BLM has issued other types of guidance dealing with transportation on its lands. For instance, in 2001 the agency issued the National Management Strategy for Motorized Off-Highway Vehicle Use on Public Lands . The strategy has multiple purposes, including to guide land managers in resolving OHV issues; to promote consistency of OHV decision-making; to highlight needed staff and funding for OHV management; to reduce conflicts among land users; to promote responsible OHV use and reduce habitat degradation; and to lead to an update of OHV regulations (which has not occurred to date). More recently, in 2011, BLM issued a manual on travel and transportation management, and in 2012 the agency released a related handbook, to cover planning and management of all modes of travel and public access needs. The documents are intended to serve as a guide for BLM field offices to improve travel planning, signing, mapping, and travel information. Further, the BLM's National Training Center has initiated a training program on travel and transportation planning and management for BLM field units. Seven training sessions were conducted in FY2012 and 13 are planned for FY2013. BLM manages transportation on its lands through a process described as Comprehensive Travel and Transportation Management. Goals include providing varied transportation routes for access to BLM lands and providing areas for a variety of motorized and non-motorized forms of recreation, while protecting sensitive areas. Travel and transportation management plans are developed for particular areas. As of September 30, 2011, 142 BLM areas have completed travel management plans. These plans average roughly 250,000 acres, and together cover about 32.5 million acres. BLM expects to complete a total of 554 plans covering 231 million acres, with two-thirds of BLM lands expected to have plans in place by 2020. Implementation of travel management plans involves issuing maps; posting signs; educating land users; constructing, reconstructing, and maintaining roads and trails; monitoring impacts; rehabilitating damaged areas; and enforcing restrictions. BLM makes OHV designations during the planning process, on an area-by-area basis, and such designations often have been contentious and complex. The agency is in the midst of a multi-year effort to develop and update land use plans, because many plans do not currently address OHV use and other relatively recent issues. For instance, in November 2008, 6 of the 11 BLM field offices in Utah released resource management plans (RMPs) governing land uses in those areas. Together the plans cover about 10 million acres in the eastern half of Utah. OHVs were a major issue addressed during the process, as part of travel management planning for the areas. The plans nearly eliminate areas open to cross-country OHV travel. Specifically, only 0.2% of the total acreage is open to cross-country travel, according to BLM. Instead, the plans largely limit OHV use to designated routes, although they close additional areas to OHV use. The plans also call for the establishment of 31 new Special Recreation Management Areas, where the combination of a high level of specific recreational activity and valuable natural resources would require more intensive management. In addition, OHV use has been a consideration in many on-going plan revisions efforts across the West, for instance in the Carson City District in Nevada and the Imperial Sand Dunes Recreation Area in California, and in recently completed plan revisions, such as for lands administered by the Taos field office in northern New Mexico. On November 19, 2010, BLM released a report on its review of procedures for issuing special use permits for OHV racing on its lands. The report, together with recommendations and changes in guidance, stemmed from a review following a deadly accident in August 2010 in the Johnson Valley OHV open area in Southern California, in which a truck driver is alleged to have exceeded the authorized speed, veered off course, and killed and injured spectators. Agency actions included an investigation of the accident, an examination of options to increase safety for spectators, a review of then pending and approved requests to race on BLM lands, an evaluation of the special recreation permit program, and an increase in the onsite presence of BLM staff at motorized races. Issues for Congress include the adequacy of safety provisions in special use permits and their enforcement by BLM; the extent of penalties for permittees who violate the terms of their permits; and the role of BLM staff at racing events. BLM developed a summary of planned actions in response to the GAO recommendations in its 2009 report on OHV use on federal lands, and has undertaken related actions. One of the GAO recommendations was for the establishment of performance measures and time frames for carrying out OHV goals. In response, BLM sought to develop goals and strategies that are results-driven and developed a travel management action plan with an implementation schedule to guide and accelerate the completion of all travel management plans. On August 25, 2011, for instance, BLM issued an instruction memorandum requiring all state directors to update schedules for travel and transportation management planning and implementation and to report on accomplishments. In response to the GAO recommendation to improve communication with the public about OHV use, BLM developed a travel and transportation management manual and a related handbook, as discussed above. In response to the GAO recommendation to enhance law enforcement of OHV use, BLM examined fines for OHV related violations and expressed an intent to seek changes where fines are inconsistent or insufficient. Legislative Activity No legislation pertaining to motorized recreation on BLM lands has been introduced in the 113 th Congress as of January 16, 2013. In the 112 th Congress, no general legislation on OHV activities on BLM lands was introduced. However, a variety of 112 th Congress measures would have affected OHV use, or recreation more broadly, in particular BLM areas. Some of these bills sought to establish recreation areas in general or OHV areas in particular. As one example, S. 173 would have established the Sacramento River National Recreation Area in California, with motorized vehicles generally limited to routes designated by the management plan. Similarly, a second bill, H.R. 6286 , would have designated the Clear Creek National Recreation Area in California, with motorized vehicles generally permitted on roads, trails, and areas designated by the management plan. The legislation called for a user fee program for motorized vehicle use, with revenues used for "management and improvement" of the area. A third example, S. 138 —the California Desert Protection Act of 2011—would have governed conservation, development, and recreation in the California Desert Conservation Area, including OHV use, in part through designation of off-highway vehicle recreation areas. Other bills that provided for the expansion of BLM protected areas addressed motorized use in the areas. In an expansion of the California Coastal National Monument, H.R. 4969 generally would have limited motorized vehicles to roads and trails designated for their use. The Subcommittee on National Parks, Forests, and Public Lands of the House Committee on Natural Resources held a hearing on this bill on September 11, 2012. Other bills provided for conveyances of BLM land for recreation purposes. For example, H.R. 3815 and S. 617 provided for conveyance of BLM land to the county of Elko, Nevada, for use as a motocross, bicycle, OHV, or stock car racing area or for other recreation or community purposes. A Senate subcommittee held a hearing on S. 617 on May 18, 2011. H.R. 6072 , S. 1475 , and S. 3346 would have conveyed BLM land to Clark County Nevada for the establishment of a park for OHV recreation, including for races, competitive events, and training. The measures also would have renamed BLM's Nellis Dunes area as the "Nellis Dunes [National] Off-Highway Vehicle Recreation Area." A provision of P.L. 112-239 pertained to a proposal to expand a Marine Corps training range in California onto lands within BLM's Johnson Valley OHV area. The provision would have limited funding for the transfer of land or development of a new training range on adjacent land until the Secretary of the Navy reported to Congress on the issue, including on the impact of the proposal on OHV users of the lands. The Senate-passed version of the bill did not contain a similar provision. Motorized Recreation in the National Forests31 Background The national forests are managed by the USDA Forest Service (FS) for a variety of uses, including many types of recreation—sightseeing, OHV use, backpacking, and more—while preserving the productivity of the lands. Recreation use continues to grow, with OHV use among the fastest growing uses. However, OHV use is still substantially less than other, non-motorized forms of recreation in the national forests. The various uses and values of the national forests sometimes conflict with one another. For example, timber harvesting and OHV use can affect birdwatching and sightseeing, and can degrade water quality in certain settings. Decisions about what uses are allowed, and when and where, are made in comprehensive land and resource management plans prepared for each unit of the National Forest System, and for each project. Because of multiple efforts to modify the planning regulations, many plan revisions have been delayed. Much of the attention has been focused on motorized recreation, because of the potentially significant impacts of motorized recreation on other values. Administrative Actions The FS manages about 193 million acres of land. Federal guidance on OHV use in E.O. 11644 and E.O. 11989, as described in the introduction to this report, was incorporated into FS regulations. Despite this guidance, not all forest plans had identified areas as open or closed to OHVs, and local practices as to OHV use vary. In 2004, the FS Chief identified unmanaged recreation —"increasing use of the national forests for outdoor activities ..., including the use of off-highway vehicles"—as a threat to the nation's forests and grasslands. According to the FS, OHV use has created many unauthorized roads and trails, which can be unsafe and harmful to other resources. In 2005, the FS finalized regulations to require forest plans to identify a system of roads, trails, and areas available for motorized vehicle use and prohibit the use of OHVs and other motorized vehicles outside the designated system. Subpart A of the regulations requires the agency to identify the minimum road system needed for safe and efficient travel and for the protection, management, and use of national forest system lands. Subpart B of the regulations requires the FS to designate those roads, trails, and areas where motor vehicle use is allowed and to identify them on a motor vehicle use map (MVUM). Subpart C of the regulations makes management of over-snow vehicles (e.g., snowmobiles) optional. As of December 2012, MVUMs based on the new regulations were completed for 93 of the 114 administrative units in the National Forest System, representing 82% of FS lands. As of July 2008, 100 million acres of national forest lands (52%) were generally open to OHV use, including 64 million acres open to cross-country use. More recent data are not available. Opinions continue to be divided over the importance and impact of the travel management regulations. Some assert that the regulations do not go far enough, preferring that all OHV uses be prohibited in the national forests, because OHVs can damage national forest lands and resources. In August 2010, several groups requested the FS to end the snowmobile exemption from the travel management regulations, but the agency denied the request in March 2011. Legal action continues, with a lawsuit filed against the Forest Service in federal court in November, 2012. Others counter that the regulations penalize the majority of OHV users that obey the rules and restrict off-highway uses at a time when other landowners and other federal and state agencies are reducing similar recreational access to their lands. The conflicts between interests continue to persist and may be escalating, in part because of the lack of past efforts to regulate OHV use. In April 2012, the FS finalized new regulations for land and resource management planning for the National Forest System. Although access affects land and resource use and management, the new planning regulations did not specifically address transportation planning. The FS noted that the 2012 rule generally did not address management of particular activities or uses, such as forest transportation systems, because separate regulations govern specific uses. Tensions over road and trail closures continue to persist. Many of the completed travel management plans have been challenged for either being too restrictive or not restrictive enough. The Forest Service has prevailed on some challenges but lost on others. In addition, some groups have cited an 1866 statute known as "R.S. 2477" as providing county primacy in determining road access to federal lands. The FS generally agreed with the findings in the GAO's 2009 report on OHV use on federal lands, according to the FS comments on the draft report. One of the GAO recommendations was for the establishment of a nationwide strategy for OHV use and performance measures and timeframes for carrying out OHV goals. In response, the FS developed the Route and Area Designation Implementation Guide in 2010. As of December 2012, the FS was in the process of developing performance measures for OHV goals, and planned to complete and implement the measures by 2014. In response to the GAO recommendation to improve communication with the public about OHV use, the FS established an interactive travel map on their website with improved information about which roads and trails are available for OHV use on national forest lands. In response to the GAO recommendation to enhance law enforcement of OHV use, the FS examined fines for OHV related violations and is considering the feasibility of a system-wide standard for fine amounts. Legislative Activity A 113 th Congress bill, H.R. 145 , contains provisions on motorized recreation on trails in Idaho. Similar legislation was introduced in the 112 th Congress. While no general legislation on OHV activities in the national forests was introduced in the 112 th Congress, some measures addressed motorized recreation in areas with existing special designations. Other bills would have restricted OHV activities, explicitly or implicitly, by designating areas as wilderness. Still other 112 th Congress measures sought to designate other types of areas, including Special Management Areas, and govern the use of motorized vehicles in those areas. For instance, S. 1635 proposed the establishment of the Sheep Mountain Special Management Area, comprised of lands from four national forests, and generally prohibited use of motor vehicles in the area. The Subcommittee on Public Lands and Forests of the Senate Committee on Energy and Natural Resources held a hearing on S. 1635 on March 22, 2012. S. 3400 sought to establish the Hermosa Creek Special Management Area in the San Juan National Forest, and generally would have limited motorized vehicles in the area to roads and trails designated by the Secretary. As another example, S. 268 would have established several Special Management Areas and Recreation Management Areas in Montana. Motorized vehicles were generally limited to roads and trails in the new areas. However, the provisions varied, with one area generally prohibiting motorized vehicles. The bill also would have required the Secretary to report on topics including the opportunities for expanded all-terrain vehicle routes and trails across the Three Rivers District and adjacent areas on the Kootenai National Forest. The Subcommittee on Public Lands and Forests of the Senate Committee on Energy and Natural Resources held a hearing on S. 268 on May 25, 2011. H.R. 4109 contained a variety of provisions relating to motorized recreation in the Los Padres National Forest. Among other provisions, the bill sought to establish OHV areas in the forest, with motorized vehicles generally permitted only on designated roads and trails. It also sought to establish the Condor Ridge Scenic Area, with motorized vehicles generally permitted only on roads and trails designated as of the date of enactment of the legislation. The bill also would have designated uses on certain roads and trails and added them to the forest's MVUM, and called for the Secretary of Agriculture to report on the feasibility of and interest on constructing new trails, which would be open to certain vehicles. The Subcommittee on National Parks, Forests, and Public Lands of the House Committee on Natural Resources held a hearing on H.R. 4109 on June 28, 2012. In addition, Section 433 of H.R. 6091 , the FY2013 Interior, Environment, and Related Agencies Appropriations bill, sought to prohibit the implementation or enforcement of portions of the travel management regulations in California until certain planning actions were taken. Similar provisions—including a nationwide prohibition on implementing or enforcing the regulations in FY2011—were considered in previous appropriations bills but were not enacted. The bill was reported by the House Committee on Appropriations and placed on the House calendar on July 10, 2012. A House subcommittee held oversight hearings that in part addressed the Forest Service's implementation of the travel management regulations. A hearing on September 19, 2011, focused on access to the national forests and the impacts of closing roads and trails to OHV use. Testimony was received from local government officials, OHV user groups, and environmental conservation groups. Another hearing on November 15, 2011 focused on the travel management planning and designation process implemented by the FS. Closing Summary BLM and the FS manage motorized recreation on their lands under certain common authorities, such as executive orders, and each agency has its own regulations, policies, and other guidance. Further, while there is no single law pertaining exclusively to motorized use on all BLM or all FS lands, both agencies manage motorized recreation under broad laws providing for multiple use of agency lands as well as specific laws pertaining to individual land areas. Currently, the agencies are determining the extent to which OHVs are allowed in particular areas through their planning processes, through the development of new management plans or, more commonly, updates to existing plans. The FS also continues to develop accompanying motor vehicle use maps depicting where motor vehicle use is allowed. BLM also continues to address motorized recreation through broad travel and transportation plans that cover all modes of travel and public access. Agency determinations have been controversial in some areas. For instance, while some have expressed concern that motorized use on federal lands is too restricted to accommodate the recreating public, others have asserted that additional limits are needed to protect federal lands from resource damage. Recent Congresses have generally addressed motorized use on BLM and FS lands in legislation focused on particular areas rather than on BLM or FS lands more generally. For instance, the 112 th Congress considered BLM land bills that sought to create OHV recreation areas, and to establish more general recreation areas with specifications as to where motorized vehicles could be used. Other bills sought to convey (e.g., to a county) particular BLM lands for motorized recreation, among other uses. For the FS, bills in the 112 th Congress addressed motorized recreation in areas with special designations, such as wilderness. Other FS bills sought to designate new types of areas, such as Special Management Areas, and specify the extent to which motorized vehicles could be used in these areas. The 112 th Congress also held broad oversight hearings on motorized recreation on BLM and FS lands, encompassing issues including the extent to which lands are open, agency planning processes, balance among land uses, economic effects, and sources of funding. The 113 th Congress might consider a variety of issues related to motorized recreation on federal lands. One issue is whether legislation is desirable to address motorized recreation on particular BLM and FS lands, or whether any bills providing for additional special designations would set parameters on OHV use. A related issue could be whether there is a need for broader, programmatic legislation focused on motorized recreation on federal lands generally or on most or all BLM or FS lands. Provisions of any such legislation could cover an array of issues, such as access and impacts. Congress also may continue to assess agency management of motorized recreation through oversight hearings. The appropriate level of funding for motorized recreation on agency lands is likely to be addressed as part of the annual appropriations process, and Congress also could evaluate how funds for OHV management are used and whether there is a need for other sources of funding.

The growing and diverse nature of recreation on federal lands has increased the challenge of balancing different types of recreation with each other and with other land uses. Motorized recreation on lands managed by the Bureau of Land Management (BLM) and the Forest Service (FS) has been controversial, with issues centering on access and environmental impacts. Congress, as well as the Administration, has addressed motorized recreation on these federal lands. The use of off-highway vehicles (OHVs) on FS and BLM land is governed by a number of authorities, including law, executive orders, agency regulations and policies, land management plans, and area-specific decisions. Both agencies decide the extent of allowed OHV use in particular areas through their planning processes. Under BLM regulations, the agency has been designating public lands as open, limited, or closed to OHV use. Similarly, under FS regulations governing OHVs, the FS is designating roads, trails, and areas open for OHV use and prohibiting OHV use outside the designated system. The designations for some BLM and FS lands have been contentious. BLM also has been addressing motorized recreation as part of a broader effort to manage all modes of travel and public access, including through the issuance of a 2011 manual and a 2012 handbook on travel and transportation management. The goal of BLM's Comprehensive Travel and Transportation Management program is to provide varied transportation routes for access to BLM lands and provide areas for a variety of motorized and non-motorized forms of recreation, while protecting sensitive areas. Travel and transportation management plans are developed for particular areas. Also, in response to recommendations of the Government Accountability Office regarding OHV use on federal lands, BLM has taken actions in areas including planning, law enforcement, and communication with the public. The FS continues to develop motor vehicle use maps showing where motor vehicle use is allowed, based on its 2005 travel management regulations. These regulations continue to be under debate, with some asserting that they do not sufficiently protect national forest lands from damage resulting from OHVs, and others contending that motorized access is too restricted. Similarly, some of the agency's travel management plans have been challenged for either being too restrictive or not restrictive enough. One bill with provisions on motorized recreation on FS lands (H.R. 145) has been introduced in the 113th Congress to date. In the 112th Congress, no general legislation on OHV activities on BLM and FS lands was introduced. However, a variety of legislative measures sought to regulate OHV use on particular lands administered by the BLM, the FS, or both agencies. For instance, some measures relating to BLM lands sought to establish recreation areas in general, or OHV areas in particular. Other bills provided for conveyance of BLM land for recreation purposes, including motorized recreation. Measures pertaining to FS lands addressed motorized recreation in areas with special designations, including wilderness. Other FS bills sought to designate other types of areas, such as special management areas and recreation management areas, and govern the use of motorized vehicles in those areas. Other bills contained varied provisions relating to motorized recreation in a particular national forest.

Introduction U.S. copyright law does not protect useful articles, and copyright protection has been denied to fashion designs because clothing garments have traditionally been viewed as useful articles—basic items of necessity having utilitarian value—rather than as artistic creations. However, Chapter 13 of the U.S. Copyright Act does specify protection for the designs of one category of useful articles, the designs of boat hulls. The 111 th Congress did not pass legislation that would have amended Chapter 13 of the Copyright Act to extend design protection to fashion design, the Design Piracy Prohibition Act ( H.R. 2196 ) and the Innovative Design Protection and Piracy Prevention Act ( S. 3728 ). Although the two bills shared similar provisions, they also differed significantly. Legislation concerning fashion design copyright protection was also introduced but not passed by the 110 th Congress ( H.R. 2033 , S. 1957 ) and the 109 th Congress ( H.R. 5055 ) . The 112 th Congress may consider similar legislation. Background The Copyright Act (the Act) defines a "useful article" as "an article having an intrinsic utilitarian function that is not merely to portray the appearance of the article or to convey information." If the function of an article is found to be inherently utilitarian, rather than exclusively aesthetic or informational, then the article cannot be protected under U.S. copyright law. Although useful articles cannot be protected in and of themselves, certain aesthetic or creative aspects of such articles can receive protection. Designs of useful articles can be protected under copyright law "only if, and only to the extent that, such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article." Because "pictorial, graphic, and sculptural" works are eligible for copyright protection under § 102 of the Act, protection is permitted for aspects of a utilitarian article that fall into this category and can be physically or conceptually separable from the utilitarian aspects of the article. The U.S. Copyright Office describes this "separability test" as an "extremely limited" means of protecting the designs of useful articles, as courts have excluded most industrial designs from copyright protection. Both the patent and trademark law regimes provide limited means for protecting fashion design. Under the concept of trade dress (part of trademark law), a fashion design can be protected in cases where the product has gained a reputation among consumers as being identifiable with a particular market source. Under patent law, design patents could also be a potential means for protection. However, commentators have noted the potential shortcomings of each of these approaches. Vessel Hull and Deck Design Protection The design protection for vessel hulls and decks in the Copyright Act is a unique, specially carved-out area of protection for designs of useful articles. Chapter 13 of the Act provides protection for vessel hull or deck designs for a period of 10 years; such protection is granted if the application for registration of the design is made within two years from the date on which the design is first made public. A design is considered to have been made public "when an existing useful article embodying the design is anywhere publicly exhibited, publicly distributed, or offered for sale or sold to the public by the owner of the design or with the owner's consent." Exclusive Rights of the Design Owner Under Section 1308 of the Copyright Act, the owner of a protected design "has the exclusive right to (1) make, have made, or import, for sale or for use in trade, any useful article embodying that design; and (2) sell or distribute for sale or for use in trade any useful article embodying that design." If design protection under Chapter 13 of the Copyright Act were expanded to include fashion designs, fashion design owners would be granted the exclusive right to place their designs on the marketplace, and to thereby prevent others from creating, importing, selling, or distributing an article of apparel the design of which has been copied from a protected design without the authorization of the registered design owner. Legislation in the 111th Congress The Design Piracy Prohibition Act ( H.R. 2196 ) and the Innovative Design Protection and Piracy Prevention Act ( S. 3728 ) would have amended the Copyright Act to provide a three-year term of copyright protection for fashion designs. H.R. 2196 was referred to the House Committee on the Judiciary but received no further legislative action. S. 3728 was approved by unanimous vote by the Senate Judiciary Committee and reported to the Senate on December 6, 2010; however, the Senate did not vote on the bill before the end of the 111 th Congress. The specific provisions of these bills are discussed and analyzed below. Designs Protected As noted above, Chapter 13 of the Copyright Act, entitled "Protection of Original Designs," is currently limited to vessel hull designs. Section 1301 of the Act grants protection to the designer or other owner of an original design of a "useful article" that makes the article's appearance attractive or distinctive to the buying public. The definition subsection of § 1301 first explains what makes a design original, and then limits the definition of "useful article" to a vessel hull or deck. Both H.R. 2196 and S. 3728 would have amended the definition of "useful article" by adding the provision "or an article of apparel," in order to protect the design of apparel under the Act. To the end of the statutory definition section, the bills would have added the definitions for "fashion design," "design," and "apparel." The definition of "apparel" is broad, encompassing articles of men's, women's, and children's clothing, including undergarments, and outerwear, gloves, footwear, and headgear. Additionally, the term covers handbags, purses, wallets, duffel bags, suitcases, tote bags, belts, and eyeglass frames, rendering these items eligible for protection. However, the bills defined "fashion design" differently; S. 3728 mirrored H.R. 2196 's definition but then added several additional qualifications that the design would have to satisfy in order to qualify for protection. H.R. 2196 provided the following definition of "fashion design": the appearance as a whole of an article of apparel, including its ornamentation, and includes original elements of the article of apparel or the original arrangement or placement of original or non-original elements as incorporated in the overall appearance of the article of apparel. To this definition, S. 3728 added two additional requirements. The original elements of the article of apparel or the original arrangement or placement of original or non-original elements must be the result of a designer's own creative endeavor; and provide a unique, distinguishable, non-trivial and non-utilitarian variation over prior designs for similar types of articles. The additional elements of the statutory definition of "fashion design" contained within S. 3728 suggests that fewer fashion designs would likely have been eligible for protection under S. 3728 than under the broader definition offered by H.R. 2196 . In addition, unique to H.R. 2196 was a definition of the word "trend," and unique to S. 3728 was a definition of the phrase "substantially identical." These terms were used by the legislation to limit liability for infringement of protected designs, as discussed below. Term of Protection The act currently specifies a 10-year term of protection for vessel hulls and decks. Both H.R. 2196 and S. 3728 would have amended the Copyright Act to prescribe a three-year term of protection for fashion designs. The three-year term starts from the earlier of the date of publication of the registration or the date the design is first made public. Proponents of legislation to protect fashion design assert that a three-year term is sufficient because its purpose is to protect high end "haute couture" designs when they are first sold at expensive prices—a time when the designs could be vulnerable to copies sold at substantially lower prices. Because trends arise and fade quickly, the shorter term is considered a sufficient time period for the designer to have exclusive rights. The 10-year protection for vessel hulls and decks would have remained unchanged under the bills. Application for Registration Currently, Section 1310 of the Copyright Act refers only to registration for vessel hull and deck design protection. It mandates a two-year time period after a design has been made public during which an application for registration of the design must be filed—if no registration is submitted to the Copyright Office within this time frame, "[p]rotection under this chapter shall be lost." H.R. 2196 would have added to this section the registration of a fashion design; however, it provided that such an application for registration must be made within a window of six months after the date on which it is first made public by the designer in the United States or a foreign country. The purpose of including a limited registration period "is to require prompt registration of protected designs, which gives notice to the world that design protection is claimed." Because the entire term of protection for fashion designs is significantly shorter than that for vessel hulls and decks, a shorter window for registration of fashion designs is deemed necessary. The two-year time frame for vessel hull and deck registration would have remained unchanged under the bill. H.R. 2196 would have required that an application for registration of a fashion design be made to the Register of Copyrights, as is currently the procedure for registering a vessel hull or deck design. Furthermore, the legislation mandated that the Register require a fashion design application to include a brief description of the design for use in the new searchable electronic database that the bill would have established (described in the following section). Unlike H.R. 2196 , S. 3728 did not require that fashion designs be registered with the Copyright Office in order to enjoy protection. Instead, protection arises under S. 3728 upon the design's creation. Some commentators have noted that without a registration requirement, the public (specifically retailers and other designers) would not be put on notice that a particular design is subject to copyright protection. Searchable Database for Fashion Designs H.R. 2196 would have required the Register of Copyrights to establish and maintain a computerized database containing information regarding protected fashion designs. The electronically searchable database would have contained among other things contact information of the owners of the fashion designs, the name of the useful article embodying the design, the date the design was first made public, and other information that the Register may require. The database also must have contained "a substantially complete visual representation of all fashion designs that have been submitted for registration," including those that are registered, have been denied registration, have been cancelled, or have expired. Finally, the legislation required that such database be made available to the public without a fee or other access charge. S. 3728 contained no similar provision. Designs Not Subject to Protection Section 1302 of the Copyright Act denies protection for a design that is (1) not original; (2) staple or commonplace, such as a standard geometric figure, a familiar symbol, an emblem, or a motif, or another shape, pattern, or configuration which has become standard, common, prevalent, or ordinary; (3) different from a design excluded by paragraph (2) only in insignificant details or in elements which are variants commonly used in the relevant trades; (4) dictated solely by a utilitarian function of the article that embodies it; or (5) embodied in a useful article that was made public by the designer or owner in the United States or a foreign country more than 2 years before the date of the application for registration. However, § 1303 of the Copyright Act offers protection for a design that uses subject matter excluded from protection under § 1302, "if the design is a substantial revision, adaptation, or rearrangement of such subject matter." H.R. 2196 would have amended § 1302 to make protection unavailable for a fashion design that has been embodied in a useful article that was made public by the designer in the United States or a foreign country more than six months before the date of the application for registration. In contrast, S. 3728 would have made protection unavailable for a fashion design that was made public before the enactment of the bill or more than three years before the date upon which protection of the design is asserted. Both bills would have amended § 1303 to provide that "The presence or absence of a particular color or colors or of a pictorial or graphic work imprinted on fabric shall not be considered in determining the originality of a fashion design under section 1301 or 1302 or this section or the similarity or absence of similarity of fashion designs in determining infringement under section 1309." Infringement Section 1309 of the Copyright Act details what constitutes infringement of the design of a useful article, namely, [I]t shall be infringement of the exclusive rights in a design … for any person, without the consent of the owner of the design, within the United States and during the term of such protection, to— (1) make, have made, or import, for sale or for use in trade, any infringing article; or (2) sell or distribute for sale or for use in trade any such infringing article. In addition to a violation of any of the design owner's exclusive rights, it is also an infringement for a seller or distributor who did not make or import an infringing article, to induce or act in collusion to make or import the article. A seller or distributor can also be liable if a design owner asks where the article came from and the seller/distributor refuses or fails to do disclose its source, and orders or reorders the article with the infringing design after being notified by mail that the design is protected. Section 1309 has an exception to infringement liability for acts without knowledge: it is not an infringement to make, have made, import, sell, or distribute any article embodying a copied design that was created without knowledge that the design was protected. H.R. 2196 would have narrowed the "innocent infringement" exception by amending the language so that it would constitute infringement if one did not have actual knowledge but had reasonable grounds to know that design protection is claimed. S. 3728 would also have narrowed the exception by specifying that it would constitute infringement if one had either actual knowledge or knowledge that can be "reasonably inferred from the totality of the circumstances" that a design was protected and was copied from such protected design. On the other hand, S. 3728 would have broadened the "innocent infringement" exception by including two additional actions with respect to the article embodying a copied design: "offer for sale" and "advertise." Additionally, both bills added protection for images of fashion designs as well as for the designs themselves, stipulating that an article is infringing if its design was copied, without the consent of the design owner, from a protected design itself "or from an image thereof." H.R. 2196 would also have amended § 1309 to apply the doctrines of secondary liability to actions for infringement of a design of a useful article. Doing so would codify the doctrines of secondary liability, which are not presently in the Copyright Act but exist in case law. As introduced, S. 3728 contained a similar amendment, but the Senate Judiciary Committee reported the bill with an amendment that eliminated the secondary liability section. According to media reports, this removal was made out of a concern that the bill's secondary liability language might have had unintentional affects on other parts of the Copyright Act. Finally, H.R. 2196 would have changed the potential increased damages for infringement that may be imposed "as the court determines to be just" from the current amounts of $50,000 or $1 per copy, to $250,000 or $5 per copy (whichever is greater). S. 3728 would have left the current damage amounts unchanged. Both bills defined an "infringing article" to mean any article the design of which has been copied from a protected design, or from an image thereof, without the consent of the owner of the protected design. However, the bills expressly excluded from this definition an illustration or picture of a protected design in an advertisement, book, periodical, newspaper, photograph, broadcast, motion picture, or similar medium. H.R. 2196 provided several limitations on infringement liability: if the allegedly infringing article is original and not closely and substantially similar in overall visual appearance to the protected design; if the allegedly infringing article reflects a trend (defined by the bill as a newly popular concept or idea expressed in a wide variety of designs of apparel that are in immediate demand); or if the allegedly infringing article is the result of independent creation. S. 3728 would have established slightly different limitations on liability: (1) if the allegedly infringing article is not "substantially identical" in overall visual appearance to the original elements of a protected design (that is, the article would not likely be mistaken for the protected design because the article contains only differences in construction or design that are merely trivial); (2) if the article is the result of independent creation; or (3) if a person produces a single copy of a protected design for non-commercial personal use or for the use of an immediate family member (the "home sewing exception"). False Representation Penalties Section 1327 of the Copyright Act currently provides the following: Whoever knowingly makes a false representation materially affecting the rights obtainable under this chapter [17 USCS §§ 1301 et seq.] for the purpose of obtaining registration of a design under this chapter [17 USCS §§ 1301 et seq.] shall pay a penalty of not less than $ 500 and not more than $ 1,000, and any rights or privileges that individual may have in the design under this chapter [17 USCS §§ 1301 et seq.] shall be forfeited. H.R. 2196 and S. 3728 would both have increased the penalty amounts for false representation to a range of not less than $5,000 and not more than $10,000. Registration Prior to Filing An Infringement Lawsuit Section 1321 of the Copyright Act currently provides that the owner of a design is entitled to institute an action for any infringement of the design, only after issuance of a certificate of registration of the design. H.R. 2196 would leave unchanged the current statutory prerequisite of registering the design prior to filing an infringement suit. However, in keeping with S. 3728 's declaration that "[r]egistration shall not apply to fashion designs," S. 3728 would have amended Section 1321 to specify that for fashion designs, "the owner of a design is entitled to institute an action for any infringement of the design after the design is made public." S. 3728 would not have changed the registration requirement for vessel hulls. The Protection Debate Law professors, government officials, and design industry professionals have expressed diverse viewpoints on the need for and desirability of legislation granting copyright protection to fashion design. Those in favor of protection assert that the copyright law mistakenly views clothing as purely utilitarian in nature, and ignores the possibility that fashion design may be a form of creative expression deserving of protection. Proponents also highlight the effects of modern technology on the ease and speed of copying fashion designs, pointing to the ability for copiers to easily access images of runway photos posted on the Internet. Additionally, emphasis is placed on the particular vulnerability of young designers whose names and logos are not yet recognizable in the marketplace, and have difficulty promoting their work when it is quickly copied by established competitors. Supporters of the legislation also point to the protection granted to fashion design in other areas of the world. Those against offering copyright protection for fashion design generally point to the success of the marketplace as it is and note that copying is an integral and accepted part of the fashion industry. They claim that such interference into the fashion market would be harmful because of increased litigation over the standard for infringement. As a result, creative production of fashion designs would be stifled, ultimately resulting in less choice for consumers. Finally, these critics assert that foreign experience with fashion design protection has not had material effect because copying still occurs in nations that have design protection laws—to the same degree it occurs in the U.S. where there is currently no such protection.

Fashion design does not currently receive explicit protection under U.S. copyright law. Limited avenues for protection of certain types of apparel designs can be found through trademark and patent law, though proponents of copyright protection for fashion design argue that these limited means are insufficient. The 111th Congress did not pass legislation that would have provided a three-year term of copyright protection for fashion designs, the Design Piracy Prohibition Act (H.R. 2196) and the Innovative Design Protection and Piracy Prevention Act (S. 3728). This report analyzes these two legislative proposals. The 112th Congress may consider similar legislation regarding fashion design protection. The bills resembled each other although contained differences. For example, for a fashion design to receive protection under H.R. 2196, the designer must register the design with the U.S. Copyright Office; S. 3728 contained no such registration requirement. Instead, protection arises under S. 3728 upon the design's creation, although the design must be a sufficiently "unique, distinguishable, non-trivial and non-utilitarian variation over prior designs for similar types of articles." This is a more restrictive definition of "fashion design" compared to H.R. 2196. Both bills offered copyright protection for the appearance of an article of apparel as well as its ornamentation. They broadly defined the term "apparel" to mean the following: clothing (including undergarments, outerwear, gloves, footwear, and headgear), handbags, purses, wallets, tote bags, belts, and eyeglass frames. H.R. 2196 would have denied protection to fashion design that had been embodied in a useful article that was made public by the designer in the United States or a foreign country more than six months before the date of the application for registration. In contrast, S. 3728 would have denied protection if the design was made public prior to the enactment of the bill or more than three years before the date upon which protection of the design is asserted. H.R. 2196 would have required the Register of Copyrights to establish and maintain an electronically searchable database of protected fashion designs; such database must be made available to the public without a fee or other access charge. S. 3728 contained no similar provision. Both bills would have prohibited the creation, importation, sale, or distribution of any article whose design has been copied from a protected fashion design (or from an image of it), without the consent of the registered design owner. Such activity would have been considered an infringement of the fashion design owner's rights, and the adjudged infringer would have been subject to damages of the greater of: $250,000 or $5 per copy (under H.R. 2196) or $50,000 or $1 per copy (under S. 3728). H.R. 2196 provided several limitations on infringement liability: (1) if the allegedly infringing article is original and not closely and substantially similar in overall visual appearance to the protected design; (2) if the allegedly infringing article reflects a "trend" (defined by the bill as a newly popular concept or idea expressed in a wide variety of designs of apparel that are in immediate demand); or (3) if the allegedly infringing article is the result of independent creation. S. 3728's limitations on liability were slightly different: (1) if the allegedly infringing article is not "substantially identical" in overall visual appearance to the original elements of a protected design (that is, the article would not likely be mistaken for the protected design because the article contains non-trivial differences in construction or design); (2) if the article is the result of independent creation; or (3) if a person produces a single copy of a protected design for non-commercial personal use. In addition, both bills expressly stated that an infringing article is not an illustration or picture of a protected design in an advertisement, book, periodical, newspaper, photograph, broadcast, motion picture, or similar medium.

Background The Foreign Assistance Act of 1961 (P.L. 87-195; 22 U.S.C. 2151 et seq.), enacted at the behest of President Kennedy, sought to organize and implement U.S. foreign assistance programs with a commitment to long-range economic assistance to the developing world. The President, in a "Special Message to the Congress on Foreign Aid," delivered March 22, 1961, described the U.S. foreign aid programs emerging from World War II as [b]ureaucratically fragmented, awkward and slow, its administration is diffused over a haphazard and irrational structure covering at least four departments and several other agencies. The program is based on a series of legislative measures and administrative procedures conceived at different times and for different purposes, many of them now obsolete, inconsistent and unduly rigid and thus unsuited for our present needs and purposes. Its weaknesses have begun to undermine confidence in our effort both here and abroad. President Kennedy went on to note the declining prestige of the United States' foreign aid apparatus and the negative impact of that decline on administering and staffing programs abroad. The President also cited the uneven and undependable short-term financing of programs and the resulting disincentive for long-term efficient planning. Congress and the executive branch worked together to enact the Foreign Assistance Act of 1961 to address these shortcomings at a time when much of the developing world was emerging as newly independent states, when those new nations were, "without exception ... under Communist pressure," and when "the free industrialized nations" found themselves in a position "to assist the less-developed nations on a long-term basis ... [as they find themselves] on the threshold of achieving sufficient economic, social and political strength and self-sustained growth to stand permanently on their own feet." Though the original Foreign Assistance Act of 1961 lengthened the authorization time frame for funding development assistance to five years, other programs were authorized for shorter periods. The act still required occasional reauthorization legislation to renew programs beyond that original time frame, and Congress retained its role of appropriating funds. The original act authorized the funding levels shown in Table 1 . Through 1985, Congress regularly enacted new authorization legislation or amended the original act to update authorization time frames, and to incorporate newer programs and authorities. From 1986 on, however, Congress turned more frequently to enacting freestanding authorities that did not amend the 1961 act, and included language in annual appropriations measures to waive the requirement to keep authorizations current. Thus, sections in the Foreign Assistance Act of 1961, in many instances, do not refer to authorization beyond fiscal years 1986 and 1987 (unless the program was added to the act by an amendment enacted after that period), but programs are continued through appropriations. Other Authorizations A few programs are established outside the statutory framework of the Foreign Assistance Act of 1961, and thus are not included in detail in this report. Reimbursable military exports, for example, are addressed in the Arms Export Control Act and subsequent Security Assistance Acts. Since 1985, the last year Congress passed a comprehensive reauthorization of the Foreign Assistance Act of 1961, both Congress and the President have promoted a variety of specialized authorities in freestanding legislation. And, on rare occasion, Congress has established new authorities or programs in annual appropriations acts. Some freestanding laws that authorize foreign aid or apply new conditions to aid authorized in the Foreign Assistance Act of 1961 are shown in Table 2 . Foreign Assistance Act of 1961: Authorities and Appropriations Table 3 presents the authorities enacted in the Foreign Assistance Act of 1961, as amended, and the corresponding appropriations that fund those authorities in the current foreign assistance appropriations act. Authorization The left-side column of Table 3 cites sections of the Foreign Assistance Act of 1961, as amended, that authorize programs, and provides the latest year for which authorization is enacted. Sections that establish a need for such a program—in the form of policy or finding statements, for example—are not cited. The Foreign Assistance Act of 1961 is organized in a conventional manner, however, so those sections that state policy, findings, program requirements, or implementing structure can be found in the text of the law in sections proximate to the authorizing section. All of the Foreign Assistance Act of 1961 is stated in the United States Code, beginning at 22 U.S.C. 2151. For each section that states the President's power to authorize funds, the relevant U.S. Code citation and year of enactment is included here. In nearly all cases, these sections have been substantially amended, or rewritten altogether, subsequent to enactment. This table reflects the language as amended. Though the sections generally afford the President the authority to furnish whatever assistance the section establishes, Section 622(a) and (c) (22 U.S.C. 2382(a), (c)) of the act states that Nothing contained in this Act shall be construed to infringe upon the powers or functions of the Secretary of State.... Under the direction of the President, the Secretary of State shall be responsible for the continuous supervision and general direction of economic assistance, military assistance, and military education and training programs, including but not limited to determining where there shall be a military assistance (including civic action) or a military education and training program for a country and the value thereof, to the end that such programs are effectively integrated both at home and abroad and the foreign policy of the United States is best served thereby. In many instances, the President has delegated his authority to the Secretary of State, the Administrator of the United States Agency for International Development, or some other appropriate office holder. Delegations of authority are to be found, either in whole text or as a reference, in the U.S. Code, at sections corresponding to the section of the Foreign Assistance Act of 1961 that states the relevant authority. Appropriation The right-side column of Table 3 states appropriations levels that correspond to the authorized program, as enacted in the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2012 (division I of the Consolidated Appropriations Act, 2012; P.L. 112-74 ; 125 Stat. 786 at 1164). The General Provisions title in an appropriations act usually states conditions for administering the appropriations. In Table 3 , General Provisions sections that state conditionality and terms that might be applicable to the aid being provided are also listed, and a statute citation is provided to assist the reader who might wish to read in further detail. General Provisions measures that apply to the entire appropriations act are cited only at Chapter 1—Policy, Development Assistance Authorizations; they are numerous and apply to most authorities. Such General Provisions sections prohibit assistance for reasons relating to terrorism, military overthrows, and debt arrearages, to name a few.

The Foreign Assistance Act of 1961 (P.L. 87-195; 22 U.S.C. 2151 et seq.) serves as the cornerstone for the United States' foreign assistance policies and programs. Written, passed, and signed into law at what some consider the height of the Cold War, the act is seen by some today as anachronistic. Ironically, when President Kennedy urged the 87th Congress to enact foreign aid legislation that would exemplify and advance the national interests and security strategies of the United States post-World War II, he described the existing foreign aid mechanisms as bureaucratic, fragmented, awkward, and slow. Some have used the same language today, more than 50 years later, to characterize the legislation he promoted. On several occasions over the past 20 years, Congress has set out to assess the current body of law that comprises foreign aid policy, starting with the Foreign Assistance Act of 1961. The Foreign Affairs and Foreign Relations Committees, in recent past Congresses, have considered legislation to rebuild the United States' capacity to deliver effective foreign aid, and make aid more transparent and responsive to today's quick-changing international challenges. Proposals have ranged from setting up advisory committees to a complete overhaul of foreign aid objectives and programs. This report presents the authorities of the Foreign Assistance Act of 1961, as amended, and correlates those authorities with the operative appropriations measure (division I of the Consolidated Appropriations Act, 2012; P.L. 112-74; 124 Stat. 786 at 1164) that funds those authorities. It replaces an earlier issue of the same report, dated July 29, 2011, to incorporate the current appropriations act. For many years, foreign aid appropriations measures have waived the requirement that funds must be authorized before they are appropriated and expended. Understanding the relation between the authorities in the cornerstone act and appropriations is key to foreign aid reform.

Introduction Congress over the years has passed several domestic content laws that aim to protect American manufacturing and manufacturing jobs. In 1978, Congress placed domestic content restrictions on federally funded transportation projects that are carried out by nonfederal government agencies such as state and local governments. These restrictions are commonly referred to as the Buy America Act, or more simply, Buy America; they differ from requirements under the Buy American Act of 1933, which applies to direct purchases by the federal government. Statements and actions by the Trump Administration about reinvigorating domestic manufacturing and reinvesting in infrastructure have stimulated renewed interest in Buy America. Today, Buy America refers to several similar statutes and regulations that apply to federal funds used to support projects in highways, public transportation, aviation, and intercity passenger rail, including Amtrak. Buy America also applies to certain federally funded water infrastructure projects. Unless a nationwide or project-specific waiver is granted, Buy America requires the use of U.S.-made iron and steel and the domestic production and assembly of other manufactured goods, such as rolling stock used in public transportation. To evaluate the implications of Buy America on domestic manufacturing, this report analyzes the effects of Buy America on steel and rolling stock manufacturing in the context of industry trends. It also briefly discusses the effects of Buy America on the transportation system. The report begins by explaining Buy America restrictions in more detail; how Buy America comports with international trade agreements that generally forbid procurement restrictions favoring domestic products; and how a relatively new provision enacted by Congress may require imports of materials on federally funded transportation projects to be carried on U.S.-flag ships . The report identifies policy options Congress might consider in light of recent legislative proposals. Buy America Requirements Buy America requirements differ in law and regulation according to the specific funding program and administering agency (see Table A-1 ). These agencies are the Federal Transit Administration (FTA), the Federal Highway Administration (FHWA), the Federal Railroad Administration (FRA), and the Federal Aviation Administration (FAA). Buy America also applies to purchases by Amtrak. In certain situations, the statutes permit a regulating agency to waive the Buy America provisions. If a state or local government does not use federal funds on a project, the project is not subject to Buy America (although states may have laws imposing similar requirements on state-funded purchases). Buy America provisions applicable to funds administered by FHWA, for example, are found at 23 U.S.C. §313 and 23 C.F.R. §635.410, and apply to iron and steel permanently incorporated into a highway project. This requirement can be waived if the Secretary of Transportation determines that it would be inconsistent with the public interest, that the materials are not produced in the United States in sufficient quantities or of a satisfactory quality, or that the inclusion of domestic materials will raise the cost of the overall project by more than 25%. FHWA determined in a 1983 rulemaking that Buy America would not apply to raw materials, such as iron ore, limestone, and waste products, all of which "may be imported." Waste products that may be used under this waiver include scrap steel. FHWA also waived the application of Buy America requirements to products other than those manufactured predominantly of iron and steel. In 2012, FHWA clarified that a manufactured product must consist of at least 90% iron and steel for it to be considered manufactured predominantly of iron and steel and, thus, subject to Buy America requirements. In 1995, FHWA determined that due to inadequate national supply, a national waiver would be granted for certain iron products used in the manufacture of steel or iron, including pig iron and iron ore that is reduced, processed, or pelletized. Even though FHWA waives Buy America requirements for manufactured products, except those made predominantly of iron and steel, this is not the case with other U.S. Department of Transportation (DOT) agencies and Amtrak. For example, for the purchase of rolling stock using FTA funds, the Buy America requirement is waived only if (1) the cost of the components produced in the United States in FY2017 is more than 60% of the cost of all components of the rolling stock (65% for FY2018 and FY2019, and 70% for FY2020 onward); and (2) final assembly of the rolling stock occurs in the United States (49 U.S.C. §5323(j) and 49 C.F.R. §661). Moreover, for a rolling stock component to be considered produced in the United States or of domestic origin, "more than 60% of the subcomponents of that component, by cost, must be of domestic origin, and the manufacture of the component must take place in the United States" (49 C.F.R. §661.11(g)). For nonrolling stock manufactured goods purchased using FTA funds , 100% of the components, including steel and iron, mu st be made in the United States and assembly must be done in the United States . According to 49 C.F.R. §661.5, "a component is considered of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents." Buy America provisions restrict Amtrak's spending when the cost of articles, materials, or supplies bought is at least $1 million. The law requires Amtrak to purchase goods that are manufactured in the United States "substantially from articles, material, and supplies mined, produced, or manufactured in the United States." FRA has interpreted "substantially" to mean that the manufactured goods must have domestic component content greater than 50%, by cost. Trade Agreements and Domestic Preferences The U.S. government builds few transportation projects directly. Instead, it generally funds highways, airports, and public transportation projects by making grants or loans to state or local governments. This funding structure has made it possible to avoid claims that Buy America violates international trade agreements. The United States is a signatory to international agreements that restrict discrimination against trading partners in government procurement. Currently, 47 World Trade Organization (WTO) members, including the United States, have made binding commitments under the WTO Agreement on Government Procurement (GPA), whereby each provides the others access to its national procurement markets. Most U.S. bilateral and regional free trade agreements also include public procurement provisions. These agreements are generally based on "national treatment" and require the United States to treat goods, services, and suppliers of other signatories no less favorably than U.S. goods, services, and suppliers. As a consequence, firms based in countries covered by such agreements can bid on covered U.S. government procurement contracts over a certain dollar threshold. The thresholds are adjusted every two years. National treatment also means U.S. firms can bid on contracts in foreign procurement markets, giving American suppliers treatment no less favorable than domestic suppliers. Although the United States is a WTO GPA signatory, state and local governments are excluded from coverage, even if federal funds are involved, unless they voluntarily agree to comply. Thus, where the federal government provides grants or loans to state and local authorities for transportation projects, it may attach domestic sourcing restrictions to these funds without violating international obligations. The exclusion of subnational procurement has caused considerable tension with major U.S. trading partners such as Canada and the European Union. In 2010, for example, the United States agreed to allow Canadian firms to bid on certain subnational economic stimulus contracts, including those involving construction of highways, bridges, and rail lines, in return for Canada's agreement to cover its provinces and territories under the WTO GPA. Cargo Preference Cargo preference is another restriction applicable to federally supported activities, in this case requiring that a portion of "government-impelled" cargoes be carried on U.S.-flag vessels (46 U.S.C. §55305, 46 C.F.R. Part 381). Although cargo preference is not a Buy America requirement, a relatively new cargo preference provision may complicate transportation projects that are subject to Buy America. In 2008, Congress incorporated a provision in the FY2009 Duncan Hunter National Defense Authorization Act (NDAA; P.L. 110-417 , §3511) specifying that cargo preference requirements also apply to cargo that is imported by an organization or person if the federal government "provides financing in any way with federal financial funds for the account of any persons unless otherwise exempted." At least 50% of such cargo must be shipped in U.S.-flag vessels. The law directs DOT to issue regulations and guidance to govern the administration of cargo preference by other federal agencies. The Maritime Administration (MARAD) within DOT has yet to clarify how the cargo preference requirements of the FY2009 NDAA will be implemented. The agency submitted a draft notice of proposed rulemaking for Office of Management and Budget approval in December 2011, but subsequently terminated the process after interagency coordination efforts failed. MARAD anticipates restarting the regulatory development process, but does not know when. FHWA has interpreted the law to apply cargo preference requirements to federally supported highway projects carried out by state departments of transportation and other agencies. MARAD has applied cargo preference requirements to vessel components imported for ships constructed with federal loan guarantees. Changes to Buy America in MAP-21 and FAST Act There have been several changes to Buy America in the two most recent surface transportation reauthorization acts, the Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112- 141 ), enacted in July 2012, and the Fixing America's Surface Transportation (FAST) Act ( P.L. 114-94 ), enacted in December 2015. As part of MAP-21, Congress sought to prevent sponsors of highway projects from segmenting a project into smaller parts, some federally funded and some not, so as to free some segments of the project from Buy America requirements. To accomplish this, MAP-21 specified that FHWA Buy America requirements apply to all contracts eligible for assistance within the scope of a project's National Environmental Policy Act of 1969 (NEPA) document if at least one contract for the project is federally funded. This provision addressed issues that arose during reconstruction of the San Francisco-Oakland Bay Bridge by the California Department of Transportation (CalTrans). After a major earthquake in 1989, California decided to reconstruct the Bay Bridge by refurbishing the western span and replacing the eastern span. CalTrans determined that it could obtain imported steel for the project more cheaply than domestic steel. To avoid Buy America requirements, it decided the eastern span would be built without federal funds. Subsequently, and controversially, the eastern span was built using steel made in China. Another effect of the provision prohibiting the segmenting of projects is that utility relocation work done as part of a federally funded highway project must now be Buy America-compliant even if the contract to do the utility work does not use federal funds. This change initially caused concern among state departments of transportation and industry associations that projects would be delayed as utilities sought to obtain Buy America-compliant products. In response, FHWA delayed implementation of the new requirements until January 1, 2014. The effects of compliance since then on highway projects, utilities, and manufacturers of products used by the utility industry are unknown. MAP-21 also made changes aimed at making the FTA waiver determination process more transparent. MAP-21 requires FTA to publish each waiver request and a detailed explanation of the waiver determination in the Federal Register , and to make them easily accessible on its website. In addition, MAP-21 requires that FTA provide a report on waivers granted in the previous year to the Senate Banking Committee and the House Transportation and Infrastructure Committee. The FAST Act increased the threshold for public transportation rolling stock to 65% for FY2018 and FY2019 and to 70% for FY2020 onward. However, it eliminated Buy America requirements for public transportation projects costing less than $150,000, up from the previous threshold of $100,000. In the event of a waiver denial, the FAST Act also requires FTA to provide a certification that the items can be purchased in the United States in sufficient quantity and quality, along with a list of manufacturers. This information must be published on the DOT website. Presidential Statements and Actions The Trump Administration has announced that it will pursue efforts to protect domestic industri es as part of its "Buy American and Hire American" initiative. To date, this includes two actions with respect to Buy America. First, an executive memorandum requires the Secretary of Commerce to develop a plan to have all new pipelines in the United States "use materials and equipment produced in the United States, to the maximum extent possible and to the extent permitted by law." A ccording to the memorandum, steel made in the United States from imported scrap or imported slabs is not to be considered produced in the United States . Second, a separate executive order directs that "every agency shall scrupulously monitor, enforce, and comply with Buy American Laws, to the extent they apply, and minimize the use of waivers, consistent with applicable law." The term " Buy American Laws " is defined in the executive order to include Buy America. Buy America and U.S. Steel Manufacturing Unless the requirements are waived by the federal agency concerned, Buy America provisions require the use of U.S.-made steel in a wide variety of applications. U.S. mills produce steel in three distinct ways. Approximately 62% of domestic production comes from plants known as minimills, which use electric arc furnaces to melt scrap steel and in some cases iron pellets. Another 37% is made in traditional integrated steel mills, which use ovens to turn coal into coke and then combine the coke with iron ore to produce pig iron in blast furnaces. The pig iron is then melted in a basic oxygen furnace to produce steel. A very small portion of U.S. production , approximately 1%, involves direct reduction technology, now used in a single U.S. mill. The raw materials used to produce steel i n the United States largely come from domestic sources. Around 90% of the scrap used by minimills is obtained domestically, although the products from which scrap is commonly derived, such as vehicle bodies and beams used in construction, may originally have been imported. Integrated steel mills mostly use iron ore from Minnesota's Mesabi Iron Range and Michigan's Iron Range, which account for more than 90% of America's iron ore supply. U.S.-mined iron ore takes the form of taconite, a relatively low-grade source of iron-bearing rock typically containing 15% to 30% magnetic iron particles. To be useful in steelmaking, the taconite is formed into pellets before delivery to a steel mill. Figure 1 provides a graphic depiction of the iron and steel manufacturing process. Originally, Buy America covered raw materials used in steel manufacturing. A lack of adequate domestic supply resulted in a 1995 nationwide waiver for raw materials (iron ore and limestone), scrap (recycled steel scrap), pig iron, and processed, pelletized, and reduced iron ore. Because of the waiver, U.S. steel mills may use imported inputs to make Buy America-compliant steel products. Therefore, the part of steel production shown in the shaded section of Figure 1 is currently not subject to Buy America requirements. It is not clear how these requirements might be altered through the regulatory process, if at all, in response to President Trump's "Buy American and Hire American" executive order. After the steel is produced, it is cast into variety of shapes and left to cool. Ingots, which vary in size, are often rolled further to produce rectangular steel slabs. Companies known as slab converters have sought a nonavailability waiver for products manufactured in the United States from imported steel slabs. Slab converters claim there is insufficient supply of domestically made steel slabs available from U.S. integrated steel mills. In addition, they claim that the original Buy America requirements were issued before slab converters even existed, and the requirement unfairly prevents them from participating in federal-aid highway projects. To date, FHWA has denied a waiver to slab converters, a position supported by steel industry trade groups such as the Steel Manufacturers Association, which considers a waiver on steel slabs to be a weakening of Buy America rules. This waiver seems unlikely to be issued in light of President Trump's recent order directing agencies to minimize the use of waivers. Economic Effects Assessing the economic effects of Buy America on the steel industry is difficult due to the lack of relevant data. It is unclear how much iron and steel are used in transportation projects that have federal funding ; hence data are not available to calculate how much steel is produced and sold domestically as a direct result of Buy America. Nevertheless, the available data suggest that the steel produced for the Buy America market represents a small portion of total domestic demand for steel. Industry sources estimate that net shipments of steel mill products in the United States totaled 86.5 million tons in 2015. Of these shipments, roughly 20 million tons, or about a quarter, were consumed in public and private construction projects. This quarter, however, includes steel used in a range of nontransportation projects, such as office buildings, shopping centers, and apartment towers, as well as in transportation projects that are not publicly funded, such as those in the freight rail industry. Steel used in rail transportation projects of all types, including those undertaken by freight railroads as well passenger cars and locomotives for Amtrak and commuter services, amounted to 1. 7 million tons in 2015 . This represented 1.6% of U.S. steel production last year. A key rationale for Buy America is its positive effect on steel industry employment. Direct employment in steel has declined from almost 260,000 jobs in 1990 to around 140,000 jobs in 2016 ( Figure 2 ), due largely to higher productivity. According to the American Iron and Steel Institute, the number of labor hours needed to produce one finished ton of steel has fallen 81% since 1980, from 10.1 to 1.9. If broader Buy America requirements were to increase annual demand for U.S.-made steel by 1 million tons (about 1%), and if each ton were to require 1.9 hours of labor, steel-industry employment would be expected to rise by approximately 1,000 jobs (assuming a 1,900-hour work year). A similar estimate can be derived from data in a December 2013 report by the Steel Manufacturers Association, which represents North American minimills, indicating that an increase of 1 million tons of domestic steel production would create 792 new steel manufacturing jobs. Presumably, these jobs would pay well, as steel mill workers earned an average annual wage of $78,965 in 2015, significantly above the average of $64,305 for all manufacturing. Buy America and U.S. Rolling Stock Manufacturing Besides its restriction on the sourcing of iron and steel, Buy America also places limits on state and local governments and Amtrak when using federal funds to purchase manufactured goods. One of the main manufactured products this affects is rolling stock, which includes intercity passenger rail trains, public transportation rail cars and buses, and associated equipment. Under Buy America domestic sourcing requirements, as noted earlier, rolling stock final assembly must take place in the United States. Moreover, significant proportions of the systems and components used to assemble rail vehicles and buses must be manufactured in the United States, although this can differ depending on the agency source of the federal funds. According to one industry estimate, the U.S. domestic market for railroad rolling stock totaled $19 billion in 2016. Federal data indicate that manufacturers of all types of railroad rolling stock directly employed 30,100 workers in 2015, accounting for 0.2% of total factory employment. These data, however, cover the production of equipment that is not publicly funded and thus not subject to Buy America, such as freight locomotives and freight rail cars. According to one industry estimate, the size of the U.S. market for new street, subway, and transit cars, which would represent only a portion of the Buy America public transportation market, was at least $2.6 billion in 2017. Although a few domestic firms have tried to carve out niches in the transit market, foreign-based manufacturers build essentially all intercity passenger rail cars and rail transit vehicles produced in the United States. Buy America has required them to establish assembly plants in the United States rather than import finished vehicles. Often, the plant location is selected in conjunction with negotiations to supply vehicles to a local transit agency. In September 2015, for example, the China Railway Rolling Stock Corporation (CRRC), a unit of the Chinese state railways, began building a $95 million assembly plant in Springfield, MA, shortly after receiving a contract to provide 284 subway cars for the Massachusetts Bay Transportation Authority. CRRC intends to hire at least 150 factory workers for the plant, and full production is slated to begin sometime in 2018. Such plants typically lack private customers. Their dependence on demand for passenger rail and transit vehicles acquired with the help of federal grants means that they are comparatively small, and may lack economies of scale that could help reduce unit costs. Their cost structures and the varying requirements for transit and passenger rail vehicles in other countries may make it difficult for U.S. plants to export. By one estimate, 89% of global demand for passenger rail rolling stock in the 2017-2019 period will be outside North America. Assemblers of transit vehicles depend on an extensive global supply chain that includes steel and aluminum producers and component suppliers that make thousands of parts and accessories such as transmissions, axles, steering systems, and engines. An estimate by First Research, a private research firm, says purchased steel and components represent 50% of rolling stock manufacturing costs. In 2010, the Duke University Center on Globalization, Governance & Competitiveness identified about 150 subcontractor firms in the United States that sold components to passenger and transit rail vehicle manufacturers. Some argue more public-sector investment in public transportation systems is needed to significantly bolster the passenger rail car manufacturing industry in the United States. Over the last decade, annual domestic demand for new passenger rail cars has fluctuated from a low of 497 units in 2011 to a high of 1,141 in 2009 (see Table 1 ). Since 2006, domestic manufacturers have shipped 8,970 new passenger cars to Amtrak and transit agency purchasers. This figure includes regional, intercity, rapid transit, and light rail cars as well as streetcar units. There were reports of a backlog of more than 3,700 vehicles at the end of 2016, including 59 intercity cars for Amtrak to be manufactured by CAF USA, 765 commuter cars to be manufactured by Bombardier for the Bay Area Rapid Transit (BART) system in California, and 590 rapid transit cars to be built by Kawasaki for the Washington Metropolitan Area Transit Authority (WMATA). It is unclear how much of this manufacturing would occur in the United States in the absence of Buy America. In the context of current Buy America restrictions, and based on one recent estimate, the outlook through 2022 is for more than 5,000 new passenger rail cars, including intercity, commuter rail, and transit cars. An unknown for the entire industry is the level of future federal assistance to vehicle purchasers. If federal funding declines, many transit operators will, in all probability, reduce their demand for new vehicles and opt where possible to rebuild their current fleets for extended service. Alternatively, if federal funding increases, demand for new domestically produced passenger rail cars will likely grow. Despite Buy America rules that require more than 60% of the value of the subcomponents of transit vehicles and equipment to be produced in the United States and the final assembly to occur in the United States, domestic transit bus manufacturing has remained over many decades a small and concentrated manufacturing sector. In 2016, bus manufacturing revenue was estimated at $5.1 billion, including school buses and intercity buses along with public transit buses. According to the American Public Transportation Association (APTA), bus manufacturers in a typical year produce somewhere between 4,000 to 6,000 buses for the public transit market. Transit bus manufacturers directly employ around 5,000 workers, although there are likely several thousand more jobs in the broader bus manufacturing supply chain. Like other vehicles, transit buses are mostly made of steel. New Flyer, a Canadian company, and Gillig, a U.S.-headquartered manufacturer, account for 75% of the North America heavy-duty transit bus market. New Flyer makes fewer than 1,000 transit buses annually in Minnesota and Alabama. Gillig makes between 1,100 and 1,600 transit buses a year in California. Nova, a subsidiary of the Swedish firm Volvo Group, holds most of the remaining share of the North America market. Nova's bus plant in Plattsburgh, NY, manufactures 40-foot buses and 62-foot articulated buses. Orion, part of Daimler Buses North America, stopped assembling buses in the United States in 2013, citing "low public sector investments by municipal government agencies" as a reason, and New Flyer acquired North American Bus Industries (NABI) the same year. BYD, a Chinese company, is an example of a new entrant into the U.S. transit bus market. It currently manufactures around 200 electric buses at its factory in California, but plans to ramp up its U.S. production to 1,000 each year. Effects of Buy America on Transportation Buy America is primarily an industrial policy designed to protect U.S. manufacturing and manufacturing employment. However, Buy America could increase the cost and completion time of at least some transportation projects, and may result in fewer projects being undertaken. Evidence of these effects, however, is largely anecdotal. In a review of the costs and benefits of various federal requirements on highway projects, the Government Accountability Office ( GAO ) found that several studies discussed regulatory costs and benefits, but "none of the studies we reviewed separately estimated the costs of the Buy America program's requirements." Highway projects most affected by Buy America are bridges because of the amount of iron and steel required. Transit projects most affected by Buy America are rail rolling stock and bus procurement. Buy America rules prohibit customers from buying less expensive steel from overseas suppliers for use in public works projects. A project sponsor, however, can apply for a waiver if inclusion of domestically produced iron, steel, or manufactured goods would increase the overall cost of the project by more than 25%. The price of steel produced in the United States tends to be higher than that of comparable steel produced in other countries. For example, the benchmark average U.S. hot-rolled band price in recent years has consistently been higher than the Chinese price and, in most years, has been higher than the Western European price ( Figure 3 ). However, higher transportation costs for imported steel may reduce or eliminate its cost advantage at a particular project site. In 2015, for example, the average price of domestic hot-rolled band was about $200 per metric ton higher than the price of the same product made in China. Industry estimates suggest that freight, insurance, and handling from Asia to ports on the Pacific and Gulf coasts would have added about $60 per metric ton to the import price, leaving a Chinese cost advantage of $140 per ton at dockside. The differential with respect to a particular project would also depend on the costs of moving steel from a domestic mill or a port to the job site. Both steel costs and freight transportation costs can vary significantly over time due to global steel demand, energy prices, exchange rates, and other factors. Buy America may also raise the cost of rolling stock procurements. One analysis of bus procurement in public transportation notes that buses in the United States are about twice the price of those in Japan and South Korea. This study also makes the case that bus purchasers are limited in their choice of buses, and that the protected industry is less innovative. They conclude that if public transit agencies could import buses, "they would have access to a greater menu of differentiated products at lower prices. This would lead to a higher quality of service provision (e.g., better service frequency and coverage) which could induce urbanites to substitute from private vehicles to buses." Other direct costs associated with Buy America are mainly related to administering and enforcing its requirements, costs that are mostly absorbed by state and local government project sponsors. These costs include the effort required by contractors to document the national origin of iron, steel, and manufactured products and agency administration of the certification process. Extra work may also be required of contractors to put together two bids for a given project, one incorporating domestic products and one with foreign products. Waiver requests, another cost, may be prepared by the state or local government project sponsor alone or in cooperation with the contractor. Bu y America may make it more time- consuming to complete transportation projects, ultimately causing higher project costs. Delays can arise from domestic supply problems and the waiver application process. Extending Buy America requirements to utility relocations, for example, led to concerns about project delivery among state departments of transportation, although this effect may wane as utilities become accustomed to working with the Buy America requirements. The private developer of a proposed high-speed rail line from the outskirts of Los Angeles (Victorville) to Las Vegas, XpressWest, blamed Buy America compliance for blocking its plans. The company sought low-cost financing through the federal Railroad Rehabilitation and Improvement Financing (RRIF) program, subjecting it to Buy America. Although there have been other issues with the project, the Secretary of Transportation suspended consideration of the loan request because the sponsors were having difficulties satisfying the Buy America requirements. More generally, in a survey of people in the public transportation industry in the mid-1990s, Buy America was mentioned by respondents as the cause of project delay more often than any other reason. The FY2009 Duncan Hunter National Defense Authorization Act (NDAA; P.L. 110-417 , §3511) established cargo preference requirements for imported materials purchased by state and local governments and private organizations with federal financial assistance. The requirements have the potential to raise costs of transportation projects and contribute further to delays. Shipping rates for cargo aboard U.S.-flag vessels tend to be higher than those for similar cargo on foreign-flag vessels, and services are less frequent , as the number of U.S.-flag commercial vessels providing international service is much smaller than the number of foreign-flag vessels serving the United States. On balance, imported materials purchased under Buy America waivers will generally be less attractive to project sponsors if the imported products are subject to cargo preference. Although Buy America may increase the cost and completion time of transportation projects, its effects may be less important overall than other federal requirements. In its 2008 study of highway projects, GAO found that Buy America was mentioned much less often by state department of transportation officials than environmental requirements when asked about decisions to undertake projects without federal funds. Of 39 states that indicated they had decided not to use federal funds to avoid federal requirements in the last 10 years, 33 mentioned environmental requirements and 5 mentioned Buy America. Policy Options for Congress One option for Congress is to leave the Buy America requirements unchanged. Supporters of the status quo could argue Buy America requirements do an effective job of supporting some domestic manufacturing employment and encouraging some foreign manufacturers to establish factories in the United States. It could also be argued that the content requirements are adequate, and that the administrative waivers process provides enough flexibility to accommodate changing technologies and market conditions. Changes to the law, moreover, might introduce uncertainty and delay in project delivery. Policy options for changing Buy America broadly conceived are tightening Buy America restrictions, loosening Buy America restrictions, standardizing Buy America restrictions, and broadening Buy America restrictions to other parts of the transportation system or to nontransportation sectors. Tightening Buy America Restrictions Congress could modify Buy America by making it more restrictive. The FAST Act, enacted in December 2015, did this by increasing the share of public transit rolling stock components and subcomponents that must be produced in the United States. Other bills, such as the Invest in American Jobs Act of 2015 ( S. 1043 , 114 th Congress), introduced by Senators Merkley and Baldwin, have proposed increasing the share to 100%. More technical changes to tighten Buy America are contained in the Buy American Improvement Act of 2017 ( H.R. 904 ), introduced by Representative Lipinski. This bill proposes to subject rolling stock purchased using highway funds administered by FHWA to the same Buy America requirements as those purchased with funds administered by FTA. It would also require FHWA to reevaluate its regulations for manufactured products other than those made of iron and steel. Moreover, it would require FTA to develop audit requirements and best practices for documenting compliance with Buy America, and includes initiating a new rule for standards by which to measure the percentage value of a component relative to the entire procurement. The bill would require Amtrak to contract with the National Institute of Standards and Technology (NIST) to search for domestic suppliers of products before seeking a waiver. FAA would be required to do a similar search for domestic suppliers. The bill also would apply Buy America requirements to projects financed with local passenger facility charges, federally authorized fees collected from airline passengers by certain airport operators. Loosening Buy America Restrictions There are no legislative proposals in the 115 th Congress to loosen Buy America requirements substantially. Two provisions in the 114 th Congress proposed to make Buy America somewhat less restrictive. The FAST Act included one of these provisions, raising the threshold for purchases in public transportation subject to Buy America requirements from $100,000 to $150,000. However, it did not include another proposal to raise the threshold for Amtrak purchases subject to Buy America from $1 million to $5 million. Standardizing Buy America Restrictions Standardizing the Buy America requirements with respect to rolling stock purchases and possibly having a single office within DOT to enforce them might simplify enforcement, particularly with respect to rolling stock purchases by public transportation providers and Amtrak. There has been no recent legislation on this issue. Broadening Buy America Restrictions There are proposals to expand Buy America to other parts of the transportation system and to other sectors such as clean energy manufacturing. The American Pipeline Jobs and Safety Act of 2017 ( H.R. 683 ), for example, introduced by Representative Nolan, proposes to extend Buy America requirements to gas and hazardous liquid pipelines regulated by DOT's Pipeline and Hazardous Materials Safety Administration. Currently, Buy America does not apply to these pipelines because they are privately built and operated. H.R. 683 would require, as a new safety standard, that the construction or replacement of regulated pipelines use only steel produced in the United States from iron ore and taconite mined and processed in the United States. Steel made from scrap in the United States would comply with the provision if "the recycled materials are combined with iron ore and taconite mined and processed in the United States." Another proposal to broaden Buy America was the Make It in America: Create Clean Energy Manufacturing Jobs in America Act ( H.R. 1524 , 113 th Congress). This bill proposed requiring clean-energy goods and equipment purchased by states with federal funding, such as wind turbines and solar panels, to meet an 85% American-made content threshold. H.R. 1524 would also have required 85% U.S. content of purchases for which private companies claim the Renewable Energy Investment Tax Credit and the Renewable Energy Production Tax Credit. The Water Resources Reform and Development Act of 2014 ( P.L. 113-121 ) amended the Clean Water Act to add Buy America requirements to projects receiving assistance from state revolving funds (33 U.S.C. §1381 et seq.). Buy America requirements were included in the Water Infrastructure Improvements for the Nation Act (WIIN; P.L. 114-322 ) for funds made available in FY2017 from a state revolving fund under the Safe Drinking Water Act (42 U.S.C. §§300f-300j). Several bills have been introduced in the 115 th Congress to make this Buy America provision permanent (e.g., H.R. 939 , H.R. 1068 , H.R. 1071 ). Buy America provisions have also been included in annual appropriations acts for grants to capitalize state revolving funds under the Clean Water Act and the Safe Drinking Water Act. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) generally imposed Buy American requirements on federally funded projects, and the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ) included specific Buy America requirements for clean water and drinking water projects funded by the act. Another bill in the 115 th Congress, S. 181 , introduced by Senator Brown, would seek to apply Buy America to federal infrastructure-related programs where there are currently no such requirements. It would also broaden Buy America requirements to include other construction materials such as nonferrous metals, plastic pipes, concrete, glass, lumber, and insulation. Appendix. DOT Buy America Requirements

With the aim of protecting American manufacturing and manufacturing jobs, Congress over the years has passed several domestic content laws. Statements and actions by the Trump Administration about reinvigorating domestic manufacturing and reinvesting in infrastructure have stimulated renewed interest in these laws, including Buy America. The President's "Buy American and Hire American" initiative includes an executive memorandum requiring the Secretary of Commerce to develop a plan for new pipelines in the United States to be made from domestically produced iron and steel, and a separate executive order directing agencies to strictly adhere to Buy America laws. Buy America refers to several similar statutes and regulations that apply to federal funds used to support projects involving highways, public transportation, aviation, and intercity passenger rail, including Amtrak. Unless a nationwide or project-specific waiver is granted, Buy America requires the use of U.S.-made iron and steel and the domestic production and assembly of other manufactured goods. One of the main manufacturing industries this applies to is the production of rolling stock (rail cars and buses) used in federally funded public transportation and Amtrak's intercity passenger rail service. This report examines the effects of Buy America on these two industries, iron and steel manufacturing and rolling stock manufacturing, in the context of industry trends. Buy America dates to passage of the Surface Transportation Assistance Act of 1978 (STAA; P.L. 95-599), and is different from the Buy American Act, enacted in 1933, which applies to direct purchases by the federal government. Although the Buy America provisions have been in place in some form for almost 40 years, it is difficult to know how they have affected steel and rolling stock manufacturing in the United States, whether measured by jobs, output, or any other indicator. Empirical evidence on the economic benefits or costs of domestic content laws is largely lacking, in part because the effects are small compared with macroeconomic forces such as global economic growth and the related growth in demand for steel. Although employment in domestic steel manufacturing has declined sharply, this is largely attributable to higher industry productivity. Buy America has likely promoted the production of rail cars and buses in the United States, but these industries are relatively small, and demand is related strongly to the combined level of federal, state, and local government funding. Buy America could increase the cost of some transportation projects by requiring the purchase of domestic steel, vehicles, and vehicle components when imported products might be cheaper. In some cases, the difficulty of complying with Buy America rules has been blamed for project delays. The cost of imports used in federally supported projects could rise because agencies within the U.S. Department of Transportation (DOT) require some imports be carried on U.S.-flag vessels in compliance with the FY2009 Duncan Hunter National Defense Authorization Act (NDAA; P.L. 110-417, §3511). Requiring transport by U.S.-flag vessels may also contribute to project delays. Lack of information makes claims about project cost and delay difficult to assess. Much of the congressional activity related to Buy America seeks to strengthen its requirements. The Fixing America's Surface Transportation (FAST) Act (P.L. 114-94), enacted in December 2015, increased the share of public transit rolling stock components and subcomponents that must be produced in the United States from 60% in FY2017 to 65% in FY2018 and FY2019, and to 70% for FY2020 onward. Other bills have proposed increasing the share to 100%. Other legislative proposals have called for expanding Buy America to other parts of the transportation system, such as pipelines, and to other sectors, including clean energy manufacturing.

History of Cable Rate Regulation The Cable Communications Policy Act of 1984, 98 Stat. 2779, P.L. 98-549 , established for the first time a national regulatory policy concerning cable television communications. The act established a comprehensive cable regulatory scheme, delineating regulatory authority among the federal, state, and local levels. Increasing cable service rates and customer service complaints, however, prompted Congress to revisit the law as local authorities and consumer groups lobbied for new legislation. On October 5, 1992, Congress passed the Cable Television Consumer Protection and Competition Act of 1992, 106 Stat. 1460, P.L. 102-385 . This law addressed such issues as cable rates, must-carry rules, retransmission consent, program access, franchising authority, service standards, and more. Promulgation of regulations required by the 1992 act was done by the Federal Communications Commission (FCC). The regulations were completed in stages, according to dates set by the act. The FCC's first set of cable rate rules implementing this act went into effect September 1, 1993. The FCC expected, on average, a 10% reduction in overall cable bills. However, "on average" did not mean that all rates decreased 10%, or even that all rates decreased. One reason was that all cable systems did not charge rates that the FCC determined to be "unreasonable." Some rates increased, and Congress and the FCC decided to address the issue of rate hikes. After conducting a review of cable rates following issuance of its 1993 rate regulations, the FCC decided to revisit this issue. On March 30, 1994, the FCC issued rules for a second round of cable rate regulations. These new rules were intended to cut cable rates, on average, an additional 7%. No predictions were made estimating the number of cable subscribers who would see further reductions in their cable bills. The new rules took effect on May 15, 1994. The Telecommunications Act of 1996, 110 Stat. 115, P.L. 104-104 , was passed by the 104 th Congress in February 1996. This act eliminated most cable television rate regulations beyond the basic tier as of March 31, 1999 . In most cases, rates for a basic tier of services (defined as the tier that includes "over the air" broadcast stations) continues to be regulated either by local franchising authorities (LFAs) or state authorities. Most small cable operators (those serving less than 1% of all cable subscribers and having no affiliation with any company whose gross annual revenues exceed $250 million) were freed from rate regulation immediately. The FCC continues to monitor cable rate activity and issues an annual report on cable industry prices and one on competition in video markets. Current Cable Rate Issues According to the 2005 FCC Annual Report on Cable Industry Prices , released in December 2006, the overall average monthly price for basic-plus-expanded basic cable service increased by 5.2% from $40.91 to $43.04 over the 12-month period ending January 1, 2005. Industry statistics on cable rates vary slightly from FCC statistics (see below), but cable companies in recent years have stated that sharply rising costs of obtaining sports and entertainment programming coupled with system upgrades caused them to increase rates for subscribers. Ongoing consumer concerns about rate increases for subscription television prompted Congress to mandate a General Accounting Office (GAO, now the Government Accountability Office) study of cable rates released in October 2003. In its report, Telecommunications: Issues Related to Competition and Subscriber Rates in the Cable Television Industry , GAO sought to examine the impact of competition on cable rates, assess the reliability of information contained in the annual FCC report on cable industry prices, and examine the causes of recent cable rate increases. In surveys of the industry conducted by GAO for its report, GAO concluded that the annual FCC report did not appear to provide a reliable source of information on the cost factors underlying rate increases or on the effects of competition, most notably costs associated with upgrading equipment and services. GAO recommended that FCC take steps to improve the reliability of data in its report. GAO also found that several key factors, including a 34% average increase in programming costs incurred by cable operators during the past three years—specifically a 59% average increase in sports programming costs—and cost increases from system upgrades have put upward pressure on operators to raise rates to their customers. The GAO report also discussed the option of converting cable system pricing to à la carte (per channel) pricing instead of the current tiered system. It noted that despite the customer benefit of greater choice, à la carte pricing could impose additional equipment costs on the customer and alter the current economics of the industry, especially how cable providers generate advertising revenues. The Current Cable Market According to the FCC's Twelfth Annual Report on Competition in Video Markets , released in March 2006, approximately 65.4 million homes in the United States, or 69.4% of all Multichannel Video Program Distributor (MVPD) television homes, subscribed to cable television as of June 2004. As defined by the FCC, an MVPD distributor is "an entity engaged in the business of making available for purchase, by subscribers or customers, multiple channels of video programming." Such entities include cable operators, direct broadcast satellite (DBS) services, and—in much smaller numbers—subscribers to five other technologies that deliver programming. Subscriptions to DBS in recent years have increased rapidly. As of June 2005, DBS subscribers numbered more than 26.1 million, or 27.7% of all MVPD subscribers. MVPD (cable and noncable) subscribers total approximately 94 million homes. The other five technologies (MMDS, HSD, PCO, BSP, and OVS) represent the approximately 2.9% of remaining MVPD subscribers. As a result of the Telecommunications Act of 1996, telephone companies can provide video services in direct competition with the local cable television company and in certain cases may merge with the local cable company. Cable television companies are also able to offer local phone service and broadband Internet services (including such services as "Voice Over Internet protocol" [VoIP]). Although individual consumers will presumably have more choices as a result of competition in the developing communications market, particularly from satellite services such as DBS, forecasts of what will happen in this new and complex environment are conflicting and uncertain. Top Cable and DBS Systems Program Access Rules Many providers of cable television programming are owned by or affiliated with cable television operators. Concerns that such programmers may only provide their programming to their corporate affiliates prompted Congress to approve a provision in the Cable Act of 1992 addressing "program access" concerns. Program access provisions prevent the use of exclusive contracts between cable operators and their affiliated programmers for satellite delivered programming. The FCC was instructed in the statute to reexamine the continuing need for the prohibition after it had been in effect for 10 years. The prohibition was set to expire on October 5, 2002, but the FCC issued a Report and Order on June 13, 2002, extending for five years (until 2007) the statutory prohibition. The FCC found that the prohibition continues to be necessary to preserve and protect competition and diversity in the distribution of video programming. Broadband Cable Modem Service Broadband or high-speed Internet services can be offered through a series of technologies including cable, digital subscriber lines (DSL) provided by telephone carriers, satellite television, fixed wireless, and others. Cable television companies offer broadband services via a cable modem. Classifying broadband cable service as an "information service," a "telecommunications service," or as a combination of the two has important regulatory implications. Generally, classification as an information service would subject cable broadband services to minimal federal regulation and no requirement that they provide open access to their systems to competing Internet Service Providers (ISPs). Classification as a telecommunications service could subject cable broadband services to common carrier regulation and could require provision of open access to competing ISPs. Recently, the courts and the FCC have come to different conclusions regarding classification of these services. In a ruling on March 14, 2002, the FCC ruled that cable modem service is properly classified as an interstate information service. The ruling further determined that cable modem service is not a "cable service" and that cable modem service does not contain a separate "telecommunications service" and is not subject to common carrier regulation (the rules that govern telephone providers). However, in an opinion filed on October 6, 2003, the United States Court of Appeals for the Ninth Circuit came to a different conclusion regarding the classification of cable modem services. The court ruled in Brand X Internet Service v. FCC that cable modem services are legally in part a telecommunications service, which could lead to the requirement that cable operators open their lines to competing Internet service providers. This decision vacated in part the FCC March 2002 declaratory order , which classified cable modem service as exclusively an information service free from the rules of access governing telecommunications services. The FCC appealed the Ninth Circuit's decision, but the appeals court denied the FCC's petition for a full court review on March 31, 2004. The FCC and the Solicitor General of the United States then filed an appeal with the U.S. Supreme Court. On June 27, 2005, the high court overturned the Ninth Circuit's decision, ruling that cable companies do not have to open their lines to ISPs. In the 6-3 decision, the court basically supported the FCC's decision to classify cable modem service as an information service. Additional Resources Selected Online Resources U.S. Federal Communications Commission. "Regulation of Cable TV Rates." FCC Consumer Facts. September 2006. http://www.fcc.gov/cgb/consumerfacts/cablerates.html . This two-page fact sheet provides brief information on state and local franchising authorities' cable television responsibilities, including the regulation of rates for basic service tiers. ——. "Choosing Cable Channels." FCC Consumer Facts. December 2006. http://www.fcc.gov/cgb/consumerfacts/cablechannels.html . This two-page fact sheet explains how cable channels are packaged and distributed to consumers. It includes a brief description of tiers, "a la carte," and pay-per-view programming. ——. "General Information on Cable TV and Its Regulation." Fact Sheet. June 2000. http://www.fcc.gov/mb/facts/csgen.html . This extensive fact sheet presents background information on the history and evolution of the cable industry in the United States, including the evolution of parts of the Communications Act of 1934 that affect cable television, discussion of issues such as must-carry regulations, and information on the regulation of cable television by state and local authorities, including local franchising authority agreements and customer service guidelines. Additional fact sheets on specific cable TV topics are available at http://www.fcc.gov/mb/facts/#cable . ——. "FCC Role in Cable Rate Regulation Ends." Consumer Alert. March 1999. http://www.fcc.gov/Bureaus/Miscellaneous/Factsheets/cblrate.html . This two-page notice details the end of federal regulation of expanded basic cable rates as of March 31, 1999, which was mandated by the Telecommunications Act of 1996, P.L. 104-104 . Selected CRS Products CRS Report RL33542, Broadband Internet Regulation and Access: Background and Issues , by [author name scrubbed] and [author name scrubbed]. CRS Report RL32398, Cable and Satellite Television Network Tiering and " a la Carte " Options for Consumers: Issues for Congress , by [author name scrubbed]. CRS Report RL31260, Digital Television: An Overview , by [author name scrubbed]. CRS Report RS22217, The Digital TV Transition: A Brief Overview , by [author name scrubbed] and [author name scrubbed]. CRS Report RS21768, Satellite Television: Reauthorization of the Satellite Home Viewer Improvement Act (SHVIA) — Background and Key Issues , by [author name scrubbed]. CRS Report RL33338, The FCC ' s " a la Carte " Reports , by [author name scrubbed]. CRS Report RL32589, The Federal Communications Commission: Current Structure and Its Role in the Changing Telecommunications Landscape , by [author name scrubbed].

Cable television is one of the oldest and most popular distribution technologies used to deliver video programming to consumers. It uses fixed coaxial or fiber-optic cables to accomplish delivery. Of the various other methods used to deliver video, only direct broadcast satellite (DBS) successfully competes with cable. It uses communications satellites to deliver signals to individual consumers. In 2005, cable television was received by 65.4 million homes, or approximately 69% of all pay television subscribers. In comparison, DBS was received by 26.1 million homes, or approximately 27.7% of all television subscribers. This report presents information on the history of federal regulation of the cable television industry and background information on cable rates and other cable industry issues. The DBS industry, cable's main competitor, is not addressed extensively in this report. The Telecommunications Act of 1996, 110 Stat. 56, P.L. 104-104, eliminated most cable rate regulation beyond the basic tier of services as of March 31, 1999. Some small cable operators were freed from regulation upon the enactment of the law, but in most cases, rates for a basic tier of services continue to be regulated. The Telecommunications Act also opened up new areas of competition between telephone companies and cable companies. This report will be updated as legislation or news events warrant.

Legislative History and Overview The FY2008 National Defense Authorization bill, H.R. 1585 , was adopted by the House on December 12, and by the Senate on December 14, 2007. On December 28, the White House announced that the President would "pocket veto" the bill, a procedure that would preclude efforts by Congress to override the veto. The President objected to a provision of the bill that would allow lawsuits in U.S. courts against the current Iraqi government for damages resulting from acts of the Saddam Hussein regime. On January 16, 2008, the House passed H.R. 4986 , a version of H.R. 1585 that was modified to allow the President to waive application to Iraq of the provision that he had cited as grounds for his veto. H.R. 4986 was subsequently passed by the Senate and signed by the President on January 28, 2008, becoming P.L. 110-181 , the National Defense Authorization Act for Fiscal Year 2008. Division A of the act provides Department of Defense authorizations. Within Division A, Titles XVI ("Wounded Warrior Matters") and XVII ("Veterans Matters") address matters related to the care and treatment of injured or ill servicemembers. These individuals are widely referred to as "wounded warriors." Provisions in the act reflect congressional concern about the quality and availability of medical, mental health, and dental care services for servicemembers returning from active duty in Iraq and Afghanistan, and the difficulties that some of these individuals have experienced in their transition from military service to veteran status. The provisions vary in scope. Some of them alter specific aspects of existing services or benefits programs in either the Department of Defense (DOD) or the Department of Veterans Affairs (VA). Others call for comprehensive and long-term assessment and/or redesign of programs or systems in one or both of the departments. This report does not attempt to analyze each of the provisions in the act, but provides brief outlines of the matters addressed. Abbreviations and Acronyms Unless otherwise noted, references in this report to activities of "DOD" (including mentions in Title XVI) or "VA" (including mentions in Title XVII) are activities to be carried out by the Secretary of the stated department. The following acronyms and abbreviations are used: MTF: military treatment facility OEF: Operation Enduring Freedom OIF: Operation Iraqi Freedom PDES: the DOD's Physical Disability Evaluation System PTSD: post-traumatic stress disorder TBI: traumatic brain injury TDRL: Temporary Disability Retired List TSGLI: Traumatic Servicemembers' Group Life Insurance VASRD: Veterans Administration Schedule for Rating Disabilities WRAMC: Walter Reed Army Medical Center Title XVI: Wounded Warrior Matters Section 1601 is the short title. Sec. 1602. General Definitions This section provides a number of definitions for terms used in the act. Selected definitions are provided below. The term "medical care" includes mental health care. The term "outpatient status," with respect to a recovering servicemember, means the status of a recovering servicemember assigned to a military medical treatment facility (MTF) as an outpatient, or to a unit established for the purpose of providing command and control of members of the Armed Forces receiving medical care as outpatients. The term "recovering servicemember" means a member of the Armed Forces, including a member of the National Guard or a Reserve, who is undergoing medical treatment, recuperation, or therapy and is in an outpatient status while recovering from a serious injury or illness related to the member's military service. The term "serious injury or illness," in the case of a member of the Armed Forces, means an injury or illness incurred by the member in the line of duty while on active duty in the Armed Forces that may render the member medically unfit to perform the duties of the member's office, grade, rank, or rating. Sec. 1603. Gender-Specific Needs Requires the Secretaries of Defense and Veterans Affairs to take into account and address fully any unique gender-specific needs of recovering servicemembers and veterans when developing and implementing a comprehensive policy on improvements to their care, management, and transition. Subtitle A: Care, Management, and Transition Policy At the core of this subtitle is a joint requirement of the Secretaries of DOD and VA to develop a comprehensive policy on the care and management of covered servicemembers, to address medical care and case management, medical and disability evaluation, return to duty when appropriate, and transition from DOD to VA. Sec. 1611. Comprehensive Care and Transition Policy Requires DOD and VA, not later than July 1, 2008, and updated at least annually, to develop and implement a comprehensive policy on the care and management of covered servicemembers. The Secretaries are to consult with heads of other relevant federal departments and agencies, and to consider the recommendations of a number of listed studies, reviews, reports, and evaluations. The policy shall address care and management, medical and disability evaluation, return to duty when appropriate, and transition from DOD to VA. Requires the development, in policy, of uniform standards, among the military departments and with the VA, for the training and skills of health care professionals, recovery care coordinators, medical care case managers, and non-medical care managers for recovering servicemembers. Requires the development of comprehensive recovery plans , and the assignment of a Recovery Care Coordinator, for each recovering servicemember. Special attention is to be paid to recognizing early warning signs of post-traumatic stress disorder (PTSD) and suicide, and managing these conditions. The policy is to address several additional aspects of access to health care and other assistance, including waiting times, patient tracking, family support, and others. Sec. 1612. Medical and Disability Evaluations Requires DOD to develop uniform standards and procedures for disability evaluations of recovering servicemembers across military departments. Requires the Secretaries of DOD and VA to report to Congress on the feasibility and advisability of combining the two departments' disability evaluation systems. Sec. 1613. Return to Active Duty Requires DOD to establish standards for determinations by the military departments on the return of recovering servicemembers to active duty. Sec. 1614. Transition from DOD to VA Care By July 1, 2008, DOD and the VA are jointly to develop and implement detailed procedures and standards for servicemembers in their transition from health care and treatment provided by DOD to health care, treatment, and rehabilitation provided by the VA. Procedures and standards are to address, among other things, patient tracking, enrollment for benefits, and training and deployment of personnel. Sec. 1615. Reports Requires the Secretaries of DOD and VA jointly to report to Congress on the status of certain requirements in Section 1611, namely the policy to improve the care, management, and transition of recovering service-members; the review of current policies and procedures; and the review of the recommendations of a number of studies, reviews, reports, and evaluations listed in Section 1611. Requires the Comptroller General, within six months of enactment and annually through 2010, to report to Congress regarding implementation of the policy required in Section 1611. Requires the Secretary of Defense, not later than February 1, 2009, to report to Congress on the number of instances between October 7, 2001, and September 30, 2006, in which a disability rating assigned to a member of the Armed Forces by an informal DOD physical evaluation board was reduced upon appeal, and the reasons for such reduction. Sec. 1616. Wounded Warrior Resource Center Requires the Secretary of Defense to establish a wounded warrior resource center to provide wounded warriors, their families, and their primary caregivers with a single point of contact for assistance with reporting deficiencies in covered military facilities, obtaining health care services, receiving benefits information, and any other difficulties encountered while supporting wounded warriors. (See also the reporting requirement in Section 1648.) Sec. 1617. Congressional Notification of Combat Wounded Requires DOD to notify appropriate congressional offices of hospitalization of servicemembers evacuated from a theater of combat. Consent of the servicemember is required. Sec. 1618. Comprehensive TBI/PTSD Plan Requires the Secretaries of DOD and VA to conduct joint planning for the prevention, diagnosis, mitigation, treatment, and rehabilitation of, and research on, traumatic brain injury (TBI), PTSD, and other mental health conditions in members of the Armed Forces, including planning for the seamless transition of such members to veteran status. Twelve required planning elements are specified, including designation of a lead agent to develop and coordinate the plan, development of screening protocols, and other matters. The required plan shall include a program whereby all servicemembers who incur TBI or PTSD while on active duty receive the highest quality, evidence-based treatment and rehabilitation. Subtitle B: Centers of Excellence This subtitle requires the Secretary of Defense to establish three centers of excellence, addressing TBI, PTSD, and military eye injuries, respectively. In establishing each center, the Secretary is to collaborate with the Department of Veterans Affairs, institutions of higher education, and other appropriate public and private entities, including international entities. The TBI and PTSD Centers are required, among other things, to implement the comprehensive TBI/PTSD plan developed pursuant to Section 1618 of this act. The Center of Excellence for Military Eye Injuries is required, among other things, to implement a comprehensive plan and strategy for a DOD "Military Eye Injury Registry" regarding the diagnosis, treatment, and follow up of significant eye injuries (defined) incurred by a servicemember while on active duty. The Secretary of Defense is required, within 180 days of enactment, and annually thereafter, to report to Congress regarding each center, its activities, and its progress in discharging its responsibilities. Subtitle C: Health Care Matters Sec. 1631. Medical Care and Other Benefits Former servicemembers with serious injuries or illnesses may receive medical and dental care from DOD if care is not "reasonably available" from the VA. DOD is not authorized to provide such care after December 31, 2012, if such care had not been provided to a former servicemember prior to that date. Sec. 1632. Reimbursement of Travel Expenses Requires the Secretaries of the military services to establish outreach programs to ensure that retired servicemembers with a combat-related disability receive travel reimbursements for which they are eligible, for specialty care, services, or supplies related to a combat-related disability. Sec. 1633. Respite Care and Other Extended Care Benefits Requires the Secretary of Defense to make servicemembers who incur a serious injury or illness on active duty eligible for the respite care and aid and personal attendant benefits comparable to those currently provided in the Tricare Extended Care Health Option. Requires the Secretary to prescribe in regulations the individuals who shall be considered as the primary caregivers of the servicemember, and the definition of serious injury or illness. Sec. 1634. Reports Requires the Secretary of Defense, within 90 days of enactment, to report to Congress regarding the implementation of provisions in the FY2007 Defense authorization relating to a longitudinal study on TBI incurred by servicemembers in Operation Enduring Freedom (OEF) and Operation Iraqi Freedom (OIF), and pilot projects on early diagnosis and treatment of PTSD and other mental health conditions. Requires the Secretary, not later than March 1, 2008, and each year thereafter through 2013, to report to Congress regarding funding for the preceding year for activities relating to the improved diagnosis, treatment, and rehabilitation of servicemembers with TBI or PTSD. Sec. 1635. Interoperable Electronic Health Information Requires DOD and VA jointly to develop and implement a system of electronic health records that allows for full interoperability of personal health care information between the two departments. Establishes an interagency program office to act as a single point of accountability for the departments, and to implement, not later than September 30, 2009, the required system of records. Establishes leadership, membership, staffing, funding, reporting requirements, and other matters regarding the office. The system of records shall be developed in coordination with the Office of the National Coordinator for Health Information Technology, in the Department of Health and Human Services. The office shall develop, and prepare for deployment, a joint electronic health record to be used by both departments in the provision of medical care and treatment to members of the Armed Forces and veterans, in compliance with applicable federal interoperability standards, implementation specifications, and certification criteria (including for the reporting of quality measures). Requires the Secretaries of Defense and Veterans Affairs, within 30 days of enactment, to establish a schedule and benchmarks for implementing the required interoperable system of records. Authorizes the Secretaries to conduct pilot projects to assess the technical feasibility of various approaches, consistent with privacy regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. 1320d-2 note). Requires the Comptroller General, within six months of enactment and every six months thereafter until completion of implementation, to report to Congress regarding progress in implementing the required system of records. Sec. 1636. Enhanced DOD Personnel Authorities Authorizes the Secretary of Defense, until September 30, 2010, to exercise authorities for the appointment and pay of health care personnel that are currently available to the Secretary of Veterans Affairs for the purposes of recruitment, employment, and retention of civilian health care professionals. Requires the Secretaries of the military services to each develop and implement a strategy to disseminate, among appropriate personnel of the military departments, information about authorities and best practices for the recruitment of medical and health professionals. Sec. 1637. Continuation of Transitional Health Benefits Authorizes DOD to provide transitional medical and dental care benefits to servicemembers with service-connected medical conditions beyond the existing 180-day transition period. The care is for service-connected conditions only. Subtitle D: Disability Matters Sec. 1641. Presumption of Sound Condition Servicemembers with a disability are presumed to have suffered such disability in connection with military service if they had been on active duty for six months or more, and if the disability was not noted at the time of entrance into active duty. Sec. 1642. DOD Determinations of Disability Requires the Secretaries of the military services to use the VASRD to the extent feasible in making a determination of disability of a member of the armed services. The Secretaries may not deviate from the schedule or any such interpretation of the schedule, unless they use alternate criteria that the Secretaries of DOD and VA jointly may prescribe for purposes of this subsection, if using such criteria will result in a determination of a greater percentage of disability than would be otherwise determined by using the schedule. In rating the disability of servicemembers, the Secretaries shall consider all medical conditions, whether individually or collectively, that render the servicemember unfit to perform the duties of his or her office, grade, rank, or rating. Sec. 1643. Review of Separations Less than 30% Disabled Requires the Secretary of Defense to establish a "Physical Disability Board of Review" to review the disability determinations of covered individuals by Physical Evaluation Boards (PEBs). Covered individuals are members and former members of the Armed Forces who, during the period beginning on September 11, 2001, and ending on December 31, 2009 (1) are separated from the Armed Forces because of unfitness for duty due to a medical condition with a disability rating of 20% disabled or less, and (2) are found to be not eligible for retirement. Upon the request of a covered individual, or a surviving spouse, next of kin, or legal representative, or upon its own motion, the review board is to review the findings and decisions of the PEB with respect to such individuals and make appropriate recommendations with respect to the disability ratings of servicemembers and former servicemembers. Sec. 1644. Disability Evaluation Pilot Programs Authorizes the Secretary of Defense, in consultation with VA, to carry out pilot programs with respect to the DOD disability evaluation system, in order to reduce processing times, identify statutory or administrative improvements, and improve consistency in evaluations, among other things. Pilot programs must be completed within one year of their commencement. Requires the Secretary of Defense to provide periodic reports to Congress regarding the implementation of pilot programs. Authorized pilot programs are as follows: Disability determinations by DOD using VA-assigned disability ratings: Upon a determination by the DOD (the Secretary of the relevant service branch) that the servicemember is unfit for duty, the VA may conduct an evaluation of the member for physical disability and assign the member a rating of disability, using the VASRD, based on all medical conditions that render the member unfit for duty, and DOD may make the determination of disability regarding the member using the rating of disability assigned by the VA. Disability determinations using joint DOD/VA-assigned disability ratings: Upon a determination by the DOD (the Secretary of the relevant service branch) that the member is unfit for duty, the relevant Secretary may: provide for the joint DOD/VA evaluation of the member for disability, including the assignment of a rating, using the VASRD, based on all medical conditions (whether individually or collectively) that render the member unfit for duty, and make the determination of disability regarding the member using the rating assigned in this manner. Authorizes DOD to establish an electronic information clearinghouse regarding disability, for use by participating servicemembers. Sec. 1645. Reports on Army Plan Regarding Disability Evaluation Requires the Secretary of Defense to report on the implementation of corrective measures by DOD with respect to the Physical Disability Evaluation System (PDES) in response to recommendations in the following reports: (1) the report of the Inspector General of the Army on the PDES of March 6, 2007; (2) the report of the Independent Review Group on Rehabilitation Care and Administrative Processes at Walter Reed Army Medical Center (WRAMC) and National Naval Medical Center; and (3) the report of the Department of Veterans Affairs Task Force on Returning Global War on Terror Heroes. Each report shall include current information on the total number of cases, and the number of cases involving combat disabled servicemembers, pending resolution before the Medical and Physical Disability Evaluation Boards of the Army, including information on the number of members of the Army who have been in a medical hold or holdover status for more than each of 100, 200, and 300 days. In addition, each report shall include current information on the status of the implementation of modifications to disability evaluation processes of the DOD in response to recommendations in the reports listed in the previous paragraph. The Secretary shall, within 24 hours, post each report required by this section on a publicly available DOD Internet website. Sec. 1646. Disability Severance Pay Changes the maximum number of years of service for computing disability severance pay from 12 years to 19 years, and discontinues the deduction (offset) of disability severance pay from disability compensation from the VA. (Previously, a veteran's disability compensation from the VA was fully offset for the amount of disability severance pay). Sec. 1647. Assessments of the TDRL Requires the Secretary of Defense to report to Congress regarding (1) a statistical history, since January 1, 2000, of the numbers of servicemembers who are returned to duty or separated following a tenure on the temporary disability retired list (TDRL) and, in the case of members who were separated, how many were granted disability separation or retirement, and their disability ratings; (2) the results of certain required assessments regarding the utility of the TDRL, and its current and future implementation; and (3) such recommendations for the modification or improvement of the TDRL as the Secretary considers appropriate in response to the assessments. Sec. 1648. Standards and Reports for MTFs Requires the Secretary of Defense to establish standards for MTFs, and deadlines for compliance, in regard to appearance, maintenance and operations, compliance with the Americans with Disabilities Act of 1990, and such other matters relating to the appearance, size, operation, and maintenance of facilities as the Secretary considers appropriate. Sec. 1649. Reports on WRAMC Requires the Secretary of Defense to report regularly to Congress, beginning in February 2008, on the implementation of the Army Medical Action Plan to correct deficiencies identified in the condition of facilities and patient administration at WRAMC. Sec. 1650. Required Certifications Regarding WRAMC In implementing the decision to close WRAMC, the Secretary of Defense shall submit to Congress a certification that (1) a transition plan has been developed, and resources have been committed, to ensure that patient care services, medical operations, and facilities are sustained at the highest possible level at WRAMC until replacement facilities are staffed and ready to assume at least the same level of care; (2) the closure of WRAMC will not result in a net loss of capacity in the major medical centers in the National Capitol Region in terms of total bed capacity or staffed bed capacity; and (3) the capacity of medical hold and outpatient lodging facilities operating at WRAMC as of the date of the certification will be available in sufficient quantities at designated replacement facilities by the date of the closure of WRAMC. Sec. 1651. Compensation and Benefits Handbook Requires the Secretary of Defense to develop and maintain, in handbook and electronic form, a comprehensive description of the compensation and other benefits to which a member of the Armed Forces, and the family of such member, would be entitled upon separation or retirement as a result of a serious injury or illness. The handbook will be available to servicemembers and next of kin, and its electronic form will be updated at least annually. Subtitle E: Studies and Reports Sec. 1661. Study on Readjustment Needs Requires DOD, in consultation with the National Academy of Sciences, to prepare a study on the physical and mental health of servicemembers who deployed to combat operations in Iraq and Afghanistan. Sec. 1662. Access to Adequate Outpatient Residential Facilities Facilities occupied by recovering servicemembers shall be inspected semiannually for the first two years after enactment, and annually thereafter. Sec. 1663. Study and Report on Support Services Requires the Secretary of Defense to conduct a study of the provision of support services for families of recovering servicemembers, and to report to Congress on the findings of such study within 180 days of enactment. Sec. 1664. Report on TBI Classifications Requires the Secretaries of DOD and VA, within 90 days of enactment, jointly to submit to Congress a report describing the changes undertaken within the two departments to ensure that TBI victims receive a medical designation that clearly identifies TBI as a specific disease condition, rather than a generic classification (such as "organic psychiatric disorder"). Sec. 1665. Program Evaluation Requires the DOD to conduct an evaluation of specific aspects of the Polytrauma Liaison Officer/Non-Commissioned Officer program, which is the program operated by each of the military departments and the VA for the purpose of (1) assisting in the seamless transition of servicemembers from DOD to VA health care systems, and (2) expediting the flow of information and communication between MTFs and VA Polytrauma Centers. DOD shall report to Congress on the findings of such evaluation, and any recommendations, within 90 days of enactment. Subtitle F: Other Matters Sec. 1671. Prohibition on Transfer of Resources from Medical Care Prohibits the Secretary of Defense and the Secretaries of the military departments from transferring funds or personnel from medical care functions to administrative functions within DOD in order to comply with the new administrative requirements imposed or the amendments made by this title. Sec. 1672. Medical Care for Families Authorizes medical care at MTFs, on a space-available basis, for family members of a recovering servicemember who are on invitational orders or receiving per diem payments while caring for the servicemember. Sec. 1673. Deployment Assessments of Cognitive Function Requires DOD to incorporate an assessment of PTSD in its pre- and post-deployment medical examination of servicemembers deployed overseas. To support this requirement and a preexisting requirement regarding TBI, DOD is required to a develop a protocol for the pre-deployment assessment and documentation of cognitive function, including memory. DOD is required to conduct relevant pilot programs, and to report to Congress on their implementation. Also, DOD is required to ensure the quality of such pre- and post-deployment assessments, and to prescribe in regulations minimal health standards for deployment regarding TBI. Sec. 1674. Guaranteed Funding for WRAMC Requires that funding of WRAMC for a given fiscal year shall not be less than the FY2006 amount, until the Secretary of Defense submits to Congress a plan for the provision of health care for military beneficiaries and their dependents in the National Capital Region. Such plan shall, at a minimum, include (1) the manner in which patients, staff, bed capacity, and functions will move from WRAMC to expanded facilities; (2) a timeline and milestones for such moves; (3) projected budgets, including budget transfers, for MTFs within the region; (4) the management or disposition of MTF properties within the region; and (5) staffing projections for the region. After submission of such plan, the Secretary shall certify to Congress on a quarterly basis that patients, staff, bed capacity, functions, or parts of functions at WRAMC have not been moved or disestablished until the expanded facilities elsewhere in the region are completed, equipped, and staffed with sufficient capacity to accept and provide, at a minimum, the same level of and access to care that patients received at WRAMC during FY2006. Sec. 1675. Use of Federal Leave Transfer Program Eliminates, for federal civilian employees who sustained a combat-related disability for which they are undergoing medical treatment, the requirement that they exhaust annual and sick leave before any transferred (donated) annual leave may be used. This provision is in effect only while the servicemember is receiving medical treatment for the combat-related disability, and only for a maximum of five years from the beginning of treatment. This provision is effective upon enactment. Sec. 1676. Moratorium on Contractor Conversions at MTFs 6 Requires the Secretary of Defense to meet certain criteria before the announcement or conduct of an OMB Circular A-76 study pursuant to 10 U.S.C. 2461 (regarding public-private competition required before conversion to contractor performance) for any study carried out at an MTF. These criteria include certifying to Congress that appropriate steps have been taken to ensure that neither the quality of military medical care nor the availability of qualified personnel will be adversely affected by the competition process, or by the conversion to performance by a contractor; reporting to Congress within 180 days of enactment on certain data regarding each public-private competition; and performing an assessment of whether other types of business reform or reengineering methods might in the future achieve any anticipated or budgeted savings rather than through a public-private competition. Title XVII: Veterans Matters Title XVII includes several provisions that have an impact on programs administered by the VA. A majority of these provisions are focused on improving health care services for those with TBI. Following is a summary of each of these provisions. Sec. 1701. Sense of Congress Expresses the sense of Congress, recognizing that VA is a leader in the field of TBI care, and also acknowledges that DOD and VA have made efforts to provide a smooth transition of medical care and rehabilitative services to servicemembers as they transition from the DOD health care system to that of the VA. However, it is the sense of Congress that more can be done to assist veterans and their families in the continuum of the rehabilitation, recovery, and reintegration of wounded or injured servicemembers and veterans into their communities. Sec. 1702. TBI Rehabilitation and Reintegration Plans Amends 38 U.S.C., Chapter 17, and adds a new section. It requires the VA Secretary to develop an individualized plan for rehabilitation and reintegration into the community for each veteran or servicemember who receives inpatient or outpatient care at the VA for TBI. This plan must be provided in writing to each veteran or servicemember before such individual is discharged from inpatient care at a VA medical facility, or as soon as practicable following a diagnosis of TBI by the VA. It requires that each individualized plan for rehabilitation include (1) rehabilitation objectives for improving the physical, cognitive, and vocational functioning of a veteran or servicemember with a TBI in order that such individual regain independence and reintegrate into the community; (2) access, as needed, to all appropriate rehabilitative components of the TBI continuum of care; (3) a description of specific rehabilitative treatments and other services, to include the type, frequency, duration, and location of such treatments and services; (4) the name of the designated case manager responsible for the implementation of the individualized plan; and (5) the dates on which the effectiveness of the plan will be reviewed. Requires the VA Secretary to develop the individualized plan based on a comprehensive assessment of the physical, cognitive, vocational, neuropsychological and social impairments of the veteran or servicemember. The assessment must also take into consideration the family education and family support needs of such individual after discharge from inpatient care. The assessment will be performed by a team of individuals, with relevant expertise as stipulated in this section. Requires the VA Secretary to assign a case manager for each veteran or servicemember with a TBI. The case manager will be responsible for the implementation of the individualized plan, and the coordination of care. The Secretary must ensure that such case manager has specific expertise, either through experience, education, or training, in the care required by the individual to whom such case manager is assigned. Requires the VA Secretary, to the maximum extent practicable, to involve the family members or legal guardian of the veteran or servicemember with a TBI in developing the individualized plan. It also requires the Secretary to collaborate with a state protection and advocacy system if the veteran or servicemember covered by such plan requests such collaboration, or, in the event that the individual is incapacitated, the family or guardian of the servicemember or veteran requests collaboration. In the event that the servicemember is still on active duty, the VA must collaborate with DOD in developing the individualized plan for rehabilitation and reintegration. Requires the VA Secretary to periodically review the effectiveness of each individualized plan and refine it as appropriate after such review. Moreover, the Secretary is required to review the individualized plan at the request of the veteran with a TBI or in the case of a veteran or servicemember who is incapacitated, at the request of the guardian or designee of the veteran. Sec. 1703. Use of Non-VA Facilities for TBI Amends 38 U.S.C., Chapter 17, and adds a new section. It authorizes the VA, at its discretion, to provide hospital care and medical services through appropriate public or private entities to veterans and servicemembers who receive TBI care from the VA. Such care in non-VA facilities may be authorized if the VA is unable to provide care at the frequency or duration prescribed in the individualized plan, for rehabilitation and reintegration. Sec. 1704. TBI Research, Education, and Clinical Care Amends 38 U.S.C., Chapter 17, Subchapter II. Requires the VA to conduct research on mild to severe forms of TBI; visually related neurological conditions; means of improving the diagnosis, rehabilitative treatment, and prevention of TBI; and dual diagnosis of PTSD and TBI, among other conditions. Requires the VA to collaborate on this research with the Defense and Veterans Brain Injury Center (DVBIC) and other relevant programs of the federal government. Requires the Secretary to conduct educational programs on recognizing and diagnosing mild and moderate cases of TBI. Moreover, this section requires the VA to establish a TBI registry to be known as the "Traumatic Brain Injury Veterans Health Registry." When possible, the VA Secretary must notify each individual listed in the registry of significant developments in research on the health consequences of military service in OIF and OEF theaters of operations. Sec. 1705. TBI Pilot Program on Assisted-living Services This section requires the VA Secretary to implement, within 90 days of enactment, a five-year pilot program to assess the effectiveness of providing assisted-living services to eligible veterans to enhance the rehabilitation, quality of life, and community integration of such veterans. The pilot program must be carried out in locations selected by the Secretary. However, at least one program must be located in a Veterans Integrated Service Network (VISN) that has a VA polytrauma center. Other locations must be in areas that contain high concentrations of veterans with TBI. The Secretary must also give special consideration to rural areas when selecting program locations. Authorizes the Secretary to enter into agreements for the provision of assisted living services with a provider participating in Medicaid (42 U.S.C. 1396 et seq.). Such assisted living facilities must meet standards prescribed by the Secretary for the purposes of the pilot program. Requires the Secretary to continue to provide case management services for veterans participating in the pilot program. Requires the Secretary to submit a report on the pilot program to the House and Senate Veterans' Affairs Committees not less than 60 days after the completion of the pilot program. The report must include information about the program, utility of the program, and recommendations regarding the extension or expansion of the program. Sec. 1706. Provision of Age-appropriate Nursing Home Care Amends 38 U.S.C. 1710A and adds a new provision that requires the Secretary to provide age-appropriate nursing home care. Sec. 1707. Extension of Period of Eligibility This section extends from two to five years the period of automatic eligibility for VA health care, for veterans who served in a combat theater of operations and are discharged or released five years before the date of enactment of this Act. For those veterans who served in a combat theater of operations after November 11, 1998, but more than five years before the date of enactment of this act, and have not enrolled in the VA health care system, the period of automatic eligibility will be three years. Sec. 1708. Mental Health Service-connection Amends 38 U.S.C. 1702 that pertains to presumption of service-connection, and inserts the term "mental illness" instead of "psychosis." Requires the Secretary to provide a veteran who served in a period of war after the Persian Gulf War, or in combat against a hostile force during a period of hostilities after November 11, 1998, a preliminary mental health evaluation as soon as practicable, but not later than 30 days after a request for such evaluation. Sec. 1709. Modification Regarding Outpatient Dental Services Amends 38 U.S.C. 1712 and extends from 90 days to 180 days after discharge or release, the eligibility for outpatient dental treatment for a veteran with service-connected dental conditions or disabilities who served on active duty. Sec. 1710. Clarification Regarding Outreach Services Amends 38 U.S.C. 6301 to include National Guard and Reserve components among those who are eligible for VA outreach services. Defines the term "outreach" as the act or process of reaching out in a systematic manner proactively to provide information, services, and benefits counseling to veterans, and to the spouses, children, and parents of veterans who may be eligible to receive benefits under the laws administered by the Secretary, to ensure that such individuals are fully informed about, and assisted in applying for, any benefits. Sec. 1711. Designation of Fiduciary or Trustee Amends 38 U.S.C. 1980A, and provides for the designation of a fiduciary or trustee for benefits under the Traumatic Servicemembers' Group Life Insurance (TSGLI) for servicemembers who are medically incapacitated.

This report summarizes provisions in Division A, Titles XVI and XVII, of the National Defense Authorization Act for Fiscal Year 2008, P.L. 110-181, signed by the President on January 28, 2008. Titles XVI and XVII address matters related to the care and treatment of servicemembers and former servicemembers (i.e., veterans) who were wounded, or who contracted an illness, while serving on active duty. These individuals are widely referred to as "wounded warriors." Provisions in the act reflect congressional concern about the quality and availability of medical, mental health, and dental care services for servicemembers returning from active duty in Iraq and Afghanistan, and the difficulties that some of these individuals have experienced in their transition from military service to veteran status. The provisions vary in scope. Some of them alter specific aspects of existing services or benefits programs in either the Department of Defense (DOD) or the Department of Veterans Affairs (VA). Others call for comprehensive and long-term redesign of programs or systems in one or both of the departments. Congress and others have determined that certain programs and systems that involve both departments are particularly problematic in providing continuity and quality of care and services to wounded warriors. Among the problems addressed in the act are the efficient maintenance and transfer of servicemembers' health and benefits records between the departments, and the separate evaluations of disability by each department. Efforts to address these and other transition problems were already underway in both departments, partly in response to the recommendations of several DOD and independent commissions and task forces. The act codifies various mandates for these activities, including deadlines. This report does not attempt to analyze provisions in the act, but provides brief outlines of the matters addressed. This report will not be updated.

Standard for § 501(c)(3) Charitable Status Non-profit hospitals typically qualify for federal tax-exempt status as charitable organizations described in § 501(c)(3) of the Internal Revenue Code (IRC). There is no definition in the tax code for the term "charitable." A regulation promulgated by the Treasury Department provides some guidance, although it does not explicitly address the activities of hospitals. It states that "[t]he term charitable is used in section 501(c)(3) in its generally accepted legal sense," and provides examples of charitable purposes, including the relief of the poor or unprivileged; the promotion of social welfare; and the advancement of education, religion, and science. In the absence of explicit statutory or regulatory requirements applying the term "charitable" to hospitals, it has been left to the IRS to determine the criteria hospitals must meet to qualify as § 501(c)(3) charitable organizations. Over the years, the IRS has developed two distinct standards: the "charity care standard" and the "community benefit standard." Charity Care Standard In 1956, the IRS issued Revenue Ruling 56-185, which addressed the requirements a hospital needed to meet in order to qualify for § 501(c)(3) status as a charitable organization. One of these requirements is known as the "charity care standard." The standard required a hospital to provide, to the extent of its financial ability, free or reduced-cost care to patients unable to pay for it. A hospital that expected full payment did not, according to the ruling, provide charity care based on the fact that some patients ultimately failed to pay. The ruling noted that publicly supported community hospitals would normally qualify as charitable organizations because they serve the entire community, and a low level of charity care would not affect a hospital's exempt status if it was due to the surrounding community's lack of charitable demands. Community Benefit Standard In 1969, the IRS issued Revenue Ruling 69-545, which eliminated from Revenue Ruling 56-185 the requirement that a hospital provide free or reduced-cost care. Under the standard developed in Revenue Ruling 69-545, which is known as the "community benefit standard," hospitals are judged on whether they promote the health of a broad class of individuals in the community. The ruling involved a hospital that only admitted individuals who could pay for the services (by themselves, private insurance, or public programs such as Medicare), but operated a full-time emergency room that was open to everyone. The IRS ruled that the hospital qualified as a charitable organization because it promoted the health of people in its community. The IRS reasoned that because the promotion of health was a charitable purpose according to the general law of charity, it fell within the "generally accepted legal sense" of the term "charitable," as required by Treasury regulation. Expanding on this point, the ruling stated that The promotion of health, like the relief of poverty and the advancement of education and religion, is one of the purposes in the general law of charity that is deemed beneficial to the community as a whole even though the class of beneficiaries eligible to receive a direct benefit from its activities does not include all members of the community, such as indigent members of the community, provided that the class is not so small that its relief is not of benefit to the community. The IRS concluded that the hospital was "promoting the health of a class of persons that is broad enough to benefit the community" because its emergency room was open to all and it provided care to everyone who could pay, whether directly or through third-party reimbursement. Other characteristics of the hospital that the IRS highlighted included the following: its surplus funds were used to improve patient care, expand hospital facilities, and advance medical training, education, and research; it was controlled by a board of trustees that consisted of independent civic leaders; and hospital privileges were available to all qualified physicians. It appears the community benefit standard was adopted partly in response to the enactment in 1965 of Medicare and Medicaid, which some thought would reduce the need for hospitals to provide charity care. Its adoption by the IRS may also have been a response to concerns about the charity care standard. These concerns were evidenced in a legislative proposal, introduced in the same year Revenue Ruling 69-545 was issued, that would have created an explicit category in IRC § 501(c)(3) for hospitals. The House Report accompanying the bill expressed concern with how the charity care standard was applied in practice: In a number of cases internal revenue agents have challenged the exempt status of hospitals on the sole ground that the hospitals are accepting insufficient numbers of patients at no charge or at rates substantially below cost. This has resulted in significant uncertainty as to the extent to which a hospital must accept patients who are unable to pay, in order to retain its exempt status. Shortly after the House Report was released, the IRS issued Revenue Ruling 69-545. The Senate Finance Committee then removed the hospital provision from the bill, noting the existence of the new ruling and stating it would look at the issue when it addressed pending Medicare and Medicaid legislation. A subsequent Finance Committee staff document on Medicare and Medicaid issues advocated that the ruling be revoked and the charity care standard be reimposed until Congress could address the situation. Legal Challenge to the Community Benefit Standard After the release of Revenue Ruling 69-545, several indigents and organizations with indigent members filed a class action suit challenging the IRS's authority to implement the community benefit standard, which they argued was inconsistent with the term "charitable" in IRC § 501(c)(3) because it did not require treatment of the poor. The Supreme Court ordered the district court to dismiss the case because the plaintiffs lacked the constitutionally required standing to bring suit. To have standing, "[a] plaintiff must allege personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." The plaintiffs' alleged injury was that the adoption of the community benefit standard had encouraged hospitals to not provide necessary medical care to the indigents. The Court, in holding the plaintiffs lacked standing, reasoned that it was "purely speculative" as to whether the hospitals had denied treatment because of the new ruling and not for other reasons and whether the plaintiffs' success would result in care being provided since hospitals could choose to give up their tax-exempt status if the cost was too high. Further Development of the Community Benefit Standard The IRS continues to use and develop the community benefit standard. In 1983, the IRS issued Revenue Ruling 83-157, which clarifies the requirement that a hospital operate an emergency room that is open to the public. While an important factor in Revenue Ruling 69-545 was that the hospital operated an emergency room open to everyone, Revenue Ruling 83-157 states that a hospital without an emergency room may still qualify for exempt status if other conditions are met. The ruling recognized there are circumstances in which hospitals may not need to operate emergency rooms, such as when a state agency has determined that its operation would be duplicative or when a hospital is in a specialized field that is unlikely to require emergency care. In these situations, a hospital may still qualify as a charitable organization if it shows other evidence that it provides benefits to the community by promoting the health of a broad class of persons. The ruling listed examples of factors that may be used as evidence: a board of directors chosen from members of the community; an open medical staff policy; treatment of patients using public programs (e.g., Medicare and Medicaid); and using surplus funds for improving patient care, facilities, equipment, and medical training, education, and research. Recent Controversy In the past several years, questions have arisen as to whether non-profit hospitals deserve the benefits they receive as § 501(c)(3) charitable organizations. Areas of controversy include the prices charged to low-income uninsured patients for medical care in comparison to those charged patients paying through insurance; the methods used by hospitals to collect payment from patients and the classification of bad debt as a community benefit; an increasing number of partnerships between tax-exempt hospitals and for-profit entities; and the amount of compensation paid to high-level employees. Additionally, some have questioned whether the community benefit standard is correct, or whether tax-exempt hospitals should categorically be required to provide a certain level of charity care. In 2004 and 2005, class action lawsuits were filed in at least 25 states challenging the treatment and billing practices of § 501(c)(3) hospitals with respect to low-income uninsured individuals. One claim made by the plaintiffs was that IRC § 501(c)(3) created a contract between the federal government and hospitals or a charitable trust for the public's benefit, either of which required hospitals to provide emergency treatment to patients regardless of their ability to pay, charge affordable and fair prices, and not engage in abusive collection practices. Courts disagreed, finding that the statute clearly neither creates a contract or charitable trust, nor provides third-party beneficiaries with a private cause of action. Congressional Activity in the 109th and 110th Congresses Over the past several years, the activities of § 501(c)(3) hospitals have received congressional attention. For example, in the 109 th Congress, the House Ways and Means and Senate Finance Committees held hearings on tax-exempt hospitals. Additionally, then-Chairman Thomas of the Ways and Means Committee introduced the Tax Exempt Hospitals Responsibility Act of 2006 ( H.R. 6420 , 109 th Congress). Under the bill, a hospital would have only been eligible for § 501(c)(3) status if it (1) adopted policies and procedures, consistent with requirements imposed by the act, for providing and charging for medically necessary care to low-income uninsured individuals, and (2) normally operated in a manner consistent with those policies and procedures. No action was taken on the bill. In the 110 th Congress, the minority staff on the Senate Finance Committee released a discussion draft of possible tax-exempt hospital reforms and invited public comment on them. Among the proposals put forth in the discussion draft were a requirement that each hospital maintain and publicize a charity care program and provide minimum amounts of charity care measured as a percentage of that hospital's total operating expenses. At the request of Senator Grassley, the Government Accountability Office (GAO) issued a report that examined how the discretion afforded hospitals under federal law in determining their community benefit activities and the wide variety in state community benefit requirements have led to inconsistencies in the way community benefits are defined and measured. Recent IRS Activity and Schedule H of Form 990 In 2006, the IRS sent questionnaires to approximately 600 large hospitals to collect information on how hospitals operated (e.g., billing practices, emergency room availability, and compensation) and what types of community benefits they provided. Amid concerns about "whether there [were] differences between for-profit and tax-exempt hospitals," the IRS announced that hospitals would be required to provide additional information specific to their industry on a new Schedule H of the redesigned Form 990 (the annual information return filed by tax-exempt organizations). Schedule H was drafted to "combat the lack of transparency surrounding the activities of tax-exempt organizations that provide hospital or medical care." Schedule H contains six parts, which are discussed in detail in the Appendix . Part I requests details about a hospital's charity care program and attempts to quantify charity care expenditures. Part II quantifies the hospital's community building activities. Part III quantifies the costs due to Medicare shortfalls and bad debts owed to the organization. Part IV requires disclosure of any joint ventures in which a hospital participates. Part V requests information about the entity's health care facilities. Part VI provides an area in which to discuss, in a narrative fashion, other charitable activities that may be difficult to quantify. For tax year 2008, the only portion of Schedule H that was required was the disclosure and description of the hospital facilities operated by the filing entity. The entire Schedule is mandatory beginning with tax year 2009. Patient Protection and Affordable Care Act The Patient Protection and Affordable Care Act (PPACA; P.L. 111-148 , § 9007) imposes additional requirements on hospitals in order to qualify for § 501(c)(3) status. The requirements apply to organizations operating a facility that must be licensed, registered, or similarly recognized as a hospital under state law and any other organization determined by the Treasury Secretary to have the provision of hospital care as its principal § 501(c)(3) tax-exempt function or purpose. An organization with multiple facilities must meet the requirements for each facility and will not be treated as a § 501(c)(3) organization with respect to any facility for which the requirements are not met. The act imposes four new requirements. First, starting with taxable years beginning after March 23, 2012, hospitals will be required to conduct a "community health needs assessment" in the current or past two taxable years and adopt an implementation strategy to meet those needs. The assessment must be made publicly available and take into account input from persons representing the broad interests of the community, including those with public health knowledge or expertise. An organization that fails to meet the assessment requirement for the taxable year will be subject to a new excise tax equal to $50,000. Additionally, hospitals will be required to describe on the Form 990 how the needs identified in the assessment are being met and explain why any identified needs are not being addressed. Second, starting with taxable years beginning after March 23, 2010, hospitals are required to have written financial assistance and emergency medical care policies. The financial assistance policy must address eligibility criteria for financial assistance, the application process, and whether the assistance includes free or discounted care. Other issues that must be addressed include the basis for calculating amounts charged to patients, the actions that might be taken for nonpayment (e.g., collection actions and reporting to credit agencies), and the hospital's measures to widely publicize the policy within the community. The emergency medical care policy must require the hospital to provide, "without discrimination," care for emergency medical conditions to individuals regardless of their eligibility for financial assistance. Third, with respect to emergency and other medically necessary care, hospitals may not charge individuals eligible under the financial assistance policy more than the lowest amounts charged to those with insurance coverage. Hospitals are also prohibited from using gross charges. These rules apply to taxable years beginning after March 23, 2010. Fourth, hospitals are required to make reasonable efforts to determine whether an individual is eligible for financial assistance before beginning extraordinary collection actions. This provision applies to taxable years beginning after March 23, 2010. The Treasury Department is directed to issue necessary regulations and guidance, including guidance on whether a hospital has made reasonable efforts to determine a patient's eligibility under its financial assistance policy. An official at the Treasury Department has been quoted as saying that guidance on the act's provisions is needed "sooner rather than later," although she did not offer specifics. Under the act, the Treasury Secretary will also be required to review, at least once every three years, the community benefit activities of any hospital subject to the new requirements. Additionally, he or she, in consultation with the Secretary of Health and Human Services (HHS), will be required to annually provide Congress with information on the charity care, bad debt expenses, and unreimbursed costs for services provided under means and non-means tested government programs of private tax-exempt, taxable, and government-owned hospitals, in addition to the costs of community benefit activities by private tax-exempt hospitals. A report on trends in this information is due within five years of the act's enactment. Appendix. Schedule H As discussed in this report, hospitals with tax-exempt status are now required to provide information specific to their industry on the new Schedule H of the redesigned Form 990 (the annual information return filed by tax-exempt organizations). The IRS released a draft Schedule H in June 2007 and, after seeking public comment on the draft, issued the final version in December 2007. Drawn heavily from, but not identical to, the community benefit reporting model used by the Catholic Health Association of the United States (CHA), Schedule H was drafted to "combat the lack of transparency surrounding the activities of tax-exempt organizations that provide hospital or medical care." Comments on the draft expressed immediate concerns about the technical and procedural implications of the addition. For example, comments reflected uncertainty over what constituted a hospital and whether multiple iterations of the Schedule were required for entities operating more than one hospital facility. In response, the IRS indicated that it intended to defer to state law for the definition of hospitals and that only one Schedule H would be required for an entity with a single employer identification number, regardless of the number of hospitals run by it. Schedule H contains six parts, each of which will be discussed in detail below. Part I requests details about a hospital's charity care program and attempts to quantify charity care expenditures. Part II quantifies the hospital's community building activities. Part III quantifies the costs due to Medicare shortfalls and bad debts owed to the organization. Part IV requires disclosure of any joint ventures in which a hospital participates. Part V requests information about the entity's health care facilities. Part VI provides an area in which to discuss, in a narrative fashion, other charitable activities that may be difficult to quantify. Part I: Quantifying the "Community Benefit" Standard Part I attempts to quantify the amount of community benefit provided by hospitals on an annual basis. The metric the IRS has chosen to quantify community benefit is dollars spent. Qualifying expenses include free care, unreimbursed Medicaid, unreimbursed costs from other means tested government programs, community health improvement services, health professions education, subsidized health services, research, and contributions to other community groups. Aside from concerns about the technical aspects of the new Schedule H, several substantive criticisms also emerged from the public comments. For the most part, these criticisms stemmed from the perception that the categories of charity care and community benefit envisioned by the IRS were underinclusive. The agency had explicitly stated in its comments accompanying the initial draft of Schedule H that the Schedule was an attempt to "quantify, in an objective manner, the community benefit standard applicable to tax-exempt hospitals." While the IRS did not suggest a minimum level of expenditures that would be required in order to justify tax-exemption, it is probable that some hospitals were concerned that the exclusion of certain expenditures would make themselves appear, on paper, undeserving of tax-exempt status. By and large, these criticisms focused on three specific omissions: community building expenditures, Medicare shortfalls, and bad debt. Part II: Community Building Schedule H includes an area, Part II, in which to report community building expenditures. Although the definition of "community building" may not be obvious at first glance, it is generally understood to refer to programs that are intended to have a beneficial impact upon the health of a community but that do not provide medical care. Examples of community building are housing improvements, economic development, community support, environmental improvements, leadership development, coalition building, community health improvement advocacy, and workforce development. The initial draft of Schedule H did not include community building activities in its calculation of community benefit. In comments on the draft, the CHA strongly opposed their exclusion. The CHA argued that "there is clear consensus in the public health community that social and environmental factors are strong determinants of health for vulnerable populations," citing publications from the Centers for Disease Control and Prevention and other scholarly articles. Additionally, the CHA noted that "every community building activity would qualify for exemption on a stand-alone basis." Despite the subsequent inclusion of community building metrics on the Schedule H, these numbers are still separate from the reporting of charity care and community benefit expenditures in Part I. The IRS commentary on the Schedule's final draft reflected the view that the link between community building and health was still tenuous and that the reporting tools in Schedule H are intended to operate, in part, as data collection methods for the IRS to discern what links exist. Part III: Medicare Shortfalls Hospitals incur costs when treating all patients, including patients who are covered by Medicare. Medicare, however, may not reimburse a provider for the total cost of services received by a patient. The difference between the Medicare reimbursement rates and the costs incurred by a hospital are called shortfalls. Some commentators on the draft Schedule H expressed a belief that a hospital should be allowed to include the aggregate amount of these shortfalls in any calculation of the total community benefit provided by that hospital. For example, comments from the Health Law and Taxation Sections of the American Bar Association (ABA) reasoned that "the entire amount of any 'Medicare shortfall' should count as 'charity care,' because the elderly constitute a clearly recognized charitable class." Additionally, the American Hospital Association (AHA) commented that "many Medicare beneficiaries, like their Medicaid counterparts, are poor," and would have qualified for a hospital's charity care program or Medicaid in addition to Medicare. If these patients had been treated as charity care, the entire cost of medical care would have been considered community benefit under Part I. Additionally, any shortfall in Medicaid reimbursement would similarly have been included in community benefit. Others, however, argued that Medicare shortfalls are not a useful metric for determining community benefit. The Catholic Health Association, opposing inclusion, noted that "many for-profit hospitals compete aggressively for these [Medicare] patients." In its view, measuring Medicare shortfalls would not usefully distinguish for-profit hospitals from those seeking tax exemption, and creating distinctions between these two groups is necessary to ensure that tax exemption retains its credibility with policy makers. Notwithstanding these arguments, the CHA noted that "if, at some point, access problems emerge for Medicare patients, the rationale for including Medicare services as community benefit increases." Schedule H includes a dedicated area in which to report Medicare shortfalls. Despite the addition of Part III, the IRS does not treat Medicare shortfalls as a direct measure of community benefit, in and of themselves. Instead, hospitals are asked to "[d]escribe ... the extent to which any shortfall reported in [this part] should be considered as community benefit." Part III (continued): Bad Debt Hospitals regularly engage in billing and collection practices in order to recoup co-pays, deductibles, and other expenses from patients. During the collection process, there may occur a point at which it becomes apparent that a debt owed to the hospital has little or no potential of repayment. In accordance with sound accounting practices, it is customary to "write off" these debts as "bad debt." Because bad debts, by definition, represent services hospitals have provided without compensation, some believe that the aggregate amount of bad debt should be included in any calculation of community benefit. Community benefit in the context of the provision of health care services normally refers to means-tested eligibility programs, but the ABA noted that "hospitals continue to have difficulty separating traditional uncompensated care from true bad debt" due to "issues associated with identifying individuals who qualify for uncompensated care." Some portion of bad debt, therefore, appears to include the provision of care to individuals who would have been eligible for charity care. Proponents argue that it is unfair to penalize a hospital with a reduced community benefit calculation simply because the charity care program did not accurately classify these individuals. Support for inclusion of bad debt was not universal among the comments submitted. The Catholic Health Association noted that bad debt is a "'cost of doing business' that affects taxable and tax-exempt organizations." In CHA's opinion, reporting bad debt does not create meaningful distinctions between for-profit and non-profit entities that would justify tax exemption. CHA did not necessarily dispute the theory that bad debt includes some patient charges that should be considered charity care. Rather, CHA argued that hospitals should improve their charity care programs to identify these patients at the onset of treatment, rather than using bad debt to approximate the impact of these patients after the fact. In support of this argument, CHA also noted that "many Catholic hospitals have changed their policies and improved their ability to identify patients eligible for financial assistance." Some patient advocates have also noted the perceived inequity in allowing hospitals to benefit from bad debt after instituting potentially aggressive and damaging collection practices against patients. Schedule H allows hospitals to report bad debt in Part III alongside Medicare shortfalls, but bad debt expense may not be reported on the charity care and community benefit table. As with Medicare shortfalls, filing hospitals will have to explain what portion of bad debt should be considered community benefit. The IRS comments accompanying the Schedule's final draft indicated that it does not intend to automatically consider any portion of bad debt a community benefit, citing a lack of consensus regarding bad debt policies among hospitals. Part IV: Management Companies and Joint Ventures Part IV of Schedule H asks tax-exempt entities that operate hospitals to list the joint ventures they participate in. Joint ventures can be problematic in the non-profit healthcare context for a variety of reasons. If physicians with staff privileges at the hospital also have a proprietary interest in the joint venture, referrals to that joint venture may violate federal prohibitions against self-referrals or kickbacks. If directors or trustees of the hospital have a proprietary interest in that joint venture, the non-profit status of the hospital could be jeopardized by any benefit that they receive as a result of their interest in the venture. Similarly, in St. David's Health Care System v. United States , the Fifth Circuit held that a joint venture's profit motive could undermine a non-profit partner's status as a charitable organization. For the most part, these issues are common to all tax-exempt organizations. The majority of comments addressing this issue noted that the IRS already receives information on joint ventures in the redesigned Form 990, and that only organizations that operate hospitals are burdened with this extra reporting requirement in Schedule H. In response, the IRS noted that the "unique relationship between hospitals and physicians resulting from their special status of having medical staff privileges without regard to employment appears to have no clear analogy in other exempt organization contexts." The IRS did limit this reporting requirement to those joint ventures where directors, trustees, and physicians with staff privileges together owned at least 10% of the joint venture. Part V: Facility Information Organizations are asked, in Part V of Schedule H, to identify all hospital or medical care facilities and to indicate the types of medical services provided by each. The definition of hospital or medical care does not include assisted living services, vocational training for the disabled, or medical education and research. Part VI: Supplemental Information Part VI of Schedule H provides an area in which to provide narrative information regarding the amount of community benefit provided. The IRS stated that this area could be used to explain why some portion of Medicare shortfall or bad debt reported in other areas of the Schedule should be considered community benefit. In addition, hospitals may provide details about other community benefits they provide that are not easily quantifiable.

The recently enacted Patient Protection and Affordable Care Act (PPACA; P.L. 111-148, § 9007) imposes requirements on hospitals with § 501(c)(3) tax-exempt status. Under the act, hospitals will be required to regularly conduct "community health needs assessments" and adopt implementation strategies to meet those needs. They are also required to have written financial assistance and emergency medical care policies that are consistent with standards imposed by the act. Furthermore, hospitals are not able to charge eligible uninsured individuals more than the lowest amounts charged to insured individuals for emergency and other medically necessary care, and they must make reasonable efforts to determine an individual's eligibility for financial assistance before beginning extraordinary collection actions. The act's requirements appear to reflect concerns that have arisen in recent years about whether non-profit hospitals are providing adequate public benefits to justify their tax-exempt status. Non-profit hospitals are eligible for federal tax-exempt status as charitable organizations described in § 501(c)(3) of the Internal Revenue Code (IRC). Under the "community benefit" standard developed by the IRS, charitable hospitals are judged on whether they provide sufficient health benefits to the community. The IRS has recently developed a new annual reporting requirement (Schedule H of the Form 990) for hospitals to report information regarding their activities. This report examines the standard under which hospitals qualify for tax-exempt charitable status under federal law, recent inquiries made by Congress and the IRS into whether hospitals are conducting sufficient activities to justify their exemption, and Section 9007 of the Patient Protection and Affordable Care Act. The Appendix to the report discusses the new Schedule H in detail.

Introduction P.L. 114-254 , the further continuing resolution for FY2017, extended funding and program authority for the Temporary Assistance for Needy Families (TANF) block grant through April 28, 2017. Though several bills altering TANF policies were reported by the House Ways and Means Committee to the full House during the second session of the 114 th Congress—and one bill passed the House—none were enacted. On June 21, 2016, the House passed H.R. 5170 , a bill that would have established a demonstration project for "social impact partnership projects." That bill would also have extended TANF and mandatory child care block grant funding for one year (FY2017) and revised TANF-related research funding. The bill was not considered in the Senate. In May 2016, the House Ways and Means Committee approved separate bills that would have made additional policy changes to TANF by (1) establishing a demonstration program for subsidized employment for TANF assistance recipients and noncustodial parents; (2) making revisions to TANF state spending requirements; (3) adding child poverty reduction to the statutory purpose of TANF; and (4) establishing new employment outcome measures for TANF. These bills were not considered by the full House. TANF and Recent Proposals The TANF block grant funds grants to states, tribes, and territories for providing benefits, services, and activities to broadly address both the effects and root causes of childhood economic and social disadvantage. It was created in the 1996 welfare reform law, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 ( P.L. 104-193 ), which culminated decades of debate over how to change public assistance programs for needy families with children. The 1996 welfare law provided funding for TANF through FY2002. Since the end of FY2002, TANF has been extended numerous times on a short-term basis, and had one long-term (five-year) extension. That long-term extension expired at the end of FY2010, and TANF has been extended on an annual basis since then. Though there have been policy changes to TANF attached to some TANF extensions, most TANF policy dates back 20 years to the 1996 welfare law. In July 2015, the House Ways and Means Committee released a "discussion draft" proposing a five-year reauthorization of TANF with wide-ranging policy changes, including changes to TANF's work standards. (See CRS In Focus IF10315, TANF Reauthorization: House Ways and Means Committee Discussion Draft of July 10, 2015 .) The President's FY2017 budget proposals also proposed a number of changes to TANF, including an increase in block grant funding. (See CRS In Focus IF10367, Temporary Assistance for Needy Families and Related Programs: The President's FY2017 Budget Proposal .) H.R. 5170, As Passed by the House H.R. 5170 , the Social Impact Partnerships to Pay for Results Act, was introduced by Representative Todd Young, for himself and Representative John Delaney. As ordered reported with an amendment by the Ways and Means Committee, H.R. 5170 would have provided for the establishment of "social impact partnerships," also sometimes referred to as "social impact bonds." H.R. 5170 was ordered reported by the House Ways and Means Committee on May 11, 2016. Its report ( H.Rept. 114-616 ) was filed on June 10, 2016. The version of H.R. 5170 considered (and passed) on the House floor on June 21 differed from the bill reported from the Ways and Means Committee. The version considered on the floor and passed by the House added a provision that would have required at least 50% of funds provided for agreements awarding funding for social impact partnership projects be used for initiatives that directly benefit children. The version considered and passed by the full House also added provisions that would have provided for a one-year extension of TANF funding as well as a revision of TANF's provisions on research. That version was considered by the House under suspension of the rules and passed by a voice vote. Social Impact Partnerships Current Law and Background There is no provision currently under TANF for social impact partnerships. Hearings in the Senate and House focused on earlier versions of the legislation from the same sponsors, however, as well as the topic in general. The Obama Administration pursued a few related efforts under other authorities, and it advocated for legislation similar to the committee bill. In characterizing these proposals, Obama Administration officials suggested that the use of social impact partnerships/bonds represents a "new form of grant-making." Other observers have viewed the approach as a form of complex contracting. House-Passed Bill As passed by the House, H.R. 5170 would have had several enumerated purposes, including, among others, to improve the lives of families and individuals in need in the United States by funding social programs that achieve real results, to facilitate the creation of public-private partnerships, and to incorporate outcome measurement and randomized controlled trials or "other rigorous methodologies" for assessing program impact. Generally speaking, the measure would have established a mechanism through which state and local governments could apply to the Secretary of the Treasury (hereinafter, the Secretary) for "social impact demonstration projects." If the Secretary awarded an agreement for one of these demonstrations—a "social impact partnership project"—to an applying state or local government, the applicant and several other entities could have entered into contracts that govern the operation, financing, and evaluation of the project and related interventions. The legislation specified a "social impact partnership model" that involved interactions among the federal government, a state or local government, service providers, investors (if applicable), and potentially an "intermediary" to coordinate among the non-federal actors. The federal government would have made a payment to the state or local government only if the project met the requirements of the agreement and achieved one or more of the outcomes specified in the agreement, as determined by an independent evaluator using methodologies specified in the legislation. The legislation specified related procedures. Selected provisions are summarized below. To carry out these provisions, H.R. 5170 , as passed by the House, would have directed the Secretary to reserve $100 million of amounts made available for the Contingency Fund for State Welfare Programs for FY2017 (see discussion in " The TANF Contingency Fund "). Application for Project and Related Feasibility Study Funding Not later than one year after enactment, the Secretary, in consultation with the Federal Interagency Council on Social Impact Partnerships (hereinafter Council, as established in the committee bill), would have been required to publish in the Federal Register a notice that seeks proposals from state or local governments for social impact partnership projects. A state or local government would have been required to submit an application describing its proposal for a project. As passed by the House, the bill would have required social impact partnership projects to produce one or more measurable outcomes that result in social benefit and federal savings through one or more of 21 enumerated categories of outcomes. An application for a social impact partnership project and related funding would have been required to, among other things, describe the intervention and a plan for delivering the intervention. In the application, the state or local government would have been required to address project outcome goals; address "rigorous evidence demonstrating that the intervention can be expected to produce the desired outcome" in the applicant's context; and include projections of the federal, state, and local government costs of the project as well as associated cost savings. The application would also have been required to include a description of the experience of the state or local government in raising private and philanthropic capital to fund social services; the experience of the service provider in delivering the proposed intervention; and certain information about the intermediary for the project. Furthermore, the application would have been required to address the project's evaluation design, metrics, and terms for payment if the program succeeds in producing specified outcomes. A state or local government would have been able to apply for separate funding to conduct a feasibility study prior to an eventual application for a social impact partnership project. Applications for funding for feasibility studies could have included information drawn from feasibility studies funded through other sources, and applications would have been required to address multiple topics including descriptions of the outcome and intervention. Award Processes for Projects and Related Feasibility Studies In determining whether to enter into an agreement awarding funding for a social impact partnership project, the Secretary would have been required to consult with the Council and the head of any federal agency administering a similar intervention or serving a population similar to the one described in the project application, and to consider several factors before making a determination on whether to enter into an agreement. These factors would have included, among others, recommendations made by the Commission on Social Impact Partnerships (hereinafter commission, as established in the committee bill); the value of the expected outcomes; the likelihood, based on evidence provided in the application and "other evidence," that the state or local government will achieve the expected outcomes; the projected savings to the federal government and state and local governments; and the expected quality of the evaluation under the agreement. The Secretary, in consultation with the Council and certain federal agencies, would have been authorized to enter an agreement for a social impact partnership project with a state or local government if the Secretary determined, in consultation with the Council, that several requirements were met. The requirements would have included, among other things, that the state or local government demonstrated through its application that, "based on prior rigorous experimental evaluations or rigorous quasi-experimental studies, the intervention can be expected to achieve each outcome." The Secretary would have been required to make a determination about whether to award funding for a feasibility study to an eligible applicant not later than six months after receiving an application for feasibility study funding. In making this determination, the Secretary would have been required to consult with the Council and the heads of certain federal agencies. When considering an award of feasibility study funding, the Secretary would have been required to consider the recommendations made by the commission, the likelihood that social impact partnership projects included in the feasibility study would achieve the desired outcomes, the value of the expected outcomes, and the potential savings to the federal government and to state and local governments if the projects identified in the feasibility study were successful. Federal funds could provide up to 50% of the cost of a feasibility study. The study could then be used to apply for social impact partnership project funding. Implementation, Impact Evaluation, and Payment The state or local government would have been required to agree to achieve one or more outcomes specified in the agreement. The duration of a social impact partnership project could not exceed 10 years. Furthermore, the Secretary would have been authorized to transfer to the head of another federal agency the authority to administer an agreement and any necessary funds. Federal payment to the state or local government would have been made if an independent evaluator determined that the project had met the requirements of, and achieved an outcome specified in, the agreement. As it passed the House, the bill would have required that at least 50% of funds provided for agreements awarding funding for social impact partnership projects be used for initiatives that directly benefit children. A state or local government would have been able to receive one or more payments under the terms of the agreement. The evaluation used to determine payments to state and local governments for project outcomes would have been required to use experimental designs using random assignment, or certain other research methodologies certified by the Council that "allow for the strongest possible causal inferences" when random assignment is not feasible. Progress reports would have been due from the evaluator within two years of the approval of the project and biannually thereafter. A report would have also been due before the scheduled time of the first outcome payment and each subsequent payment, in addition to a final report within six months of the completion of the social impact partnership project. Potential Issues Various potential issues of design and implementation may be associated with provisions in H.R. 5170 , in addition to the issue of capabilities and limitations of certain types of evaluation to support learning, improvement, and policymaking. These issues include federal-state relations in grant administration; comparison of the costs and benefits of using federal funds for social impact partnerships/bonds in contrast with those of traditional grant program structures; and the capacity of federal, state, and local governments and other grant recipients to engage in complex contracting and evaluation. Proposals for social impact partnerships/bonds often have been associated with advocacy for the use of a particular method of evaluation known variously as experimental design, random assignment, or randomized controlled trial (RCT). An RCT is a type of impact evaluation. Some advocates have referred to a primary emphasis on using impact evaluations, and especially RCTs, as "evidence-based policy" and "investing in what works." They frequently reserve the terms "rigorous evaluation" and "rigorous evidence" to refer primarily or only to RCTs. Other observers, by contrast, have argued that a sole or predominant emphasis on RCTs is too narrow for selecting interventions to bring to wider scale in different contexts and for facilitating continuous improvement. TANF Extension through FY2017 Current Law and Background P.L. 114-113 provided TANF funding through September 30, 2016. It also provided both FY2016 and FY2017 funding for the TANF contingency fund. For a discussion of the TANF contingency fund, see " The TANF Contingency Fund ." Funding into FY2017 was provided through two continuing resolutions, P.L. 114-223 and P.L. 114-254 . House-Passed Bill H.R. 5170 would have provided FY2017 funds for the TANF basic block grant, mandatory child care block grants, grants to Indian tribes for work programs, and healthy marriage and responsibility grants. Except for the TANF basic block grant, FY2017 funding for TANF grants and mandatory child care block grants would have been provided at the same level as was provided for FY2016. The bill would have made a total FY2017 appropriation for the basic TANF block grant at the same amount as was provided for in FY2016. However, a separate provision of the bill would have set aside 0.33% of funding for the basic block grant for TANF-related research. Thus, the FY2017 TANF basic block grants to each state would have been reduced by 0.33% from their FY2016 level. This reduction would also have triggered a commensurate proportional reduction in the amount of spending required of states under the TANF maintenance of effort (MOE) requirement. The bill would not have provided additional funding for the TANF contingency fund, which received an FY2017 appropriation in P.L. 114-113 . Under the bill, contingency fund grants to states would have been reduced in FY2017 from their FY2016 levels. As discussed in " Social Impact Partnerships ," the House-passed bill would have set aside $100 million from the TANF contingency fund for the social impact partnership demonstration. TANF Research Current Law and Background The Department of Health and Human Services (HHS) is required to conduct research on the benefits, effects, and costs of state programs under the TANF block grant. The research must include studies that relate to time limits, welfare dependency, illegitimacy, teen pregnancy, employment rates, and child well-being. HHS may conduct studies on other policy issues. The 1996 welfare law provided the Census Bureau with funding to continue following families from the mid-1990s sample in the Survey of Income and Program Participation (SIPP). That survey, known as the Survey of Program Dynamics, followed the same families from 1992/1993 through 2002. Subsequently, the funds were used for Census Bureau research related to the SIPP. In general, funding for HHS welfare-related research has been $15 million per year. HHS used funds to continue the evaluations of pre-welfare reform "waiver" programs and large-scale, multisite experiments on Employment Retention and Advancement, and initiatives to help the "Hard-to-Employ." It currently helps fund multi-site experiments on Career Pathways programs for low-income individuals, subsidized employment programs, job search assistance programs, and other employment-related research. Funding for Census Bureau research has generally been $10 million per year. In recent years, HHS and Census Bureau welfare-related research funds were set aside from the TANF contingency fund. House-Passed Bill The House-passed bill would have continued to require the Secretary of HHS to conduct research on the effect of TANF programs on employment, self-sufficiency, marriage, family stability, economic mobility, and poverty. HHS would also have been required to conduct research on the effects of healthy marriage and responsible fatherhood grants on child well-being. HHS would have been required to develop ways to distribute information on any research and evaluation conducted as a part of this amendment. The House-passed bill would have made states eligible for funds to evaluate their TANF and related programs. The House-passed bill would have required research conducted by HHS and the states to use experimental designs using random assignment when feasible. If a random assignment experiment was not feasible, the research would have been conducted using other reliable evidence-based research methodologies. What Works Clearinghouse The House-passed bill would have required HHS, in consultation with the Department of Labor, to develop a database named "What Works Clearinghouse of Proven and Promising Projects to Move Welfare Recipients into Work." This database would have consisted of the projects that used a promising or proven approach in delivering services to move TANF recipients into work. The database would also have included a list of projects that used a developmental approach, and a list of projects that were ineffective in moving recipients to work. The categorization of these projects as proven, promising, ineffective, or developmental would have been based on rigorous evaluation of them. Census Bureau Welfare Reform Research The House-passed bill would have required the Census Bureau, in consultation with the Secretary of HHS and the Bureau of Labor Statistics, to implement a new household survey and/or enhance existing household surveys to provide for the assessment of the effects of welfare reform on the economic and child well-being of low-income families. The Census Bureau, the Secretary of HHS, and BLS would have been required to consider ways to improve the surveys, and data derived from the surveys, to address underreporting of means-tested benefits; increase understanding of poverty spells, long-term poverty, and intergenerational poverty; better understand the geographical dimensions of poverty; increase understanding of the effects of means-tested benefits and tax benefits on the earnings of low-income families; and improve how poverty and economic well-being are measured, including the use of consumption measures. Welfare Research Funding These research activities would have been funded through a set-aside from the basic TANF block grant, 0.33% of the total block grant amount. This would have provided a total for welfare-related research of $54.7 million. Of this total, at least $10 million would have been required to be used for research related to Census Bureau household surveys, though the Secretary of HHS would have had the authority to increase funding for those activities above $10 million. Other TANF Bills Reported from the House Ways and Means Committee during the 114th Congress In addition to H.R. 5170 , the House Ways and Means Committee reported additional changes to TANF in separate bills during May 2016. These bills would have established a subsidized employment demonstration project ( H.R. 2990 ), revised the rules for TANF state spending requirements ( H.R. 2959 ), added reducing child poverty as a statutory goal of TANF ( H.R. 2966 ), and established new employment outcome measures for TANF ( H.R. 2952 ). These bills were not acted upon by the full House. H.R. 2990: Subsidized Employment Demonstration H.R. 2990 , the Accelerating Individuals into the Workforce Act, was introduced by Representative Dold. The bill, as amended and reported to the House by the Ways and Means Committee, would have established a subsidized employment demonstration program. Subsidized employment programs are those where public funds are used to pay all or part of the wages, benefits, and other costs of employing an individual. Current Law and Background Under current law, states have the authority to operate subsidized employment programs as part of their TANF programs. Additionally, subsidized employment in the private and public sectors are work activities that states may count toward meeting federal TANF work participation standards. While allowed under current law, subsidized employment has been a relatively small part of TANF, with the exception of a brief period when extra TANF funding was provided in response to the 2007-2009 recession. From FY2001 through FY2007, TANF expenditures on wage subsidies averaged $51.5 million per year. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) created an Emergency Contingency Fund (ECF) within TANF that provided additional funding for basic assistance, emergency aid, and subsidized employment for FY2009 to FY2010. With special funding from the ECF, TANF expenditures for employment subsidies were $1.050 billion in FY2010. With the expiration of ECF funding at the end of FY2010, TANF expenditures for subsidized employment again receded (though they remained above the FY2001-FY2007 average). In FY2015, TANF expenditures on wage subsidies totaled $186 million (0.6% of total TANF expenditures). In addition, relatively few cash assistance recipients participate in subsidized employment. From FY2001 to FY2007, an average of 6,500 TANF recipients per month was participating in subsidized private or public sector employment. This number increased to 19,500 per month during FY2010, though participation declined thereafter. In FY2015, a monthly average of 12,960 TANF recipients participated in subsidized private or public sector employment, out of a total of 1.2 million TANF "work-eligible" individuals. Thus in FY2015, 1.1% of TANF work-eligible individuals participated in subsidized employment. HHS is currently fielding an evaluation of subsidized employment programs in seven locations, though few findings on program impacts are available. Earlier evaluations of subsidized employment initiatives for cash assistance recipients in the 1970s, 1980s, and early 1990s showed some positive employment impacts (higher employment rates and earnings) and reduced cash assistance receipt, with lasting, long-term impacts. The most recent subsidized employment demonstration (for TANF recipients in Philadelphia) showed some short-term positive impacts, but the impacts faded over the longer term. TANF ECF-funded subsidized employment programs were not subject to additional reporting or evaluation. Committee Bill H.R. 2990 , as reported by the House Ways and Means Committee, would have established a one-year (FY2017) subsidized employment demonstration program, administered by HHS. The Secretary of HHS would have awarded grants to states for the development of subsidized employment demonstration projects that would evaluate strategies for providing wage subsidies to help low-income individuals obtain and retain employment. The bill would have provided that wage subsidies extend for no more than 12 months, and that federal funds account for no more than 50% of a participant's wage. It would have required that those participating in the subsidized employment program 1. be unemployed; 2. have income at the time of program entry of less than 200% of the federal poverty guidelines; and 3. be either recipients of assistance funded from TANF or state maintenance-of-effort (MOE) dollars, or noncustodial parents of children receiving such assistance. States in the subsidized employment demonstration would have been prohibited from displacing regular employees with subsidized job participants. The committee bill would have required HHS to conduct an evaluation of the demonstration project using an experimental design with random assignment, unless such research design was not feasible. If a random assignment experiment were not feasible, the research would have been conducted using other reliable evidence-based research methodologies. HHS would have been required to report recommendations to Congress on how to increase employment, retention, and advancement of individuals currently receiving, or who formerly received, TANF assistance. The demonstration would have been funded using $100 million of the FY2017 contingency fund appropriation. (For a discussion of the TANF contingency fund, see " The TANF Contingency Fund .") Of that amount, 15% ($15 million) would have been reserved for the operation of career pathways training programs. Career pathways programs are a combination of education, training, and other services that align with the skill needs of industries in the state or regional economy involved. They are designed to help an individual enter or advance within a specific occupation or occupational cluster. H.R. 2959: The TANF State Spending Requirement H.R. 2959 , the TANF Accountability and Integrity Improvement Act, was introduced by Representative Noem. The bill, as amended and reported by the House Ways and Means Committee, would have addressed the rules of the TANF state spending requirement known as "maintenance of effort" (MOE). Current Law and Background The 1996 welfare reform law created the TANF block grant by ending and consolidating funding from several predecessor programs. The predecessor programs were matching grant programs that shared costs between the federal and state governments. The TANF block grant is based on federal funding under the predecessor programs. Under TANF, states are required to continue spending a minimum amount from their own funds under a MOE requirement. The amount is based on the state share of expenditures in TANF's predecessor programs. Under the MOE requirement, states are required to expend from their own funds at least 75% of their spending in predecessor programs in FY1994. If a state fails to meet TANF work participation standards, the state spending requirement is increased to 80% of historical state expenditures. HHS has interpreted the TANF MOE as a cost-sharing requirement, subject to general rules of what expenditures count toward meeting cost-sharing requirements. These rules are not in TANF statute or regulations, but in HHS's general regulations regarding grant management. Under the general rules for cost sharing, states may count both cash donations by non-federal third parties as well as the value of third party, in-kind contributions. While the MOE requirement specifies a minimum spending level, resulting in a reduced TANF block grant for noncompliance, there are two major incentives for states to spend above that minimum. States receive credit against their work participation standards for "excess MOE": the percentage of the TANF caseload a state must engage in work or activities is reduced by state spending that exceeds the minimum required. Additionally, states must spend more than the minimum under the MOE to access extra federal funding from the TANF contingency fund. The Government Accountability Office (GAO) has twice surveyed the states on their use of third-party contributions toward the MOE. In February 2016, GAO reported that 16 states had counted third-party contributions as state expenditures toward the requirement. Federal law prohibits states from using federal TANF funds to provide medical services (though pre-pregnancy family planning services are excluded from this prohibition). While federal TANF funds cannot be used for medical services, there is no corresponding prohibition on states counting medical services toward their TANF MOE requirement. Medical services may be counted if they are for eligible families and otherwise meet the requirements that apply to expenditures qualifying for the MOE. Committee Bill H.R. 2959 , as amended and reported by the House Ways and Means Committee, would have, beginning with FY2017, frozen the amount of third-party contributions that a state may claim toward meeting its MOE requirement. It would have excluded from the definition of qualified state expenditures counted toward the MOE any third-party contributions that exceed the value of third-party contributions claimed by the state as MOE expenditures in FY2016. Additionally, H.R. 2959 , as amended and reported, would have prohibited states from counting medical expenses toward their MOE. H.R. 2966: Reducing Child Poverty as a Statutory Goal of TANF H.R. 2966 , the Reducing Poverty through Employment Act, was introduced by Representative Smith of Missouri. The bill, as amended and reported by the House Ways and Means Committee, would have added reducing child poverty as a statutory goal of TANF. Current Law and Background The purpose of the TANF block grant is to increase the flexibility of states in operating a program designed to achieve four statutory goals: (1) provide assistance for needy families so that children may reside in their own homes, or with relatives; (2) promote job readiness, work, and marriage in order to decrease the dependence of parents on government programs; (3) have states establish goals to prevent and reduce the incidence of out-of-wedlock pregnancies; and (4) encourage the formation and maintenance of two-parent households. TANF's statutory purpose is both an aspirational statement about the goals of the block grant and a basis for how states may expend TANF funds. Federal TANF funds may be spent on any activity that can be reasonably calculated to achieve TANF's purpose and its goals. States may also count toward their MOE requirement expenditures that can be reasonably calculated to achieve TANF's purpose and its goals. Committee Bill H.R. 2966 , as reported by the House Ways and Means Committee, would have added "to reduce child poverty by increasing employment, retention, and advancement of needy parents" as a fifth main purpose of the TANF program. By specifying that child poverty is to be reduced through employment, retention, and advancement, the bill would have limited any TANF-funded activities aimed at reducing child poverty to those that would have reduced child poverty through employment. H.R. 2952: Employment Outcome Measures H.R. 2952 , the Improving TANF Outcomes of Recipients Act, was introduced by Representative Boustany. As amended and reported by the House Ways and Means Committee, it would have established a new system of employment outcome performance measurement for TANF. Background and Current Law TANF is a broad purpose block grant, with states given flexibility in the design of their cash assistance programs for needy families with children. However, states are held accountable for meeting TANF's federally specified statutory goals related to moving families from welfare-to-work through measuring their performance. The TANF block grant has two sets of performance measures related to work: (1) the Work Participation Rate (WPR), and (2) employment outcome measures that were used for the TANF High Performance Bonus before 2006. The WPR is computed to determine compliance with TANF federal work standards. It is the percentage of families receiving assistance in the state who are considered engaged in work during a fiscal year. A state with a WPR that fails to meet the numerical goal specified by the federal work standard is at risk of a financial penalty (reduced block grant amount). Before FY2006, TANF paid a bonus to states that received scores indicating high performance toward achieving the block grant's statutory goals. A state's performance for the purposes of this bonus was partially determined by a set of employment outcome measures for TANF-assistance adults: job entry, job retention, and earnings gain. The Deficit Reduction Act of 2005 ( P.L. 109-171 ) eliminated the performance bonus. However, the TANF statute requires HHS to rank state welfare-to-work outcomes. HHS continues to collect the employment outcome measures that were used for the performance bonus to conduct that ranking. The ranking is not used to determine program funding or rules, and is for informational purposes only. Committee Bill The committee bill would have required each state to collect and report information to measure the state performance levels based on a new set of employment outcome indicators beginning in FY2018. The new indicators would have been the following: 1. T he employment percentage , defined as the number of families receiving assistance from a state program who left the program, and have an adult in unsubsidized employment the second quarter following exit, divided by the number of families receiving assistance under that same program in the same quarter that the aforementioned families left the program. 2. T he retention percentage , defined as the number of families receiving assistance from a state program who left the program, and have an adult in unsubsidized employment during the fourth quarter after the exit quarter, divided by the number of families receiving assistance under that same program in the same quarter that the aforementioned families left the program. 3. T he advancement measure , defined as the median earnings of the adults receiving assistance under the state program that exited the program and, in the second quarter following exit, were in unsubsidized employment. These three measures are conceptually similar to those specified as employment outcome performance measures for the nation's workforce programs under the Workforce Investment and Opportunity Act ( P.L. 113-128 ), enacted in July 2013. The measures were also recently adopted for the Supplemental Nutrition Assistance Program (SNAP) through regulations implementing the 2014 Farm Bill's requirements that performance goals be set for SNAP employment and training programs. The Secretary of HHS would have been required to use the information collected for FY2018 as the baseline level of performance of each state for each indicator. The committee bill would have required the state and the Secretary to come to an agreement in establishing the requisite levels of performance for each indicator for FY2019 and FY2020. It would have required that the state and the Secretary consider how the performance levels for the state compare with levels established in other states. Additionally, in establishing performance levels, the state and the Secretary would have been required to use an objective statistical adjustment model to ensure such levels are adjusted to reflect the economic conditions of the state and characteristics of the participants during that fiscal year. The committee bill would have required performance levels to be set to promote continuous improvement by each state. The committee bill would also have required the Secretary to develop a template, before October 2017, for each state to use to report on various characteristics and information related to the operation of the program in their state. After September 2020, the Secretary would have been required to annually publish every report submitted for this purpose. The TANF Contingency Fund Two of the bills approved by the House Ways and Means Committee on May 11, 2016— H.R. 5170 as passed by the House (social impact partnerships) and H.R. 2990 (subsidized employment)—proposed demonstration projects. Each project would have been funded at $100 million, with the funding coming from the FY2017 appropriation for the TANF contingency fund. FY2017 Appropriation for the Contingency Fund P.L. 114-113 made appropriations to the TANF contingency fund for both FY2016 and FY2017. Under current law, the FY2017 appropriation to the fund is $608 million. These funds are available for grants to states that qualify for them. H.R. 5170 , as passed by the House, would have reduced the amount available for FY2017 grants to states from the contingency fund by $100 million. Additionally, H.R. 2990 would also have reduced FY2017 contingency fund grants to states by an additional $100 million. Purpose and Operation of the Contingency Fund The contingency fund was created in the 1996 welfare reform law to make extra grants to states during economic downturns. It was initially funded at $2 billion, to remain available as needed. The original funding was exhausted in FY2010; since then Congress has provided annual appropriations for the fund. States have to meet criteria of economic need in order to access the contingency fund. The criteria of economic need are (1) a three-month average state unemployment rate of at least 6.5% and at least 10% higher than in the corresponding three months of either of the prior two years; or (2) a state's Supplemental Nutrition Assistance Program (SNAP) caseload is at least 10% higher than it was in FY1994 or FY1995. Additionally, states have to spend more from their own funds than they spent in FY1994 on TANF-related programs in order to access the fund. The number of households receiving SNAP increased through the 2000s, even before the onset of the 2007-2009 recession, with additional increases during the recession. Though SNAP caseloads have begun to decline, for almost all states they remain elevated well above their FY1994 or FY1995 levels. Thus, almost all states qualify as economically needy for the purposes of the contingency fund. In FY2016, 19 states met both the criteria as economically needy, spent sufficient state funds, and drew down TANF contingency grants. The available FY2016 funding was exhausted in April 2016. The Congressional Budget Office (CBO) estimated in March 2016 that all contingency fund dollars will be spent in each of the next 10 years—regardless of the projected economic growth forecast for that period. Thus, the TANF contingency fund is not expected to serve a countercyclical function of providing extra grants when the economy experiences a downturn. It does, however, provide extra TANF grants to states that qualify for contingency funds. (For a discussion of the TANF contingency fund in the context of overall TANF financing issues, see CRS Report R44188, Temporary Assistance for Needy Families (TANF): Financing Issues .)

P.L. 114-254, the further continuing resolution for FY2017, extended funding and program authority for the Temporary Assistance for Needy Families (TANF) block grant through April 28, 2017. Though several bills that would have changed TANF policies were reported by the House Ways and Means Committee to the full House during the 114th Congress—and one bill passed the House—none were enacted. The TANF block grant funds grants to states, tribes, and territories for providing benefits, services, and activities to broadly address both the effects and root causes of childhood economic and social disadvantage. It was created in the 1996 welfare reform law, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 104-193), which culminated decades of debate over how to change public assistance programs for needy families with children. Most TANF policy dates back to the 1996 welfare law, as a full reauthorization of the block grant has never been enacted. On June 21, 2016, the House passed H.R. 5170, a bill that would have established a demonstration project for "social impact partnership projects." That bill also would have extended TANF and mandatory child care block grant funding for one year (FY2017) and revised TANF-related research funding. The bill did not pass the Senate. H.R. 5170, as it passed the House, would have established a mechanism through which state and local governments could apply to the Secretary of the Treasury for demonstration projects, which would have been called "social impact partnership projects." These projects would have used funds provided through philanthropic and other private-sector partnerships to finance social programs to meet specified social goals. Under this type of financing, the government would "pay off" investors only when a program evaluation demonstrates that desired outcomes are met. H.R. 5170 would have funded social impact partnership demonstrations at $100 million, financed from a set-aside from FY2017 TANF contingency funds. The bill would have required that at least 50% of funds provided for agreements awarding funding for social impact partnership projects be used for initiatives that directly benefit children. As it passed the House, H.R. 5170 would have also extended TANF and mandatory child care block grant funding through FY2017 and revised TANF research requirements and funding. H.R. 2990, as reported by the House Ways and Means Committee, would have created a demonstration project for subsidized employment programs for TANF assistance families. Subsidized employment programs are those where public funds are used to pay all or part of the wages, benefits, and other costs of employing an individual. Subsidized employment can be a part of TANF programs under current law. However, except for a brief period when such programs were financed from special funds enacted in response to the 2007-2009 recession, subsidized employment has been little used in TANF. The subsidized employment demonstration would have been funded at $100 million, financed from an additional set-aside from FY2017 TANF contingency funds. The bill was not considered by the full House. The House Ways and Means Committee also reported additional TANF bills: H.R. 2959 would have altered the rules for the TANF state spending requirement, H.R. 2966 would have added reducing child poverty as a statutory TANF goal, and H.R. 2952 would have established new employment outcome performance measures for TANF. These bills were not considered by the full House.

Introduction Burning crosses, exhibitions of hangman's nooses and similar displays are the subjects of criminal statutes in virtually every state in the Union. The coverage of those statutes varies a great deal. The Supreme Court's decision in Black v. Virginia serves as a reminder that efforts to enlarge their scope raise serious, but not insurmountable, First Amendment implications. Cross Burning Legislatures in almost half of the states have enacted statutes that explicitly outlaw cross burning in one form or another. The most common variety simply states, "It shall be unlawful for any person, with the intent of intimidating any person or group of persons to burn, or cause to be burned, a cross on the property of another, a highway, or other public place." In other places, a specific cross burning proscription has been affixed to the state's civil rights law, its threat statute, or its harassment provision. Without more, these proscriptions do not ordinarily reach beyond burning crosses to hangman's nooses or other such harbingers of violence. In response several jurisdictions have resorted to generic condemnation of symbols or exhibitions calculated to intimidate or threaten. One such example states briefly, It shall be unlawful for any person or persons to place, or cause to be placed, anywhere in the state any exhibit of any kind whatsoever with the intention of intimidating any person or persons, to prevent them from doing any act which is lawful, or to cause them to do any act which is unlawful. Fla.Stat.Ann. §876.19. General Prohibitions Both the states that have explicit cross burning statutes, as well as those that do not, often have coercion, terroristic threat, harassment or civil rights statutes of sufficient breadth to prosecute misconduct that might otherwise be tried under a cross burning statute. Coercion Coercion is a crime that dates from the Nineteenth Century Field Code (1865). It is a crime reminiscent of extortion but without the extraction of property required of that offense. In those states in which it is found, it is essentially the same. It prohibits efforts to compel another through the use of threats to do or refrain from doing something the victim is legally entitled to do: A person commits the crime of criminal coercion if, without legal authority, he threatens to confine, restrain or to cause physical injury to the threatened person or another, or to damage the property or reputation of the threatened person or another with intent thereby to induce the threatened person or another against his will to do an unlawful act or refrain from doing a lawful act. A few states characterize as the crime of intimidation the crime known elsewhere as coercion. In either case, the proscription would apply where a cross burning or other symbolic threat is designed to discourage another from exercising or refraining from exercising a particular lawful prerogative. Terroristic Threats State terroristic threat statutes are diverse. At one time, such statutes encompassed only threats to commit a serious crime against person or property. Today those elements have been replaced and augmented with an array of provisions relating to hoaxes and false alarms of catastrophic consequences. In those states where one of the elements of the crime is either the fear of imminent serious injury or property destruction or of a threat directed against the general population, prosecution of intimidation by symbolic threats may be difficult if not impossible under most circumstances. On the other hand, in those states where the terroristic threats statute proscribes threats of death, serious injury or property destruction, particularly where the statute has a hate crime element, the circumstances surrounding a cross burning or similar display may present all the elements for a prosecution. Harassment Most states have a harassment statute. In various configurations, they cover repetitious annoyances; threats specifically conveyed, orally, electronically, or by telephone or mail; and conduct likely to stimulate an immediate violent response. Most are unlikely to reach symbolic threats and intimidation such as cross burning, hangman's nooses or their ilk. A few, however, may qualify, especially those that resemble terroristic threat statutes. The Nevada statute, for example, states in relevant part: A person is guilty of harassment if: (a) Without lawful authority, the person knowingly threatens: (1) To cause bodily injury in the future to the person threatened or to any other person ... and (b) The person by words or conduct places the person receiving the threat in reasonable fear that the threat will be carried out. Nev.Rev.Stat. §200.571[1]. Here too, constitutional anxieties aside, coverage is most apparent in those statutes that feature a hate crime element. Civil Rights Most jurisdictions have hate crime sentencing statutes that enhance the penalties imposed for commission of other criminal offense when the defendant was motivated by racial, religious or some other discriminatory animus. As already noted, the presence of such animus is an element in several of the cross burning, harassment and threat statutes. Apart from these, a handful of states also have statutes that criminalize the deprivation of civil rights generally: (B) If any person does by force or threat of force, willfully injure, intimidate or interfere with, or attempt to injure, intimidate or interfere with, or oppress or threaten any other person in the free exercise or enjoyment of any right or privilege secured to him or her by the Constitution or laws of the State of West Virginia or by the Constitution or laws of the United States, because of such other person's race, color, religion, ancestry, national origin, political affiliation or sex, he or she shall be guilty of a felony.... W.Va.Code Ann. §61-6-21(B). First Amendment Considerations No cross burning statute or law of similar comportment can be assessed without considerations of its First Amendment implications. Generally, these statutes will pass constitutional muster so long as they can be read only to proscribe expressive conduct that falls outside of the protection of the First Amendment. The First Amendment provides that "Congress shall make no law ... abridging the freedom of speech." The Fourteenth Amendment's due process clause imposes the same restriction upon the states, many of whose constitutions house a comparable limitation on state legislative action. The First Amendment protects both pure speech and expressive conduct used to convey a message or embody an ideology. However, the Supreme Court has long recognized that the First Amendment does not afford all forms of expression absolute protection, and the government constitutionally may prohibit the forms of expression that fall outside of the First Amendment's protections. The First Amendment permits "restrictions upon the content of speech in a few limited areas, which are of such slight social value as a step to truth that any benefit that may be derived from them is clearly outweighed by the social interest in order and morality." The proscribable categories of speech include, but are not limited to, obscenity, "fighting words," and "true threats." The Supreme Court recently decided a case analyzing the constitutionality of a cross-burning statute, categorizing the prohibited conduct as a "true threat." Virginia v. Black Virginia v. Black considered the constitutionality of a Virginia statute that banned cross-burning "with the intent to intimidate." Men had been convicted under the statute in two separate cases, which the Supreme Court consolidated and heard together. In the first case, Mr. Black burned a cross on the property of a fellow member of the Ku Klux Klan ("Klan"). The property was located in full view of a public highway where neighbors and passers-by could view the ceremony and the burning cross. In the second case, Mr. Elliot burned a cross on the front lawn of an African American family who had moved in next door. The statute under which the men were convicted read, in pertinent part: It shall be unlawful for any person or persons, with the intent of intimidating any person or group of persons, to burn, or cause to be burned, a cross on the property of another, a highway or other public place.... Any such burning of a cross shall be prima facie evidence of an intent to intimidate. After laying out the statute, the Court proceeded to trace the history of cross-burning, placing particular emphasis upon the use of the burning cross as a threat of future bodily harm by the Klan. The Court noted that "while cross burning sometimes carries no intimidating message, at other times the intimidating message is the only message conveyed." Writing for the Court, Justice O'Connor indicated that cross burning, if accomplished with the intent to intimidate a person or group, could be considered a "true threat" in light of the history of burning crosses. In endorsing the constitutionality of the statutory provision banning cross burning with the "intent to intimidate," the Court defined a true threat. "True threats" encompass those statements where the speaker means to communicate a serious expression of an intent to commit an act of unlawful violence to a particular individual or group of individuals. See Watts v. United States , [394 U.S. 705, 708 (1969)] ("political hyperbole" is not a true threat); R.A.V. v. City of St. Paul , 505 U.S. at 588. The speaker need not actually intend to carry out the threat. Rather, a prohibition on true threats "protects individuals from the fear of violence" and "from the disruption that fear engenders," in addition to protecting people "from the possibility that the threatened violence will occur." Ibid. Intimidation in the constitutionally proscribable sense of the word is a type of true threat, where a speaker directs a threat to a person or group of persons with the intent of placing the victim in fear of bodily harm or death . Because cross burning is often intimidating, and often done with the intent of creating pervasive fear in victims that they are a target of violence, it seems to fall squarely within the type of constitutionally proscribable speech described by the Court. The Court also recognized that, historically, crosses have been burned for reasons that are protected by the First Amendment. The act of burning crosses is common at traditional Klan meetings, not unlike the meeting Mr. Black held during which the cross was lit, and those gathered sang songs, including "Amazing Grace." However, the majority declined to find that once a law discriminates based on this type of content, the law is unconstitutional. The First Amendment does not prohibit all forms of content discrimination within a proscribable area of speech. Within the types of content discrimination that did not violate the First Amendment, the Court cited R.A.V. for the proposition that "when the basis for the content discrimination consists entirely of the very reason the entire class of speech at issue is proscribable, no significant danger of idea or viewpoint discrimination exists." In this case, Virginia did not single out cross-burning with the intent to intimidate for certain reasons, such as cross-burning with the intent to intimidate due to racial prejudice, but rather banned all cross burning done with the intent to intimidate regardless of the underlying animus. The majority found the facts of one of the cases it was deciding illustrative. It was unclear from the record whether Mr. Elliot burned a cross on his neighbor's lawn to express racial hatred or to express his lack of appreciation for complaints about guns Mr. Elliot fired in his back yard. Because the Virginia statute was written to include Mr. Elliot's conduct regardless of his motivation, the statute did not discriminate against his conduct on the basis of the content of the message the cross-burning conveyed and fell within the permissible bounds of content discrimination outlined in R.A.V . The Court acknowledged that cross burning is a particularly virulent form of intimidation. As a result, the Court held that a statute which criminalizes cross-burning "with the intent to intimidate" is fully consistent with the Court's previous holdings. Likening the situation to its obscenity cases where a state may regulate only that obscenity "which is most obscene," the Court held that a state may choose to prohibit "only those forms of intimidation that are most likely to inspire fear of bodily harm." Following the "true threat" analysis, Justices O'Connor, Rehnquist, Stevens, and Breyer went on to strike down the statute, because it contained another provision that made the act of cross burning prima facie evidence of the intent to intimidate. The plurality found that, though it was constitutional to ban cross burning with the intent to intimidate as a "true threat," the prima facie evidence provision could create an unacceptable danger that protected speech would be criminalized or chilled. The issue in this portion of the opinion was a jury instruction delivered in Mr. Black's case. The instruction stated that "the act of burning a cross, by itself, is sufficient evidence to infer the required intent." This interpretation of the prima facie evidence provision rendered the statute unconstitutional, in the plurality's view. "The provision permits the Commonwealth to arrest, prosecute, and convict a person based solely on the fact of cross burning itself." In the plurality's view, the provision stripped away "the very reason why a State may ban cross burning with intent to intimidate," and created an unacceptable risk of the suppression of ideas. On that basis, the plurality held that the statute was invalid on its face. Recognizing that the Virginia Supreme Court had not passed on the meaning of the prima facie evidence provision, the plurality left open the possibility that Virginia's highest court could apply a constitutional interpretation to the prima facie evidence part of the statute, or sever it from the statute completely. Justices Scalia and Thomas dissented from the plurality's view that the prima facie evidence provision rendered the statute facially unconstitutional. Justice Scalia, joined by Justice Thomas, argued that prima facie evidence, as interpreted by Virginia courts in the past, "cut[] off no defense nor interpose[d] any obstacle to a contest of the facts." In Scalia's view, prima facie evidence "is evidence that suffices, on its own, to establish a particular fact," but that is true only to the extent that presumption remains unrebutted. The act of burning a cross is sufficient only to create an issue for the trier-of-fact with respect to the intent element of the offense, not to establish an irrebuttable presumption of intent to intimidate. Scalia, further, cited a decision in which the Supreme Court emphasized that "where a statute regulates expressive conduct, the scope of the statute does not render it unconstitutional unless its overbreadth is not only real, but substantial ... judged in relation to the statutes' plainly legitimate sweep." Justice Scalia argued that an instance in which a person would burn a cross in public view without the intent to intimidate and then refuse to present a defense would be exceedingly rare and did not rise to a level of substantiality that would render the statute unconsitutional. The class of persons the plurality was concerned could be convicted impermissibly under the prima facie evidence provision was far too insubstantial to justify striking down the statute as facially invalid. Justice Scalia agreed, however, that the jury instruction in Mr. Black's case was improper and would have remanded the case for interpretation of the prima facie evidence provision, rather than hold the entire statute unconstitutional. Justice Thomas also wrote separately in dissent. Justice Thomas argued that the prima facie evidence provision created an inference as opposed to a presumption, and should not raise concern for the Court. A presumption, Justice Thomas noted, compels the fact-finder to draw a certain conclusion or a certain inference from a given set of facts. On the other hand, an inference does not compel a specific conclusion, but " merely applies to the rational potency or probative value of an evidentiary fact to which the fact-finder may attach whatever force or weight it deems best ." Thomas observed that statutes prohibiting possession of drugs implied an intent to distribute based upon the quantity of drugs held and nothing more. In Thomas's opinion, these possession with intent statutes operated in much the same way as the statute at issue in this case. Justice Thomas also dissented from the Court's constitutional analysis of the statute. Justice Thomas argued that banning cross-burning did not implicate the First Amendment because the statute banned conduct only. In tracing the history of the cross-burning statute at issue, Justice Thomas noted that the law was enacted in 1952, a time when the Virginia legislature was controlled by segregationists. The legislature recognized that cross-burning was terrorizing conduct and punishable for that reason. It is unlikely, in Justice Thomas's view, that a state legislature that thoroughly supported segregation and the superiority of the white race would have intended to proscribe the message of white racial superiority. Rather, the legislature considered burning a cross to be an act of terrorism and sought to forbid the conduct, not expression. As a result, Justice Thomas saw no reason to analyze the statute under the First Amendment. Justice Souter also wrote separately joined by Justices Kennedy and Ginsburg. Justice Souter would have found the statute unconstitutional. He disagreed with the Court's interpretation of R.A.V. and the application of the "particular virulence" exception outlined in that case to cross-burnings. Rather, Souter would have analyzed the Virginia statute for whether its "nature" is such "that there is no realistic possibility that official suppression of ideas is afoot." Regardless of that distinction, Justice Souter did not believe either conviction could be upheld when considering the entire statute as it was applied to the accused. In Souter's view, the primary effect of the prima facie evidence clause "is to skew jury deliberations toward conviction in cases where the evidence of intent to intimidate is relatively weak and arguably consistent with a solely ideological reason for burning." In that way, Souter viewed the statute as suppressing ideas to an unacceptable degree. On the basis of Black , it would appear that without offending First Amendment precepts a law may proscribe cross burning and similar exhibits intended to convey "true threats." Whether it may proscribe only those true threats that also include a hate crime element of the type found in the ordinance in R.A.V. is unclear at best. Overbreadth and Vagueness Overbreadth Lower court cases decided after Black continue to address overbreadth and vagueness challenges to threat, harassment and intimidation statutes. An otherwise valid governmental regulation may be deemed unconstitutional if it "sweeps so broadly as to impinge upon activity protected by the First Amendment." Where a government proscribes both constitutionally protected speech and speech that is not protected by the First Amendment, the regulation may be struck down on grounds that it is overly broad. Where a statute proscribes conduct rather than "pure speech," the Supreme Court is less likely to invalidate the statute on overbreadth grounds. As the conduct a statute prohibits moves further from the realm of "pure speech" toward conduct that may fall within the scope of otherwise valid criminal laws, like harassment or terroristic threats, the protected speech that may be deterred "cannot, with confidence, justify invalidating the statute on its face." As Justice Scalia pointed out in Black , "where a statute regulates expressive conduct, the scope of the statute does not render it unconstitutional unless its overbreadth is not only real, but substantial ... judged in relation to the statute's plainly legitimate sweep." As a result, statutes that ban conduct, which may otherwise be expressive, likely must create a danger of deterring a substantial amount of protected speech in order to be declared facially overbroad. Statutes banning expressive conduct that may be considered "true threats" are not immune, however, to a facial overbreadth challenge. Faced with the problem of potential unconstitutionality, state courts, by and large, have used the canons of statutory construction to limit the reach of statutes to proscribe only "true threats" as defined by the Court in Black . Accepted rules of statutory construction instruct courts to, when feasible, construe the regulatory effects of statutes challenged under the First Amendment to punish only expression which falls outside the Amendment's protection. Using this general principle, courts have read statutes to prohibit only those constitutionally proscribable forms of expression, taking care to avoid applying the statute to protected speech. As the Supreme Court held in Black , statutes such as those addressed in this report, if interpreted by state courts only to prohibit conduct that amounts to intimidation or expressions meant to communicate a serious threat of harm, would likely pass constitutional muster. Vagueness "Even if an enactment does not reach a substantial amount of constitutionally protected conduct, it may be impermissibly vague because it fails to establish standards for the police and public that are sufficient to protect against the arbitrary deprivation of liberty interests." Yet, there is nothing inherently vague about statutes that outlaw the use, with the intent to threaten, of burning crosses or other harbingers of violence, although as with any type of statute they may be imprecisely drawn upon occasion. Fighting Words Cross burning and comparable exhibits may provoke anger as well as fear. Laws that condemn threats have sometimes been defended on the ground "fighting words" lie beyond the pale of the First Amendment's protection. This category of unprotected speech is of somewhat uncertain dimensions. R.A.V. is a "fighting words" case, yet the Court in Black opted for a "true threat" mode of analysis instead. On the other hand, in Black it elected to distinguish rather than reject or ignore R.A.V. The "fighting words" doctrine begins in Chaplinsky v. New Hampshire , where the Court held that fighting words, by their very utterance inflict injury or tend to incite an immediate breach of the peace and may be punished consistent with the First Amendment. In Chaplinsky , the Court upheld a statute which prohibited a person from addressing "any offensive, derisive or annoying word to any other person who is lawfully in any street or other public place," calling "him by any offensive or derisive name," or making "any noise or exclamation in his presence and hearing with the intent to deride, offend or annoy him, or to prevent him from pursuing his lawful business or occupation." The state court construed the statute as forbidding only those expressions "as have a direct tendency to cause acts of violence by the person to whom, individually, the remark [was] addressed." Given the limited scope of application, the Supreme Court held that the statute at issue did not proscribe protected expression. This category of proscribable speech appears to be more difficult to define within the bounds of the Constitution and requires the threat of an immediate breach of peace in order to be punishable. In Cohen v. California , the Supreme Court held that words on a t-shirt that contained an expletive were not directed at a person in particular and could not be said to incite an immediate breach of the peace. For that reason, profane words that are not accompanied by any evidence of violence or public disturbance are not "fighting words." The Court went on to describe the value of expression in communicating emotion. In the Court's view, certain words, including expletives, which could in other contexts be construed as fighting words, may be indispensable in effectively communicating emotion, a form of expression protected by the First Amendment. In Brandenburg v. Ohio , the Supreme Court struck down an Ohio statute that criminalized advocating violent means to bring about social and economic change. The Court found that the statute failed to distinguish between advocacy, which is protected by the First Amendment, and incitements to "imminent lawless action," which are not protected. These cases illustrate that "fighting words" require an immediate risk of a breach of peace in order to be proscribable. What speech is proscribable, therefore, appears highly dependent upon the context in which it arises. Moreover, it can hardly escape notice that R.A.V. involved a law that outlawed cross burning with the intent to annoy, while Black involved a law that outlawed cross burning with the intent to threaten. The first the Court found impermissible. The second it said offended only because an attendant provision effectively read the intent to threaten out of the proscription. Conclusion To the extent that statutes of the types identified in this report ban expressive conduct that falls outside the protection of the First Amendment, the laws generally pass constitutional muster. When the laws can be read to encompass expressive conduct that is normally protected by the United States Constitution as well as traditionally criminal conduct, the statute likely must chill a substantial amount of protected conduct in order to be deemed facially invalid. Courts may limit their interpretations of statutes that appear to sweep too broadly on their faces to encompass only those forms of expression that are constitutionally proscribable.

Almost half of the states outlaw cross burning with the intent to threaten as such. A few of these statutes cover the display of hangman's nooses and other symbols of intimidation as well. Moreover, the same misconduct also frequently falls under more general state prohibitions on coercion, terroristic threats, harassment, or hate crimes. Some of these laws feature a hate crime element without which conviction is not possible; others do not. In either case, there are obvious first amendment implications. The Supreme Court has explained that not all speech, particular expressive conduct, is protected by the First Amendment. However, in R.A.V. v. St. Paul , it held cross burning with the intent to annoy was protected and did not come within the "fighting words" category of unprotected speech. Shortly thereafter, in Black v. Virginia , the Court held that cross burning with the intent to convey a true threat was not protected. Some of the Justices noted another difference between the two cases: the ordinance in R.A.V. had a hate crime element—the offense had to be motivated by racial or some other discriminatory animus; the statute in Black had no such element. In years since Black was announced, the lower courts have continued to recognize true threats as unprotected, but have also continued to analyze challenges to threat statutes under the First Amendment's overbreadth doctrine and the vagueness doctrine of the Fifth and Fourteenth Amendments' due process clauses. These laws have generally survived such challenges, although an imprecisely worded statute has fallen victim to a vagueness attack upon occasion.

Introduction In considering budget issues, Congress has long been interested in the relative efficiency and effectiveness of federal programs, including foreign assistance. Foreign assistance evaluation is one aspect of a government-wide effort to link program effectiveness to budgeting decisions. It is also an element of broader foreign aid reforms implemented in recent years. The 2010 Quadrennial Diplomacy and Development Review (QDDR), the basis of many aid policy initiatives, called for the State Department and the U.S. Agency for International Development (USAID) to plan foreign aid budgets and programs "based not on dollars spent, but on outcomes achieved," and for USAID to become "the world leader in monitoring and evaluation." The 2015 QDDR continued the emphasis on evaluation, emphasizing the strategic use of data and the need to build agency evaluation capacity. Rigorous evaluation is also a cornerstone of the Millennium Challenge Corporation (MCC), established in 2004 to promote a new model of development assistance. According to former USAID Administrator Rajiv Shah, global development policies and practices are experiencing a "transformation based on absolute demand for results." That demand comes, in part, from some Members of Congress as they scrutinize the Administration's international affairs budget request and consider foreign aid spending priorities. It also comes from aid beneficiaries and American taxpayers who want to know what impact, if any, foreign aid dollars are having and whether foreign aid programs are achieving their intended objectives. The current emphasis on evaluation is not new. The importance, purpose and methodologies of foreign aid evaluation have varied over the decades since USAID was established in 1961, responding to political and fiscal circumstances, as well as evolving development theories. There are a number of reasons that this issue has again gained prominence in recent years. For one, foreign aid funding levels increased significantly in the first decade of the 21 st century, while evaluations decreased, raising questions about the knowledge basis for aid policy. Analysts have noted that after decades of aid agencies spending billions of dollars on assistance programs, very little is known about the impact of these programs. Some wonder how policymakers can develop effective foreign aid strategies without a clear understanding of how and why prior assistance has succeeded or failed. This report focuses primarily on U.S. bilateral assistance, not on the work of multilateral aid entities, such as the World Bank, to which the United States contributes. While a wide range of federal agencies provide foreign assistance in some form, this report focuses on the three agencies that have primary policy authority and implementation responsibility for U.S. foreign assistance—USAID, the State Department, and the Millennium Challenge Corporation (MCC). It discusses past efforts to improve aid evaluation, as well as ongoing issues that make evaluation challenging in the foreign assistance context. The report also provides an overview of the current evaluation policies of the primary implementing agencies, and discusses related issues for Congress, including recent legislation. Why Evaluation? To know whether aid is successful, one must understand its purpose. The Foreign Assistance Act (FAA) of 1961 (P.L.87-195), as amended, is the authorizing legislation for most modern foreign aid programs. The FAA declared that the principal objective of the foreign policy of the United States is the encouragement and sustained support of the people of developing countries in their efforts to acquire the knowledge and resources essential to development, and to build the economic, political, and social institutions that will improve the quality of their lives. The original legislation lists five principal goals for foreign aid: (1) the alleviation of the worst physical manifestations of poverty among the world's poor majority; (2) the promotion of conditions enabling developing countries to achieve self-sustaining economic growth and equitable distribution of benefits; (3) the encouragement of development processes in which individual civil and economic rights are respected and enhanced; (4) the integration of the developing countries into an open and equitable international economic system; and (5) the promotion of good governance through combating corruption and improving transparency and accountability. Amending legislation over the years added dozens of new, though often overlapping, aid objectives. For example, "the suppression of the illicit manufacturing of and trafficking in narcotic and psychotropic drugs" was added in 1971, "to alleviate human suffering caused by natural and manmade disasters" was added in 1975, and "to enhance the antiterrorism skills of friendly countries by providing training and equipment" and "to strengthen the bilateral ties of the United States with friendly governments by offering concrete [antiterrorism] assistance" were added in 1983. In short, U.S. foreign aid is intended to be a tool for fighting poverty, enhancing bilateral relationships, and/or protecting U.S. security and commercial interests. In this broad view, some instances of specific development assistance projects and programs are widely viewed as successful. The largest aid program of the last century, the Marshall Plan (1948-1952), for example, is acclaimed as a key factor in the post-World War II reconstruction of European states that have gone on to become major strategic and trade partners of the United States. In the late 1960s and 1970s, aid associated with the "green revolution" was credited with greatly improving agricultural productivity and addressing hunger and malnutrition in parts of Asia, and global health programs were credited with virtually eradicating smallpox. Korea, Taiwan, and Botswana are often cited as aid success stories as a result of remarkable economic progress following significant aid infusions. More recently, unquestionable progress in battling public health crises, such as HIV/AIDS, across the globe can be largely attributed to massive foreign assistance programs, both bilateral and multilateral. Recent studies have also shown a positive but modest impact of aid on economic growth rates. Even in these instances, however, close analysis often reveals many caveats. In other specific instances foreign aid programs and projects have been considered to be conspicuously unsuccessful, or even harmful to intended beneficiaries. Critics of foreign assistance cite decades of aid to corrupt governments in Africa, which enriched corrupt leaders and did little to improve the lives of the poor. In Latin America, U.S. aid to anti-communist rebels and regimes during the Cold War was associated with brutal violence and believed by many to have damaged U.S. credibility as a champion of democracy. Numerous examples exist of hospitals, schools, and other facilities that were built with donor funds and left to rot, unused in developing countries that did not have the resources or will to maintain them. In some instances, critics assert that foreign aid may do more harm than good, by reducing recipient government accountability, fueling corruption, damaging export competitiveness, creating dependence, and undermining incentives for adequate taxation. The most notable successes and conspicuous failures of foreign aid give fodder to both aid advocates and detractors, but in all likelihood represent just a small segment of assistance activities. In most cases, clear evidence of the success or failure of U.S. assistance programs is lacking, both at the program level and in aggregate. One reason for this is that aid provided for development objectives is often conflated with aid provided for political and security purposes. Another reason is that historically, most foreign assistance programs are never evaluated for the purpose of determining their impact, either at the time of implementation or retrospectively. Furthermore, evaluation practices are not consistent enough to allow for the use of project level data as the basis for broader, strategic evaluations. A 2009 review of monitoring and evaluation of U.S. foreign assistance described the evaluation effort at that time as "uneven across agencies, rarely assesses impact, lacks sufficient rigor, and does not produce the necessary analysis to inform strategic decision making." In recent years, however, aid-implementing agencies have taken steps to improve both the quantity and quality of aid evaluations, and to make better use of the information gleaned from those efforts. A 2016 USAID review identified notable improvements in evaluation practices at USAID since implementation of a new evaluation policy in 2011. Impact and Performance Evaluations The Department of State, USAID, and other U.S. agencies implementing foreign assistance programs consistently monitor the performance of their own personnel and contractors in meeting discrete objectives, tracking project inputs and outputs. Depending on the nature of the project or program, staff and contractors might monitor the miles of road built, number of police officers trained, or changes in the use of fertilizers by farmers. These results can be compared to the initial program goals and expectations to determine whether the project or contract has been performed successfully. This type of oversight is called performance monitoring . Financial audits by agency Inspectors General, which examine whether funds are being used as intended, are also a common form of performance monitoring, particularly at the State Department. These audits are in addition to regular financial audits required by agencies of contractors, aid-implementing partners, and host government entities. If the data gathered through performance monitoring are analyzed in an effort to explain how and why a program meets or fails to meet strategic objectives, this is called performance evaluation . Performance evaluations have typically been carried out sporadically, to address questions of efficiency, effectiveness, and sustainability, among other things. Performance evaluations represent the vast majority of foreign aid evaluations. Performance monitoring and evaluation play an important part in project management but do little to answer questions about foreign aid effectiveness. Addressing this question, some argue, requires impact evaluations . Impact evaluations look not at the output of an activity, but rather at its impact on a development objective. For example, while performance monitoring of an education program may involve tracking the number of textbooks provided and teachers trained, an impact evaluation may determine how or if literacy or math skills had improved for the target group as compared to a similar group that did not receive the textbooks or teacher training. A performance evaluation of an HIV prevention project may report the number of public awareness events held or condoms distributed, and analyze this data in the context of program goals, while an impact evaluation of the same program would monitor changes in the HIV/AIDS infection rate of the targeted population relative to a control group. An impact evaluation of a police training program would look at the program's impact on civil order and public safety rather than simply report how many officers were trained or the value of equipment supplied. Impact evaluation can take many forms, ideally using a defined counterfactual, or control group, and baseline data to measure change that can be attributed to an aid intervention. Randomized controlled trials, in which beneficiaries are randomly selected from a prequalified group and compared before and after the program to those not selected, are widely viewed as best practice for impact evaluation, but less rigorous methods are used as well. For example, "before and after" data analysis, case studies, and mixed method designs using both qualitative and quantitative data may be used for impact evaluation. Impact evaluations can be a key to determining whether a foreign assistance program "works." However, impact evaluations are generally far more complex and resource-intensive than performance monitoring and evaluation, and usually must be planned before an activity begins. Agencies implementing foreign assistance must balance the potential knowledge to be gained from impact evaluation with the additional resources necessary to carry out such evaluations. As a result, while the potential learning benefits of impact evaluation have long been recognized by aid officials, the use of rigorous impact evaluation has been, and continues to be, very limited. More typically, agencies aim for evaluation practices that are, as one expert has put it, "cost-effectively rigorous," and, at minimum, "independent, transparent, and consistent, thus persuasive." History of U.S. Foreign Assistance Evaluation The practice of foreign assistance evaluation has changed over time to reflect evolving, or some might say cyclical, attitudes about the purpose and relative importance of evaluation. This is evident both in the United States and internationally. Aid evaluation practices and policies have variously focused on different evaluation objectives, including meeting program management needs, institutional learning, accountability for resources, informing policymakers, and building local oversight and project design capacity. The history of U.S. foreign assistance evaluation begins with USAID, which implemented the vast majority of U.S. foreign assistance prior to the last decade. In its early years, USAID was primarily involved in large capital and infrastructure projects, for which evaluations focused on financial and economic rates of return were appropriate. However, the agency soon shifted focus towards smaller and more diverse projects to address basic human needs, and found that the rate of return evaluation model was no longer sufficient. The agency established its first Office of Evaluation in 1968, and used a Logical Framework (LogFrame) model as its primary system for monitoring and evaluation. The LogFrame approach, subsequently adopted by many international development agencies, employed a matrix to identify project goals, purposes, results, and activities, with corresponding indicators, verification methods, and important assumptions. Baseline data were to be used for each indicator, and results were reported at quarterly points during the life of a project. However, these data were not analyzed to look for competing explanations of the results or unintended consequences of activities. In many respects, the LogFrame approach was quite similar to the current GPRA requirements (discussed in the "Program Evaluation Government-Wide" text box above.) While the LogFrame approach established USAID as a thought leader with respect to evaluation policy, in practice, evaluation quality varied significantly from project to project. A 1970 evaluation handbook included a diagram of the "ideal" program evaluation design, which resembles a randomized controlled trial, but notes that "there are a great many reasons why it may not be possible to reach the ideal." Reviews of foreign assistance evaluation over decades revealed shortcomings. For one, the system had become decentralized over time, suitable to meet the information needs of project managers in the field but not contribute to broader learning or policy making. A 1982 report by the General Accounting Office (now the Government Accountability Office, GAO) found that "AID staff does not apply lessons learned in the development of new projects," and that "lessons learned are neither systematically nor comprehensively identified or recorded by those who are directly involved." In response to the GAO report's recommendation that USAID build an "information analysis capability," the agency created the Center for Development Information and Evaluation (CDIE) in 1983, with a mandate to "foster the use of development information in support of AID's assistance efforts." CDIE carried out meta-evaluations to reveal broader trends in aid impact, provided information and training on evaluation best practices to mission staff, and made a wide range of evaluation reports accessible to implementers in the field. Aid officials suggest that CDIE's evaluation work played a significant role in shaping USAID strategies and priorities in many sectors over decades. An internal USAID review in 1988 found that CDIE had greatly increased the use of aid evaluation information by implementers, but also identified a need to improve the quality and timeliness of evaluation reports. While the evaluation policy at the time still called for rigorous, statistical methods of evaluation, it was found that this approach was never actually widely used at USAID because the required skills, time, and expense made implementation difficult. As one internal review noted, "statistical rigor in evaluation methods was deemphasized in favor of 'reasonably' valid evidence about project performance." Guidance to missions encouraged the use of low-cost and timely qualitative evaluation methodologies, including the use of key informant interviews, focus group discussions, community meetings, and informal surveys. In the early 1990s, accountability for funds became a primary focus of aid evaluation. After a 1990 GAO review concluded that USAID evaluation practices made it difficult or impossible to account for use of aid funds, attention turned to tracking where aid money was going, not measuring what it was accomplishing. At the same time, USAID was facing increasing budgetary pressure and increasing congressional and public concern about what was being achieved through foreign assistance. In response, USAID carried out an Evaluation Initiative from 1990 to 1992, greatly expanding the staff and budget of CDIE and making significant investments in rigorous evaluation designs and innovative methods to evaluate sector-wide results. However, by the mid-1990s the priorities changed once again. A 1993 agency reorganization led to the 1994 elimination of an Office of Evaluation within CDIE, a reduction of overall CDIE staff, and a new emphasis on "rapid appraisal techniques," which guidance documents describe as a compromise between slow, costly, and credible formal evaluation methods and cheap, quick, informal methods (focus group, etc.) that may be less reliable. In 1995, USAID replaced the requirement to conduct mid-term and final evaluations of all projects with a policy calling for evaluation only when necessary to address a specific management question. The rationale was that the required evaluations had become pro forma, as GAO reviews had suggested, and that fewer, more comprehensive evaluations would be a better use of time and resources. As a result, the number of completed evaluations dropped from 425 in 1993 to an estimated 138 in 1999, but the depth and scope of new evaluations reportedly did not change. One study suggests that inconsistent guidance on evaluation in these years allowed many already overburdened mission staff to ignore agency-wide requirements, but noted that the Global Health, Africa, and Europe & Eurasia bureaus, which had their own evaluation procedures, continued to carry out quality evaluation work. Foreign assistance levels grew rapidly starting in 2003 to support military activities in Afghanistan and Iraq, as well as the President's Emergency Plan for AIDS Relief (PEPFAR) and the creation in 2004 of the Millennium Challenge Corporation (MCC). Accountability to Congress became a major evaluation priority. In 2005, inspired by remarks made by then House Foreign Operations Appropriations Subcommittee Chairman Jim Kolbe regarding the importance of being able to clearly demonstrate results of aid expenditures, USAID Administrator Andrew Natsios sought to revitalize evaluation within the agency. He sent a cable to all mission directors calling for the inclusion of evaluation plans, and higher quality evaluations, in all program designs; designated monitoring and evaluation officers at each post; and set aside funding for evaluations and incentives for employees who do evaluations; among other things. In 2006, in further pursuit of accountability, as well as a desire to rationalize the bilateral assistance efforts of multiple U.S. agencies, Secretary of State Condoleezza Rice created the Office of the Director of Foreign Assistance (F Bureau) at the State Department. In addition to consolidating many USAID and State policy and planning functions for foreign assistance, the F Bureau established an extensive set of standard performance indicators "to measure both what is being accomplished with U.S. Government foreign assistance funds and the collective impact of foreign and host-government efforts to advance country development." Prior to this initiative, the State Department, which traditionally had managed a much smaller aid portfolio than USAID, is said to have made a de facto decision not to evaluate its assistance programs on a systematic basis. The data collected through the "F process," which remains in place today, allow for a marked improvement in aid transparency, demonstrating comprehensively where and for what purpose aid funds are allocated by State and USAID as of FY2006. However, the demands of F process reporting were believed by some to have interfered with more results-oriented evaluation work at USAID, and a 2008 assessment of State's evaluation capacity found that several bureaus, including those that manage State's security assistance programs, still had little or no evaluation capacity. The structural reforms of the F Bureau came at a time of heightened congressional scrutiny of foreign aid. In 2004, Congress established the Helping to Enhance the Livelihood of People (HELP) Around the Globe Commission, through a provision in P.L. 108-199 , to independently review foreign assistance policy decisions, delivery challenges, methodology, and measurement of results. After nearly two years of work, the HELP Commission released its report in late 2007. On the subject of evaluation, the report noted that "everyone to whom members of the Commission spoke about monitoring and evaluation expressed concern about the inadequacy of the existing process" and concluded that "unless our government better evaluates projects based on the outcomes they achieve, it will not improve the effectiveness of taxpayer dollars." The commission recommended creation of a unified foreign assistance policy, budgeting, and evaluation system within State, quite similar to the F process, which was established before the report was released. Other HELP Commission recommendations included ensuring that evaluation strategies use control groups and randomization as much as possible; considering new evaluation methods, such as the use of professional associations or accreditation agencies; and building, in collaboration with other donors, the capacities of recipient governments to provide reliable baseline data. At the same time the F Bureau was established, and the HELP Commission was active, the international donor community began to prioritize aid effectiveness, sparking renewed interest in rigorous impact evaluation (see the "A Global Perspective on Aid Evaluation" text box below). Some aid professionals viewed the F process as an opportunity to build a cross-agency aid evaluation practice focused on impact, and were disappointed that the common indicators used by the F Bureau, while an improvement with respect to comparability, measured outputs rather than impact. Furthermore, the use of more rigorous evaluation methodologies was not a focus of the reform. These issues were revisited by the Obama Administration when it embarked in 2009 on a Quadrennial Diplomacy and Development Review (QDDR) to examine how State and USAID could be better prepared for current and future challenges. As a result of that review, the Administration committed itself in December 2010 to several principles of foreign assistance effectiveness, including "focusing on outcomes and impact rather than inputs and outputs, and ensuring that the best available evidence informs program design and execution." The first QDDR became the basis of many changes at State and USAID, including the creation of a new Office of Learning, Evaluation and Research at USAID and a new USAID evaluation policy, which took effect in January 2011. A second QDDR, in 2015, called for training to deepen evaluation expertise at both USAID and State, and for adding "rigor" to evaluations through better use of diagnostics and data analysis. The State Department adopted an evaluation policy similar to that of USAID in February 2012, requiring all large projects and programs to be evaluated at least once in their lifetime or five-year period, all State bureaus to complete two to four evaluations before the end of 2012-2013, and posts to do the same in 2013-2014. The 2012 policy also called for 3%-5% of program resources to be identified for evaluation purposes. It appears, however, that some of these requirements were not met, and in January 2015, State revised its policy, paring it down to a less directive form that was thought to be more appropriate for the wide range of State activities, from diplomatic engagement to foreign assistance, and to reflect ongoing challenges in evaluating particularly sensitive activities such as security assistance (see the "Evaluating Security Assistance" text box below). The new policy removed the requirement that all large projects be evaluated, requires one evaluation per bureau per year, and does not require any evaluations at the post level. Further details of the new policy are provided in the Appendix . The Millennium Challenge Corporation, established in 2004, has been regarded by many as a leader in aid evaluation, largely as a result of its demanding evaluation policy. MCC provides funding and technical assistance to support five-year development plans, called "compacts," created and submitted by partner countries. Since its inception, MCC policy has required that every project in a compact be evaluated by independent evaluators, using pre-intervention baseline data. MCC has also put a stronger emphasis on impact evaluation than State and USAID; of the 48 completed evaluations as of April 2016, 13 are described as impact evaluations (as are about 40 of the 101 planned evaluations), a much high proportion than at other aid agencies. Despite this emphasis, the overall impact of MCC assistance remains unclear. Individual project evaluations have demonstrated successful project implementation, but often little evidence of progress toward the overarching objective of raising household incomes in targeted areas . Such evidence, however, may only be apparent many years after compact completion. Evaluation Challenges The current evaluation emphasis on measuring impact and broader learning about what works is not new; as discussed above, it was the basis of USAID evaluation policy in the 1970s and at various times since. Nevertheless, a 2009 meta-evaluation of U.S foreign aid programs indicated that rigorous impact evaluation—the kind that could determine with credibility whether a specific aid intervention or broader sector strategy worked to produce a specific development outcome—was rarely attempted. Of the 296 evaluations posted between 2005 and 2008 to USAID's Development Experience Clearinghouse website, an independent reviewer found only 9% reported on a comparison group and only one used an experimental design involving randomized assignment, the method most likely to produce accurate data. A 2005 review of USAID evaluations (focused on democracy and governance programs) found that "as a group, they lacked information that is critical to demonstrating the results of USAID projects, let alone whether the projects were the real cause of whatever change the evaluation reported." A meta-evaluation covering the period 2009-2012 found a notable increase in evaluation following the new evaluation policy and found improvements in 68% of quality factors examined, including the inclusion of recommendations. For most factors, however, the improvements were less than 15%, and most evaluations met USAID quality standards in only a few of the 37 criteria reviewed. USAID anticipates completing a second meta-evaluation, covering the period 2012-2016, in 2017. The gap between evaluation goals and actual practices has been documented repeatedly over the history of U.S. foreign assistance. So, too, have the challenges that make it difficult for implementers to achieve ideal evaluation practices in the field. Some of these challenges are discussed below. Mixed Objectives . The U.S. foreign assistance program has dozens of official objectives written into statute, and many aid programs are designed to meet multiple objectives. Often there are both strategic objectives and development objectives attached to an aid intervention, which may or may not be acknowledged in budget and planning documents. For example, assistance to Uzbekistan may have been requested and appropriated for specific agriculture sector activities, but may have been motivated primarily by a desire to secure U.S. overflight privileges for military aircraft bringing troops and supplies to Afghanistan. An evaluation of the agricultural impact may be of no use to policymakers who are more interested in the strategic goal, nor to aid professionals who are unlikely to view any lessons learned in these circumstances as applicable to agricultural development projects if political needs overrode the development rationale for the program. Another example is the Food for Peace program, which provides U.S. agricultural commodities to countries facing food insecurity. One objective of the program is to feed hungry people, but long-standing requirements that most of the food be provided by U.S. agribusiness and be shipped by U.S.-flagged vessels make clear that supporting the U.S. agriculture and shipping industries is a program objective as well, and a potentially conflicting one. Studies have shown that the buy and ship America provisions, as they are known, may lessen the hunger-alleviation impact of food aid by up to 40%. Despite the political and diplomatic considerations that arguably underlie the majority of foreign aid, evaluations that examine those strategic objectives are rare (or at least not publicly available). This may be understandable, as such evaluations would often be politically and diplomatically sensitive. Nevertheless, evaluation that focuses only on the development or humanitarian impact of a particular program or project, when broader strategic objectives are drivers of the aid, may largely miss the point. For example, a 2015 Mercy Corp evaluation of youth employment programs in Afghanistan (funded by the United Kingdom, not the United States) tested the assumption that a program to create economic opportunities for youth would promote stability by lessening participants' support for political violence. Contrary to expectation, the evaluation found that the employment, economic confidence, and business connections fostered by the program made participants more likely to express support for political violence. Funding and Personnel C onstraints . The more rigorous and extensive an evaluation, the costlier it tends to be, both in funds and staff time. Impact evaluations are particularly costly and require specially trained implementers. Absent a directive from agency leadership, aid implementers are unlikely to make resources available for evaluation at the expense of other program components. As one internal USAID review explained, "since USAID's development professionals have limited staff, limited budget, and copious priorities, unfortunately, due to lack of training on the crucial role of evaluation in the development process, most have chosen to eliminate evaluation from their programs." Competitive contracting plays a role as well. At a time when most program implementation is contracted out, and cost is a key factor in winning contract bids, some argue that there is little incentive to invest in the up-front costs, such as baseline surveys, of a well-designed evaluation plan in the absence of an enforced requirement. As a result, ad hoc evaluations of limited scope and learning value—as one report describes it, the "do the best you can in three weeks" approach—often prevail by default. "It is rare," according to one report, "that the resources provided for an evaluation are sufficient to develop and apply more rigorous research methods that would produce valid empirical evidence regarding outcomes and attributable impact." While MCC has the benefit of compacts being fully funded up front, which may account in part for its more comprehensive evaluation practices, State and USAID cannot count on receiving requested project funding from year to year, creating a challenge for all aspect of program implementation, including evaluation. Sometimes the limited resource is personnel, rather than funding. Past reviews of assistance evaluation repeatedly cite lack of trained evaluation personnel as a problem. USAID has tried to address this problem by training 1,600 staff in evaluation design and implementation since 2011 and producing a number of evaluation tools, publications, and webinars available to staff. USAID has also recently recruited monitoring and evaluation fellows, who are placed for six months to two years in offices that need additional expertise. Another part of this effort is building strong relationships with other entities focused on aid evaluation, including aid agencies of other donor countries and the International Initiative for Impact Evaluation (3ie). Some experts have suggested that greater emphasis on collective evaluations—donor countries and foundations contributing to an independent organization that conducts evaluations of aid crossing many donor portfolios—could address resource and expertise limitations as well as allow for generalization of evaluation findings and policy relevance. Emphasis on Accountability of F unds . Aid monitoring and evaluation efforts over the past decade have primarily focused on accountability of funds because that is what stakeholders, including Congress, generally ask about. Concerned about corruption and waste, bound by allocation limits, and required by law to report on various aspects of aid administration, implementing agencies have developed monitoring, evaluation, and data collection practices that are geared toward tracking where funds go and what they have purchased rather than the impact of funds on development or strategic objectives. For example, the F Bureau's Foreign Assistance Framework, launched in 2006, was created largely to address the information demands of stakeholders, who wanted more data on how aid funds are being spent. It worked, to the extent that it is now easier to find information on how much aid is being spent in a given year on counterterrorism activities in Kenya, for example, or on agricultural growth programs in Guatemala. But little if any of the resulting data addresses the impact of aid programs. M ethodological C hallenges . In the complex environment in which many aid projects are carried out, it can be challenging to employ high quality evaluation methods. U.S. agency policies allow for a variety of evaluation methods (see Appendix ), acknowledging that the most rigorous methods are not always practical. Sometimes it is impossible to identify a comparable control group for an impact evaluation, or unethical to exclude people from a humanitarian intervention for the purpose of comparison. Sometimes the goals are intangible and cannot be accurately documented through metrics. For example, it may be much harder to measure the impact of programs such as the Middle East Partnership Initiative, designed to strengthen relationships, than to measure more concrete objectives, such as reducing malaria prevalence. This may be one reason why reviews have found that global health assistance has a stronger evaluation history than other aid sectors; disease prevalence and mortality rates lend themselves to quantification better than military personnel attitudes towards human rights or the strength of civil society. Rigorous methodology can also limit program flexibility, as making program changes mid-course, in response to changed circumstances or early results, can compromise the evaluation design. Some MCC evaluation reports note that information gleaned from early project implementation resulted in mid-course changes that improved program logic but undermined impact evaluation plans. Even when metrics and baselines are well established, it can still be very difficult to attribute impact to a specific U.S. aid intervention when such programs are often carried out in the context of a broader trade, investment, political, and multi-donor environment. A 2016 SIGAR report, for example, notes that while USAID frequently cites improvements in Afghanistan's education sector among the highlights of U.S. reconstruction efforts, the agency is unable to establish a link between U.S. assistance and trends in the sector, in which many donors are active. Also, some aid professionals see broader drawbacks to rigorous impact evaluation methods. Some assert that the use of randomized control groups, which generally require the use of independent evaluators, limits the participation of affected individuals and communities in project design. They argue that community participation in project planning and evaluation, which can lead to greater buy-in and local capacity building, is more valuable in the development context than high-quality evaluation findings. Others counter that more participatory methodologies are often weakened by bias, and that it is unwise and even unethical to replicate programs, which may profoundly affect participants, without having properly evaluated them. Compressed Timelines . While development assistance, in particular, is recognized as a long-term endeavor, aid strategies can be trumped by political pressures, which can influence evaluation. In 2001, a USAID survey report stated that "the pattern found was that evaluation work responds to the more immediate pressures of the day." Policymakers facing relatively short budget and election cycles do not always allow adequate time for programs to demonstrate their potential impact. Such pressures have only increased over the past 15 years, particularly in the politically charged environments of Iraq, Afghanistan, and Pakistan. As a Senate Foreign Relations Committee majority-staff report on aid to Afghanistan found, "the U.S. Government has strived for quick results to demonstrate to Afghans and Americans alike that we are making progress. Indeed, the constant demand for immediate results prevented the implementation of programs that could have met long-term goals and would now be bearing fruit." The type of evaluation necessary to determine whether aid has real impact is both hard to do and of limited use in a short-term context. Timelines are particularly restrictive for MCC, which originally intended to complete evaluations during the compact implementation period. This goal, which reflects broad support for limited timeframes on foreign assistance, was found not to be feasible during implementation of MCC's first compacts in Cape Verde and Honduras. Baseline data and evaluation models can be rendered worthless if program timelines change. For example, an MCC evaluation of a farmer training program in Armenia found that the planned impact evaluation model—a phased roll-out—was compromised by a delay in implementing one component of the program and the five-year compact timeline. The long-term impacts of aid may be the most significant in judging effectiveness, but are least likely to be evaluated. Country Ownership and Donor Coordination . The United States and other aid donor countries have made pledges to both coordinate their efforts and increase recipient country control, or "ownership," over the planning of aid projects and the management of aid funds. Country ownership is believed by many to increase the odds that positive results will be sustained over time both by ensuring aid projects are consistent with recipient priorities and by helping to build the budget and project management capacity of recipient country governments and nongovernmental organizations (NGOs) that administer the assistance. Donor coordination of assistance efforts is supposed to promote efficiency, ease administrative burdens on aid recipients, and avoid duplication, among other things. USAID, as part of its ongoing procurement reform process, aims to channel an increasing portion of contract and grant aid directly to governments and local organizations. However, greater country ownership, and the pooled funds that may result from donor coordination, generally means diminished donor control, and a lesser ability to evaluate how U.S. funds contributed to a particular outcome. Accountability concerns often greatly overshadow the learning aspects of evaluation in such a context, as Congress has expressed concern about the heightened potential for corruption and mismanagement when funds flow directly to recipient country institutions. A 2016 report of the Special Inspector General for Afghanistan Reconstruction (SIGAR), for example, notes that while an increasing portion of U.S. aid to Afghanistan is being provided through Afghan government ministries, these ministries struggle with staffing, technical skills, management, and accountability. Security . Over the past 15 years, a significant percentage of foreign aid has been allocated to countries where security concerns have presented major obstacles to implementing, monitoring and evaluating foreign aid. A 2012 evaluation of a USAID agricultural development program in rural Pakistan, for example, states "the operating environment for development projects has been especially testing in recent years in the presence of an insurgency and frequent targeted killings and kidnappings." Development staff in Afghanistan and Iraq in particular have not always been able to safely visit project sites to verify that a structure has been built or supplies delivered, much less be out on the streets conducting the types of surveys that certain evaluations would normally call for. A 2011 USAID Inspector General report noted that more than half of performance audits in Iraq at that time indicated security concerns, and a 2016 SIGAR report noted that the drawdown of U.S. and coalition military personnel in Afghanistan, and the deteriorating security situation, made it difficult or impossible for civilian agency personnel to oversee projects first-hand. Even in less hostile environments, security concerns can undermine evaluation quality. For example, a 2011 evaluation of Office of Transition Initiatives governance activities in Colombia noted that "security considerations limited to some degree the evaluation team's freedom to interview community members in project sites at will. This fact made it difficult to be certain that field research did not suffer from a form of sampling bias." While security challenges may weigh against the use of aid in certain regions, the most insecure places are sometimes where the U.S. foreign policy interests are greatest, and policymakers must consider whether the risk of being unable to evaluate even the performance of an aid intervention is worth taking for other reasons. Agency and Personal Incentives. Given discretion in the use and conduct of evaluations, observers have noted the inclination of foreign assistance officials to avoid formal evaluation for fear of drawing attention to the shortcomings of the programs on which they work. While agency staff are clearly interested in learning about program results, many are reportedly defensive about evaluation, concerned that evaluations identifying poor program results may have personal career implications, such as loss of control over a project, damage to professional reputation, budget cuts, or other potential career repercussions. As explained by one USAID direct-hire in response to a 2001 survey, "if you don't ask [about results], you don't fail, and your budget isn't cut." That same study revealed that staff felt more pressure to produce success stories than to produce balanced and rigorous evaluations, and that "professional staff do not see any Agency-wide incentive to advance learning through evaluations." Few observers consider risk taking and accepting failure as a necessary component of learning to be hallmarks of USAID or State Department culture, but a shift in this attitude may be in progress. According to USAID Administrator Gayle Smith, there has been "a cultural shift from checking the box that everything is fine to here's what we're learning and here's what happened." Other experts have suggested that there remains a reluctance within USAID to hold staff responsible for poor evaluation practices. Applying Evaluation Findings to Policy A consistent theme in past reviews of foreign aid evaluation practices is that even when quality evaluation takes place, the resulting information and analysis are often not considered and applied beyond the immediate project management team. Evaluations are rarely designed or used to inform policy. Lack of faith in the quality of the evaluation, irregular dissemination practices, and resistance to criticism may all contribute to this problem, as does lack of time on the part of aid implementers and policymakers alike to read and digest evaluation reports. A 2009 survey of U.S. aid agencies found that "bureaucratic incentives do not support rigorous evaluation or use of findings," "evaluation reports are often too long or technical to be accessible to policymakers and agency leaders with limited time," and learning that takes place, if any, is "largely confined to the immediate operational unit that commissioned the evaluation." The shift in recent decades towards the use of contractors and implementing partners for most project implementation, and most project evaluation, may also impact the learning process. As one report notes, "partner organizations are learning from the experience, but USAID is not," and most evaluation work does not circulate beyond the partner. Congress expressed some interest in this issue with the Initiating Foreign Assistance Reform Act of 2009 ( H.R. 2139 in the 111 th Congress, introduced by Representative Howard Berman), which called for "a process for applying the lessons learned and results from evaluation activities, including the use and results of impact evaluation research, into future budgeting, planning, programming, design and implementation of such United States foreign assistance programs." The government-wide GPRA performance planning and assessment requirements mentioned earlier (see "Program Evaluation Government-Wide" text box above) also attempted to mandate better use of evaluation data in policymaking government-wide. Aid agencies have addressed this issue with renewed focus and mixed results. USAID reviewed the utilization of evaluation data over the first several years under its new policy and found that 90% of surveyed evaluation findings and recommendations had some impact on program-level decisionmaking, mostly for project design and modification. USAID requires that its five-year Country Development Cooperation Strategies (CDCS) cite evidence as the basis of their development hypothesis, and 60% of the CDCS in 2015 cited evaluation reports as evidence. However, there is no USAID requirement that new policies draw on evaluation findings, and the study found little evidence linking evaluations to higher-level policy decisions. The learning aspect of evaluation relies heavily on agency culture, which may be shaped more by leadership than policy. The effective application of evaluation information depends also on the details of implementation, such as evaluation questions being based on the information needs of policymakers and program managers, and information being presented in a format and to a scale that is useful. Policymakers, for example, may be much better able to make actionable use of a meta-evaluation of microfinance programs, presented in a short report highlighting key findings, than a whole database of detailed analysis of single projects, the results of which may or may not be more broadly applicable. Experts have pointed out that individual project evaluations, even when well done, do not roll up nicely into a document showing what works and what does not. They contend that for maximum learning, an effort must be made at the cross-agency or even whole-of-government level to develop evaluation meta-data that is responsive not only to the needs of a project manager interested in the impact of a particular activity, but also to agency leadership and policymakers who want to know, more broadly, what foreign assistance is most effective. This view has been reflected in legislation introduced in recent Congresses. The Foreign Assistance Revitalization and Accountability Act of 2009 ( S. 1524 in the 111 th Congress, introduced by then Senator Kerry) called for the creation of a Council on Research and Evaluation of Foreign Policy to do cross-agency evaluation of aid programs. The Foreign Aid Transparency and Accountability Act (introduced in successive congresses by Senator Marco Rubio and Representative Ted Poe before being enacted and signed into law in July 2016), directs the President to establish guidelines for the consistent evaluation of foreign assistance across federal agencies. As important as evaluation can be to improving aid effectiveness, not every aid project has broad learning potential. Knowing which potential evaluations could have the greatest policy implications may be key to maximizing evaluation resources. Many USAID projects, for example, are designed with no intention that they be scaled up or replicated elsewhere. In other situations, an approach may have already been well proven. In such instances, a basic performance evaluation for accountability may be appropriate, but rigorous evaluation may be a poor use of resources. A 2012 USAID "Decision Tree for Selecting the Evaluation Design" asks staff to first consider whether an evaluation is needed, and decline to evaluate if the timing is not right, if there are no unanswered questions for the evaluation to address, or if there is no demand from stakeholders. Current Agency Evaluation Policies The primary U.S. government agencies managing foreign assistance each have their own distinct evaluation policies, with varying degrees of specificity. The Quadrennial Diplomacy and Development Review (QDDR) report of December 2010 stated the intent that USAID would reclaim its leadership role with respect to international development evaluation and learning, and referenced a new USAID evaluation policy in the works to reflect the growing demand for results data and attempt to address some persistent evaluation challenges. That policy took effect January 2011. The State Department followed suit in February 2012 with a new evaluation policy that was similar in many respects to the USAID policy, and MCC updated its policy in May 2012. State then updated its policy again in early 2015, apparently paring down several requirements in the 2012 policy, though the 2015 QDDR reaffirmed the State Department's commitment to building evaluation capacity. The Appendix table compares key provisions of the current evaluation policies of USAID, State, and MCC. The State and USAID policies share much in common, balancing the costs and expected gains from evaluation. For example, both require performance evaluations of all larger-than-average projects and experimental/pilot projects, but not all projects. The policies share an emphasis on accessibility of information, with provisions to promote consistent and timely dissemination of evaluation reports, though State only requires public dissemination of foreign assistance evaluations, and summaries rather than full reports. In their introductory language, both policies emphasize the learning benefits of evaluation, in addition to accountability. The USAID policy is notably more detailed than State's on many of the issues. The USAID policy establishes required features for evaluation reports, and specifies that evaluation questions be identified in the design phase of projects, issues which the State policy does not address. USAID states that most evaluations will be conducted by third party contractors or grantees, to promote independence, while State's policy does not require independent evaluators. While USAID suggests a target allocation of 3% of program funds for program evaluation, the State policy provides no such target and the guidance suggests that such a target may not be realistic. Perhaps most significantly, USAID's policy calls for impact evaluation whenever feasible, while the State policy sets a clear expectation that impact evaluation will be rare. MCC's evaluation policy shares many elements of the State and USAID policies, but goes farther in many respects. MCC requires independent evaluations of all compact projects, using indicators and baselines established prior to project implementation. The agency has also made a practice of including a "lessons learned" section in its evaluation reports. It may be, however, that first-hand experience with the challenges of evaluation is bringing MCC policy and practice closer to that of USAID over time. MCC's 2012 policy revision adopts definitions from USAID's 2011 evaluation policy and includes a section on institutional learning. The update also appears to move closer to the USAID model with respect to impact evaluation, calling for impact evaluations "when their costs are warranted," whereas the previous iteration referred to independent impact evaluations as an "integral part" of MCC's focus on results. The MCC policy still appears to have the strongest enforcement mechanism among the three agency policies, conditioning the release of quarterly disbursements on substantial compliance with the policy. USAID's policy, in contrast, calls only for occasional compliance audits, and State's policy does not address compliance at all. While some experts have called for greater uniformity of evaluation practices across agencies to allow for comparative analysis, others view the differences in State, USAID, and MCC evaluation polices as reflecting the different experience, scope of work, and priorities of the agencies. USAID, with the largest and most diverse assistance portfolio among the agencies, and numerous small projects, may require a more flexible approach to evaluation than MCC, which is narrowly focused on economic growth and recipient government ownership. At State, foreign assistance is just one part of a broader portfolio (including diplomatic activities), potentially impacting what type and scope of evaluation is useful or possible. State is also responsible for many military and security assistance programs, which present unique challenges, as discussed in the " Evaluation Challenges " section above. These current evaluation policies may represent a step towards improving knowledge of foreign assistance measures of effectiveness at the program or project level, and increasing transparency of the evaluation process. They do not, however, attempt to establish a systemic approach to aid evaluation that would make country-wide, sector-wide, or cross-agency evaluation or aid more feasible. They look similar to earlier initiatives to improve aid evaluation. Many aspects of the 2011 USAID policy, for example, are strikingly similar to the required actions called for in the 2005 cable to USAID missions (e.g., evaluation planning as part of all program designs, designated evaluation officers at each post, and set-aside evaluation funds). It may be too early to know whether this new multiagency initiative will have more real or lasting impact than its predecessors. A meta-evaluation examining USAID evaluations from 2009 to 2012 indicates that both the number and quality of evaluations increased significantly in that period, but most evaluations in 2012 still failed to meet evaluation standards. Issues for Congress While some momentum on foreign aid evaluation reform has originated within the Administration, Congress may have significant influence on this process. Not only can Congress mandate or promote a certain approach to evaluation directly through legislation, as has been proposed, it can modulate Administration policies by controlling the appropriations necessary to implement the policies. Congress may also influence how, or if, the information resulting from evaluations will impact foreign assistance policy priorities. These issues are discussed in greater detail below. Re form Authorization Legislation. In the 112 th and 113 th Congresses, legislation was introduced that focused specifically on foreign aid evaluation. The Foreign Aid Transparency and Accountability Act ( H.R. 3159 / S. 3310 in the 112 th , S. 1271 / H.R. 2638 in the 113 th Congress) sought to evaluate the performance of U.S. foreign assistance programs and improve program effectiveness by requiring the President to establish guidelines on measurable goals, performance metrics, and monitoring and evaluation plans for foreign assistance programs that can be applied on a consistent basis across implementing agencies. The legislation also called for the creation of a website that would make detailed, program-level information on foreign assistance, including country strategies, budget documents, budget justifications, actual expenditures, and program reports and evaluations available to the public. The legislation was reintroduced in the 114 th Congress ( H.R. 3766 / S. 2184 ) with some modifications, including the exclusion of most security assistance. It was enacted and signed into law in July 2016 as P.L. 114-191 , potentially shaping aid evaluation practices in the years to come. The general focus of these proposals is on codifying evaluation requirements and extending them across the various federal and agencies that administer aid programs. The benefit of such broad uniformity, arguably, is that it could enable policymakers, the public, and other stakeholders to better compare the activities of various agencies and get a more comprehensive picture of total U.S. foreign assistance. A potential drawback is the effort and expense required to impose such uniformity on agencies with different objectives, management structures, and information technology systems. These proposals also focus on transparency and accountability rather than effectiveness, and do not explicitly promote the use of impact evaluation, though they call for the use of rigorous methodologies, including impact evaluation. If performance evaluation continues to comprise the vast majority of aid evaluations, such a cross-agency requirement may provide comparable information on aid management from agency to agency, but is not likely to facilitate comparative analysis of what aid channels are most effective. Appropriations for Enhanced Evaluation . Increasing the number and quality of foreign aid evaluations, while potentially cost effective in the long run, requires an investment of resources. For the most part, evaluation costs are integrated into program accounts at the various implementing agency budgets and are not scrutinized specifically by Congress. Annual funding levels established by Congress, together with any related legislative directives that limit the use of funds, may play a role in determining the extent of the Administration's efforts and capacity to strengthen evaluation practice. Congress may also wish to specify in appropriations legislation a portion of funds to be used for evaluation purposes. Impact of Evidence- Based Approach on Congressional Priorities . Congress has long exerted control over foreign assistance not only through appropriated funds and restrictions, but also by directing foreign assistance funds to certain sectors, countries, or even specific projects through bill or report language. For example, the committee reports accompanying the annual State-Foreign Operations appropriation proposals provide specific funding levels for microfinance, basic education, water and sanitation, women's leadership training, people-to-people reconciliation programs in the Middle East, and other sectors of particular interest to Members of Congress. Should credible information about the relative effectiveness of these programs be made available as a result of improved evaluation practices, Congress can weigh the importance of the data, among other considerations, in establishing aid priorities. Some congressional directives on aid are less likely than others to be affected by evaluation results. The availability of actionable evaluation data may not result in a maximization of aid effectiveness, but may allow Congress to make more deliberate trade-offs between effectiveness and other objectives. Conclusion The primary U.S. agencies charged with implementing foreign assistance have made significant steps in the last several years to address ongoing deficiencies in evaluation practices that make it difficult to judge whether foreign assistance is achieving its various objectives. There is widespread agreement on the need for more consistent performance evaluation of aid programs. The value of rigorous impact evaluation is broadly recognized as well, though the agencies differ in their capabilities and aspirations in this respect. Past policies and evaluation reform efforts, however, have been similarly focused but not sustained in the face of persistent challenges, many of which remain today. Other reforms, such as the establishment of centralized evaluation processes or the creation of an independent evaluation entity, have been proposed in legislation but not yet enacted. Growing emphasis in Congress and the Administration on results-based budgeting, as well as movement within the international aid donor community toward more rigorous aid evaluation practices, may provide the context for sustained progress. The 114 th Congress continues to have opportunities to influence how U.S. foreign assistance is evaluated through legislative proposals, appropriations, and oversight activities. Appendix. Select Aspects of Current USAID, State Department, and MCC Evaluation Policies

In most cases, the success or failure of U.S. foreign aid programs is not entirely clear, in part because historically, most aid programs have not been evaluated for the purpose of determining their actual impact. Many programs are not even evaluated on basic performance. The purpose and methodologies of foreign aid evaluation have varied over the decades, responding to political and fiscal circumstances. Aid evaluation practices and policies have variously focused on meeting program management needs, building institutional learning, accounting for resources, informing policymakers, and building local oversight and project design capacity. Challenges to meaningful aid evaluation have varied as well, but several are recurring. Persistent challenges to effective evaluation include unclear aid objectives, funding and personnel constraints, emphasis on accountability for funds, methodological challenges, compressed timelines, country ownership and donor coordination commitments, security, and agency and personnel incentives. As a result of these challenges, aid agencies do not undertake evaluation of all foreign aid activities, and evaluations, when carried out, may differ considerably in quality. The Obama Administration has taken several steps to enhance foreign assistance evaluation. 2010 Quadrennial Diplomacy and Development Review (QDDR) resulted in, among other things, a stated commitment to plan foreign aid budgets "based not on dollars spent, but on outcomes achieved." USAID introduced a new evaluation policy in January 2011. The State Department, which began to manage a growing portion of foreign assistance in the 21st century, introduced a new evaluation policy in February 2012, which was updated in January 2015. The Millennium Challenge Corporation revised its evaluation policy in 2012, and soon after began releasing its first evaluation reports. The agency evaluation policies differ in several respects, including their support for impact evaluation, but reflect a common emphasis on evaluation planning as a part of initial program design, transparency and accessibility of evaluation findings, and the application of data to inform future project design and policy decisions. Aspects of the three evaluation policies are compared in the Appendix. Recent reports and policy reviews suggest that aid evaluation frequency and quality have improved in recent years, though progress has been uneven. Attention to this issue remains strong, both within the Administration and among Members of Congress. The 2015 QDDR reemphasizes the role of evaluation, calling for more evaluation training, more strategic use of data, and more timely analysis of lessons learned, among other things. Though recent evaluation reform efforts have been agency-driven, Congress has considerable influence over their impact. Legislators may mandate a particular approach to evaluation directly through legislation (e.g., the Foreign Aid Transparency and Accountability Act, P.L. 114-191, enacted in July 2016), or may support or fail to support Administration policies by controlling the appropriations necessary to implement the policies. Furthermore, Congress will largely determine how, or if, any actionable information resulting from the new approach to evaluations will influence the nation's foreign assistance policy priorities.

Federal Programs for Crop Disaster Historically, three ongoing federal programs help farmers deal with risk associated with crop losses. Each has permanent authorization and receives regular annual funding. Crop insurance indemnifies participating producers for yield or revenue losses for their farms. USDA's noninsured crop disaster assistance program (NAP) provides crop-loss coverage for crops not covered by insurance policies. Emergency disaster loans are available to producers when a county has been declared a disaster area either by the President or the Secretary of Agriculture. In recent decades, when these programs did not provide sufficient financial assistance to producers, Congress has provided "ad-hoc" emergency crop disaster assistance. In virtually every crop year between 1988 and 2007, Congress provided disaster assistance to farmers and ranchers with significant weather-related production losses. During this period, federal ad-hoc crop disaster programs provided approximately $1 billion per fiscal year to farmers who experienced a major crop loss caused by a natural disaster. Ad-hoc assistance has been made available primarily through emergency supplemental appropriations to a wide array of USDA programs. In an effort to end the ad-hoc nature of emergency assistance, with legislation enacted after the disaster occurred, Congress authorized the SURE program in the 2008 farm bill. Part of the motivation was to provide a pre-designed program that farmers could incorporate in their risk management planning. It would presumably provide more timely payments. However, the program design as defined in the farm bill has affected the timeliness of payments (see section on " Time Lag for Payment Delivery "). How SURE Works A major distinction of SURE is that payments are based on whole-farm crop revenue, not crop-specific losses. In previous disaster programs, producer payments were based on individual crop losses. If a farmer experienced a yield loss, the farmer would be eligible for a payment specific to that crop loss, assuming other criteria were met. Revenue losses are, in general, determined by the calendar year of harvest. Under the new program, a farmer's revenue from all crops in all counties is compared with a guaranteed level of revenue that is computed mostly from expected or average yields and prices. As a result, the program considers the disaster's impact on a farmer's entire enterprise and not on just the crop(s) that were adversely affected. If the actual farm revenue (including farm program payments and insurance indemnities) is less than the farm's guaranteed level, the producer receives a payment. In contrast, if actual whole farm revenue does not fall below the guaranteed level, whereby losses for one crop are offset by revenue gains for another, no disaster payment is made. Payments are limited so that the guaranteed level cannot exceed 90% of expected farm income in the absence of a natural disaster. Eligibility Requirements The law specifies that farmers must purchase insurance on all crops in their farming operation, including field crops, hay, double-crop plantings, and fruits and vegetables. Requiring insurance coverage ensures that SURE is supplemental, not primary, insurance, which limits expenditures. This requirement covers production in all counties and states where a farmer has a share in the production. If crop insurance is not available, producers must purchase Noninsured Crop Disaster Assistance Program (NAP) coverage. The value of any crop not eligible to be insured under either program is not be considered under SURE. Producers are not required to purchase insurance or NAP coverage if the crop is not economically significant or if the NAP administrative fee (currently $250 per crop) exceeds 10% of the value of the coverage. Economic significance is defined by the crop having at least a 5% share of the producer's total expected revenue from all crops grown. Finally, eligible farmers must have a financial interest and be at risk in the production of crops located in a secretarial-disaster-declared county (or a contiguous county), or have an overall yield loss greater than 50%, as measured by total production and acreage of all crops in all counties for an individual producer. At least one crop of economic significance must suffer at least a 10% yield loss due to disaster, adverse weather, or disaster-related conditions. Payment Calculation SURE payments will be made when an individual producer's program guarantee total is greater than the farm revenue . The payment is 60% of the difference between the two. Both revenue and guarantee are calculated by summing the values for all crops across all locations for an individual producer. The SURE calculation described below is summarized in Box 1 . A hypothetical scenario for an individual farmer is shown in Box 2 . SURE Guarantee The guaranteed revenue level in the SURE program is essentially the sum of a farm's crop insurance guarantees increased by 15%, and NAP guarantees increased by 20%. These factors are designed to partly fill the gap left by insurance or NAP coverage. Values for both insured and NAP crops are summed to arrive at a farmer's total revenue guarantee. For insurable crops, the guarantee is the product of the 1.15 factor, the (adjusted) actual production history (APH) yield, the insurance coverage level, planted or prevented planted acreage, and price election. The yield for determining federal counter-cyclical payments (Direct and Counter-Cyclical Payment Program) is used if it is higher than the adjusted APH yield. Including the insurance coverage level is designed to encourage farmers to purchase higher levels of coverage. For non-insurable crops, a similar calculation is made. The guarantee is the product of a 1.20 factor, the NAP price, planted and prevented planted acreage, and 50% of the adjusted NAP yield (or the counter-cyclical payment yield, if higher). The program guarantee cannot exceed 90% of total expected revenue. The expected revenue is calculated the same as the guarantee, except the 1.15 factor, 1.20 factor, and insurance coverage level are not included in the calculations. The effect of this limit is that the SURE guarantee cannot be greater than a 90% insurance guarantee across all crops. Total Farm Revenue The formula for total farm revenue is the actual value for all crops, plus government payments and crop salvage value (if losses are incurred). Each crop value is determined by multiplying actual harvested production times the national average market price (the regulation provides for adjustments for quality at the local level). For NAP crops, the national average market price cannot be greater than the NAP price. The government payment sum equals 15% of direct payments plus 100% of all other payments—counter-cyclical payments, average crop revenue election payments, loan deficiency payments, marketing loan gains, net crop insurance payments (indemnities minus premiums), NAP payments, and other disaster payments. Including government payments prevents a farmer from receiving two payments for the same loss. Payment Timing Disaster payments under SURE arrive well after the crop loss because some of the data needed to computed payment rates become available more than one year after harvest. Computing actual farm revenue requires season-average prices, which USDA publishes after the market year ends. For example, the 2008 corn crop was harvested in fall 2008. The 2008 corn marketing year ended on August 31, 2009, and USDA published the market year average price on September 29, 2009. After that date, revenue calculations were determined for farms producing corn, assuming other data were also available. Thus, crop disaster payments in any year are delayed for more than a year after the actual loss. In contrast, crop insurance indemnities are typically paid about one month after the farmer signs the claim form. Income and Payment Limits For 2008 crops, SURE payments are not available for persons or legal entities if their average adjusted gross income (AGI) for 2005, 2006, and 2007 exceeds $2.5 million, unless 75% or more of their AGI is from agriculture (AGI includes farm and nonfarm income). Beginning in crop year 2009, the limit is $500,000 for average adjusted gross nonfarm income. Total payments per person may not exceed $100,000 for SURE and the three livestock-related programs under the 2008 farm bill's Supplemental Agricultural Disaster Assistance programs. Changes to SURE Since the 2008 Farm Bill The authorizing statute for SURE has been amended twice since the 2008 farm bill was enacted. The first was on October 13, 2008, when P.L. 110-398 made a variety of technical corrections. It also extended the date by which producers were required to "buy-in" to crop insurance or NAP coverage for 2009 crops with closing dates prior to August 14, 2008. Producers would remain eligible for the 2009-crop SURE program by paying the applicable fees by January 12, 2009. (This affected producers with crops such as citrus, nursery, avocados, selected fresh vegetables, and macadamia nuts). Paying the administrative fees makes farmers eligible for SURE payments as if they had purchased crop insurance or NAP on time, but it does not provide coverage itself. The second change, which affects the 2008 crop year, was contained in the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ). The enacted ARRA extended "buy-in" deadline for 2008 crops from September 16, 2008, to May 18, 2009 (90 days after enactment of the conference agreement). Additionally, the enacted law allows all producers to receive potentially higher SURE payments than they otherwise would have received by altering the payment formula. SURE is expected to have greater participation because of ARRA. Interaction with Other Government Programs The SURE program is designed to help fill gaps in other government commodity and risk management programs. The cost to the farmer is relatively low, and becoming eligible for SURE does not affect decisions for other programs. As a result, interest in SURE may have increased demand for crop insurance and NAP coverage, resulting in a greater share of U.S. crops covered under crop insurance and NAP. Also, farmers who selected higher insurance coverage increased their SURE guarantee. To reduce the possibility of double payments, the SURE formulas account for indemnities and farm program government payments, including any ad hoc disaster payments. For example, payments under USDA's Crop Assistance Program in 2010 are added to a farm's actual revenue, which reduces the likelihood and/or size of a SURE payment. Funding Source and Expected Outlays SURE and the four other disaster programs authorized in the 2008 farm bill receive funding through the Agricultural Disaster Relief Trust Fund established in the 2008 farm bill. The Trust Fund is to receive the equivalent of 3.08% of the amount received each year (FY2008-2011) in U.S. Customs receipts collected on certain goods. At the time of 2008 farm bill enactment, the Congressional Budget Office (CBO) estimated the combined total costs of the five programs to be $3.8 billion over the four-year life of the programs. Of this total, CBO estimated that supplemental crop revenue assistance would cost $1.7 billion over the four years, or an average of $425 million per year. Another $1.6 billion would cover increased crop insurance and NAP costs associated with the requirement that participants purchase either crop insurance or NAP coverage. The balance of $500 million would cover the combined estimated cost of the other four disaster programs, according to CBO. If the cost of the programs exceeds the level of funding provided through Customs receipts, the 2008 farm bill gives the Trust Fund the authority to borrow from the Treasury such sums as necessary to meet its obligations. SURE provisions in the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ) are expected to cost an additional $674 million, according to CBO estimates. About $500-$600 million would be for higher SURE program benefits for the 2008 crop, with the remaining for the cost of crop insurance subsidies associated with additional policy purchases. USDA estimated total SURE payments at $3.4 billion for 2008-2011, or $0.85 billion per year. This is less than average annual payments of $1.14 billion per year under previous ad hoc disaster programs (1998-2007). When the estimate was made, USDA expected SURE to cost less because losses would be lower when calculated at the farm level, with individual crop losses partially offset by crop insurance indemnities, NAP payments, and revenue from other crops. Also the SURE guarantee cap of 90% is 5 percentage points lower than previous ad hoc disaster programs. SURE Payments for 2008 and 2009 Losses As of December 13, 2011, SURE payments for 2008 and 2009 losses totaled $2.8 billion, with just under one-third of the total attributed to changes under ARRA. The geographic distribution of SURE payments is extensive ( Figure 1 and Figure 2 ). For 2008 losses, SURE payments were sent to 2,157 counties, or 69% of the total counties served by USDA's Farm Service Agency. (Payments for 2010 losses began flowing in November 2011 and total $3 million to date.) Also, SURE is providing supplemental payments at levels that are roughly proportional to crop insurance indemnities when aggregated to the state level (see Figure 3 ). In 2008, for every dollar of crop insurance indemnities, the SURE program paid $0.24. The states receiving highest indemnities in 2008—Iowa, North Dakota, and Texas—also received the highest amount of SURE payments. Program Implementation Issues On December 28, 2009, USDA issued regulations for SURE. Farmer signup for 2008 crop losses began January 4, 2010, and USDA began making payments shortly thereafter. The Department begin accepting applications for 2009 losses on January 10, 2011. Program signup for 2010 losses began November 14, 2011. USDA officials say that SURE is the most complex program USDA's Farm Service Agency (FSA) has undertaken. It has faced a number of implementation challenges in terms of program administration. Computational Challenges From a computational standpoint, a significant challenge for USDA has been to create software for issuing producer payments. It requires loading, retrieval, and manipulation of a significant amount of data, including the collection of data from FSA county offices across the country, wherever a farmer may be operating. (For example, NAP records are housed in each county office.) In order to expedite program delivery and payments, USDA began accepting and processing applications in January 2010 using a manual process until software that incorporates all SURE program rules could be developed. Another issue involves farm units. The "farms" used for commodity program payments by USDA's Farm Service Agency (FSA) are different tracts of land than units used for FSA's NAP program and the Risk Management Agency's crop insurance program. Yields from all three may be needed in order to determine the appropriate yield for the SURE guarantee. This requires tabulating weighted average yields for a farmer across all farms in all counties. A significant amount of case-by-case attention can be required to ensure all data have been accounted for and used in the guarantee calculation. Determining Prices Determining prices used in the guarantee and farm revenue calculations has also been challenging. USDA's National Agricultural Statistics Service publishes average prices for major crops and some specialty crops. For some additional specialty crops, USDA's Market News Service reports daily or weekly prices but does not tabulate average prices weighted by volume. For minor and/or thinly traded crops, USDA may find it difficult to gather enough data to determine average prices for the both the revenue and the guarantee calculation. However, USDA reports that FSA's state committees have considerable experience developing prices for NAP crops, using a variety of sources such as extension agents. Insurance Issues Another issue has been accounting for various insurance products when determining the farmer's guarantee level. The statutory language for the SURE calculation follows traditional yield-loss insurance in that a farmer selects a coverage level and price. However, some insurance products under the federal crop insurance program, such as adjusted gross revenue, do not fit within this structure because there are no yields or prices in the policy on which to base the guarantee. In this case, to determine a farmer's revenue guarantee (on a crop-by-crop basis), USDA uses a combination of data from the individual (planted acres and insurance coverage level elected by the producer) and substitute data (county average yields and NAP prices). For "value loss" crops such as ornamental nursery, which are also covered by non-yield-based insurance policies, SURE payment eligibility is determined by the inventory immediately before and after a disaster. This helps maintain consistency with insurance policies and NAP for these types of crops. USDA says daily inventory records required for NAP or crop insurance will typically be sufficient for documenting losses for SURE payment eligibility. Issues for the 112th Congress In the next farm bill debate, Congress will likely be interested in the effectiveness and cost of the SURE program. Based on CBO and USDA cost estimates, annual SURE payments over the four-year life of the program were expected to be less than the typical levels of ad-hoc disaster payments. However, relatively high first-year (2008) payments, plus the Administration's ad hoc disaster program for 2009 losses for certain crops, have raised the question of whether SURE, as it is currently designed, provides an acceptable (and cost-effective) level of disaster assistance. Moreover, SURE and the other disaster programs in the 2008 farm bill do not have "baseline funding," which means that if Congress wants to reauthorize SURE, it will need to find either new funding or budget offsets to pay for it (see " Funding SURE for Losses Beyond September 30, 2011 ," below). A primary policy question is how well this whole-farm approach helps manage farm-level risk. Payment data from 2008 indicate that SURE payments have supplemented crop insurance indemnities as intended (see Figure 3 ), at least in certain parts of the country, including the Corn Belt and Great Plains. Nevertheless, some farmers have complained that the whole-farm approach typically does not result in disaster payments for diversified operations because aggregating revenue across a farmer's entire operation substantially reduces the likelihood of receiving assistance. For these farmers, the SURE whole farm approach runs counter to the historical custom of receiving disaster payments that are crop-specific. Also, producers in some regions such as the South say that SURE is less effective for them because they tend to purchase lower levels of crop insurance coverage, which limits the revenue guarantee under SURE. In contrast, where farmers have qualified for payments, the initial reaction has been generally favorable. For example, farmers in North Dakota are reportedly fairly satisfied with SURE, in combination with benefits provided under crop insurance. Another question is how much overlap exists in federal payments and farm risk reduction among the Average Crop Revenue Election program (ACRE), SURE disaster payments, and crop insurance indemnities. While it may be possible that the same price decline (resulting in revenue loss) may affect both ACRE and crop insurance indemnities, SURE payments account for these programs, thereby minimizing overlap with SURE. Loss Trigger Differs Across Producers One outcome of the SURE program design is that the loss trigger differs across producers depending on whether or not they produce crops located in a secretarial-disaster-declared county (or a contiguous county). Producers who are located in a disaster county (or a contiguous county) must show only a 10% yield loss on one crop before qualifying for a SURE payment. Producers in all other counties must show a 50% yield loss. As a result, SURE may address the "shallow loss" problem only in certain counties. Some have also pointed to the "roulette wheel" nature of SURE, whereby a small change in yield (e.g., 1 bushel per acre) might mean the difference between receiving a large SURE payment and no SURE payment, which can diminish the value of SURE as a risk management strategy. Part of the issue is the disaster designation process, which results in some states and counties requesting declarations for many or all counties while others are more selective. The dichotomy raises concerns that the possibility of SURE payments depends too much on the designation process, and that the designation may or may not correspond with an individual farmer's disaster situation. In November 2010, USDA issued a proposed rule to modify the designation process to simplify and expedite it and to make other changes. A related policy issue is that a disaster designation for a particular county can bring with it a "lower bar" (the 10% yield loss rather than the 50% yield loss) for a much larger amount of acreage, if farmers have substantial acreage outside of the disaster or adjacent county. Basing SURE payments on the county where the land is located could make the program less costly, but it would reduce the "whole farm" aspect of the program. Loss Calculation and Payment Level The SURE loss calculation, as it is currently designed, builds in downward bias in the revenue determination, which can make it easier to trigger a payment and raise overall program costs. The revenue determination uses a farm or cash price, which is typically lower than the insurance prices (based on futures contract prices) used to calculate many of the guarantees. Putting the prices on the same level (by adjusting one or the other) would reduce additional payments inadvertently caused by program design. Also, some producers have relatively high Counter-Cyclical Program yields used by SURE because some factors such as irrigation pushed up yields in the 1980s (when those yields were determined). Farmers in this situation can appear to have perpetual losses based on the current SURE formula. Time Lag for Payment Delivery The time lag between actual losses and government payments remains a concern (see " Payment Timing "), as evidenced by the (unsuccessful) attempts to pass ad hoc assistance in the 111 th Congress and the subsequent disaster payment program established by USDA. In contrast to SURE payments, the method for determining losses under the livestock programs is more streamlined, and livestock payments arrive more quickly. For example, livestock death losses for individual producers immediately trigger Livestock Indemnity Program payments, while the weekly publication U.S. Drought Monitor is used to determine payments for grazing losses under the Livestock Forage Disaster Program. By its nature, disaster payments using a whole-farm approach like SURE can take more time to determine payment levels. Some have suggested that making payments on an individual crop basis using crop insurance "harvest prices" (which are known immediately after harvest) could speed up the process and more closely tie disaster payments with need for losses. Such a change would also require provisions to either estimate other government payments (e.g., ACRE) or remove them from the SURE revenue calculation because they are not known until after the marketing season. Reimbursing Farmers for High Input Costs Some farmers are encouraging policymakers to consider reimbursing producers for other "losses" related to high input costs. For example, rice farmers have noted that SURE (like crop insurance) does not provide any coverage for increased harvest costs associated with "downed rice" following excessive rain or flooding immediately prior to harvest, which was a widespread problem in 2009. Because SURE is based on revenue (and not costs or margins), some farmers in this circumstance do not qualify for SURE payments. One of the motivations for crop disaster bills in the 111 th Congress, which preceded the ad hoc disaster program established by the Administration for 2009 losses, was higher 2009 costs for rice producers. Encouraging Risky Behavior One potential outcome of the SURE program could be to inadvertently encourage some farmers to increase their farm business risk. Because SURE addresses whole-farm crop revenue risk, some analysts expect SURE to favor farmers with a single crop produced in a single county or counties with high yield variability. In contrast, planting multiple crops in multiple locations adds diversity to a farm, thereby reducing the chance that a farm would drop below its guaranteed revenue trigger. Consequently, in order to take advantage of SURE, farmers might eliminate crops from their rotations. An additional concern involves the qualifying conditions for the program, specifically the 50% loss provision and potential outcomes for farmers who are not in a SURE-eligible county. Researchers have pointed out that the program criteria may encourage risky behavior or poor production practices (the "moral hazard" problem) because producers could receive a bump in revenue simply by allowing a crop to fail (with at least a 50% yield loss) rather than taking steps to minimize losses. Funding SURE for Losses Beyond September 30, 2011 The future of SURE is also affected by funding. Under the 2008 farm bill, the SURE program provides payments to producers for crop revenue losses due to natural disaster or adverse weather incurred on or before September 30, 2011. As a result of the expiring authority and budget assumptions made by the Congressional Budget Office when scoring the 2008 farm bill, SURE and several other program do not have "budget baseline" beyond their expiration that could be used to pay for extending the programs. If policymakers want to continue these programs in the next farm bill, they will need to pay for them with new funding or budget savings (offsets) from other programs. The cost of extending SURE (and four other disaster programs) is estimated at about $1 billion per year. Finding this level of offsets may be a difficult task in a tight budget environment.

In an effort to end the ad-hoc nature of emergency crop disaster assistance to farmers, Congress authorized a new Supplemental Revenue Assistance Payments Program (SURE) in the Food, Conservation, and Energy Act of 2008. The program provides payments to producers for crop revenue losses due to natural disaster or adverse weather incurred on or before September 30, 2011. Although program authority has expired, SURE is still making payments for losses that occurred prior to that date. SURE essentially compensates eligible producers for a portion of losses that are not eligible for an indemnity payment under a crop insurance policy. The program departs from both traditional disaster assistance and crop yield insurance by calculating and reimbursing losses using total crop revenue for the entire farm (i.e., summing revenue from all crops for an individual farmer). Under SURE, a farmer's revenue from all crops in all counties is compared with a guaranteed level that is computed mostly from expected or average yields and prices. As a result, the program considers the disaster's impact on a farmer's entire enterprise and not on just the crop(s) that were adversely affected. If the actual farm revenue (including farm program payments and insurance indemnities) is less than the farm's guaranteed level, the producer receives a payment, calculated as 60% of the difference between the two amounts. In contrast, if actual whole farm revenue does not fall below the guarantee, whereby losses for one crop are offset by revenue gains for another, no disaster payment is made. Payments are limited so that the guaranteed level cannot exceed 90% of expected farm income in the absence of a natural disaster. As of mid-December 2011, the U.S. Department of Agriculture (USDA) had issued $2.8 billion for 2008 and 2009 losses under the SURE program. Program signup for 2010 losses began November 14, 2011. USDA officials say that SURE is the most complex program USDA's Farm Service Agency has undertaken. It has faced a number of implementation challenges in terms of program administration, such as collecting and tabulating a significant amount of data for individual farmers, as well as crop price data that are not readily available. Another issue has been accounting for various insurance products when determining the farmer's guarantee level. Part of the motivation behind SURE was to provide a pre-designed program that farmers could incorporate in their risk management planning. Also, payments would be presumably more timely because legislation would already be in place when disaster strikes. However, disaster payments under SURE arrive well after the crop loss because some of the data needed to compute payment rates become available more than one year after harvest. Computing actual farm revenue requires season-average prices, which USDA publishes after the market year ends. Also, government commodity payments, which are also needed for the revenue calculation, can occur 1½ years after the crop is harvested. Thus, SURE program payments have not been as timely as some farmers and policymakers would like. In the next farm bill debate, Congress will likely be interested in the effectiveness of SURE, and, if the program is continued, how it will be funded. SURE is one of 37 programs that does not have budgetary baseline. Major policy questions are likely to be (1) whether the SURE program can be modified to eliminate the call for ad-hoc crop disaster payments, and (2) how well this whole-farm approach helps manage farm-level risk. Some farmers have complained that the whole-farm approach typically does not result in disaster payments for diversified operations. In contrast, where farmers have qualified for payments, the reaction has been generally favorable.

Rates Changes The Fed directly changes two interest rates. The first, called the discount rate , is an administered rate explicitly set by the Fed. It is the rate at which the Fed lends short-term funds to banks, pursuant to P.L. 96-221 , the Monetary Control Act of 1980. It is determined by the seven-person Board of Governors of the Federal Reserve System. The second, known as the federal funds rate , is a market rate at which banks lend to each other overnight to meet their "reserve requirements " and other liquidity needs. The Fed sets a target for this rate and historically has bought and sold primarily U.S. Treasury securities with an aim to achieving the target, which speedily becomes known to market participants. It is decided by a 12-person Federal Open Market Committee, which includes each member of the board plus a varying five-person roster selected from among the 12 regional Federal Reserve Bank presidents (among the 12, the New York bank is always represented on the FOMC). On January 6, 2003, the Board of Governors announced a fundamental change to the setting of the discount rate. Henceforth, it was to be made a "penalty" rate for those banks who chose to borrow from the Federal Reserve to meet temporary reserve deficiencies as opposed to borrowing in the federal funds market (the "penalty" aspect of the discount rate comes from the fact that it is set above the target for federal funds). A primary discount rate of 2¼% was initially set for banks judged to be in a sound financial condition, whereas banks whose financial condition was judged to be riskier would be required to pay a higher secondary rate of 2¾%. This change in operating procedure is shown in Table 1 . Since the onset of the financial crisis in the summer of 2007, the Fed has not made an issue of whether banks borrow at the discount window or in the federal funds market even though the discount rate remains slightly higher than the target rate for federal funds. Understanding the Announcements Because the discount rate is administered, changes in it are stated explicitly and all transactions with the Federal Reserve are at that rate. Hence, the changes shown in Table 1 are the relevant transactions rate. However, because the federal funds rate is market determined, it may vary from day to day or within a day from the announced target set by the FOMC. Thus, the federal funds rates shown in Table 1 are the target rates. Reference to the available financial data may show rates in the federal funds market that vary somewhat from the target in response to shifts in market conditions. At its December 16, 2008 meeting, the FOMC, for the first time, set a range for the federal funds target. This is because it was having difficulty holding the actual federal funds rate at the 1% target rate set on October 29, 2008. For much of the period between that date and December 16, the actual federal funds rate was substantially below the 1% target. Rationale for Changes The Fed tries to keep the economy operating at an output level consistent with a low rate of inflation and low unemployment. It therefore seeks a level of interest rates at which the economy will grow at its potential to produce. The interest rate levels consistent with this growth rate vary with the course of the business cycle. Different rates are judged appropriate at different times. Changes in the federal funds target are the most visible signs of shifts in Fed monetary policy stance and they immediately affect financial institutions and markets of all kinds here and abroad. Unusual financial market conditions such as those related to the Asian financial crisis of 1997-1998, the Russian debt crisis of 1998, the terrorist attacks of September 2001, and the financial crisis that began in the summer of 2007 also influence Fed decisions on rate changes. The Fed reports to Congress twice yearly on its monetary policy including rate changes, in oversight hearings in February and July as originally required by P.L. 95-188 , the Federal Reserve Reform Act. Since 2001, the stance of monetary policy has varied considerably. Initially, it was aimed at setting an expansion in motion. To do this, the federal funds target was reduced from 5½% in March 2001 to 1% in June 2003. It remained at 1% for a year. As the expansion gathered momentum, the target was raised gradually to 5¼%, in 17 equal increments spread over two years. Even as the FOMC drew attention to upward movements in the core rate of inflation at various meetings during 2006 and 2007, it continued to express the view that inflation would moderate over time, as would the rate of growth of GDP. These reasons appear to be important for leaving the rate unchanged at 5¼% for more than a year. However, during the late summer of 2007, the fall in housing prices and conditions in financial markets related to the difficulty in refinancing subprime mortgages and extending credit in general became a matter of great concern. To ease these conditions, the Board of Governors on August 17, 2007, reduced the discount rate for primary credit to 5¾%. This was followed on September 18 with another reduction of ½% and a reduction in the federal funds target to 4¾%. Additional cuts of ¼% in both rates were approved on October 31 and December 11, 2007. On January 22, 2008, the target was reduced by ¾% and on January 30 by a further ½%. The economy began to soften in the third quarter of 2007 (GDP growth was negative, falling at an annual rate of -0.2%). In the first quarter of 2008 it was positive again, and rose at an annual rate of 0.9%. During the second quarter, growth was also positive and at an annualized rate of 2.8%. Unhappily, GDP contracted again in both the third and fourth quarters and, again, during the first quarter of 2009 (it contracted at a 6.3% annual rate during 2008:4 and 6.1% during 2009:1) . The unemployment rate began to rise on a sustained basis beginning in February 2008 and, 13 months later, in March, 2009, it had risen to 8.5% from 4.8%. Job losses since the employment peak in December 2007 are some 5.1 million. As conditions in financial markets worsened and the economy softened, the FOMC and the Board approved further reductions in the federal funds target and discount rate during 2008. Both rates were lowered on March 18, April 30, October 8, October 29, and December 16, and the discount rate was reduced itself on March 16. They now stand at a range of 0% to ¼% and ½%, respectively. As these developments were taking place, the world price of energy began to rise at a brisk rate. Rising energy prices threatened to boost the overall rate of inflation, posing a challenge to the Fed's mandated commitment to stable prices. Initially, the Fed reacted by holding the federal funds target steady. However, as the magnitude and international scope of the credit crisis became apparent and energy and other commodity prices began to fall, the target was lowered and the Fed undertook a number of new and innovative measures to shore up the financial system and contain the economic contraction. These measures, as well as traditional monetary policy measures, have been unprecedented in their magnitude. During March 2008, the total reserves of depository institutions were $44.3 billion, of which $41.3 billion were required. One year later, total reserves were $780 billion, of which only $55.3 billion were required. Initiatives announced on March 17, 2009, should add nearly $2 trillion to total reserves over the remainder of 2009. The next scheduled meeting of the FOMC is June 23-24, 2009. For further discussion, see CRS Report RL30354, Monetary Policy and the Federal Reserve: Current Policy and Conditions , by [author name scrubbed].

The Federal Open Market Committee (FOMC) decided at its scheduled meeting, held on April 29, 2009, to leave unchanged the target rate for federal funds, which is now at a range from 0% to ¼%. In doing so, it took notice of its previous decision to add up to $1.75 trillion to the reserves of depository institutions by purchasing agency mortgage-backed securities ($1.25 trillion), agency debt ($200 billion), and Treasury securities ($300 billion). It also repeated that other measures had been adopted to facilitate the flow of credit to households and small businesses. In making its decision, the FOMC stressed that while the pace of the economic contraction appears to have slowed somewhat, the following factors remain: (1) a continuing pattern of job losses, lower household wealth, and tight credit; (2) the decline in global demand is increasing; and (3) while inflationary pressures remain subdued, they may be inconsistent with longer term growth and price stability (meaning that the United States may be facing deflation in the future). Nevertheless, a gradual recovery of sustainable economic growth in the context of price stability is expected to begin, given Fed action to stabilize financial markets and institutions and the monetary and fiscal stimulus now in place. The FOMC pledged to employ all available tools to promote the resumption of sustainable economic growth in a stable price environment. It expects that this will require an exceptionally low federal funds target for some time. The Board of Governors also decided to keep unchanged the discount rate for primary credit at ½%. The next scheduled meeting of the FOMC is set for June 23-24, 2009. This report will be updated as events warrant.

Background While federal financial regulatory agencies engaged in the process of implementing the provisions of the Financial Services Regulatory Relief Act of 2006 ( P.L. 109-351 ), new financial services regulatory relief measures were introduced in the 110 th Congress. Reducing the regulatory burden on financial service providers has been an ongoing concern since the passage of the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA, 110 Stat. 3009-394) mandating that financial regulators review their regulations at least once every 10 years in an effort to eliminate any regulatory requirements that are outdated, unnecessary, or unduly burdensome. In addition, the intended purpose of regulatory relief is to enhance the services provided by depository institutions, and to contain the growing costs of regulatory compliance. The experience of prior Congresses has shown that bills incorporating provisions that would reduce regulatory requirements on banks, thrifts, and credit unions tend to receive stronger support or less opposition than legislative proposals that address the industries separately. H.R. 6312 is viewed as a compromise bill drafted to attract support from advocates for both the banking/thrift and the credit union industries. The legislation, like P.L. 109-351 , provides some, but not all, of the changes sought separately by advocates for the banking/thrift and the credit union industries. Therefore, even if H.R. 6312 is enacted the industries' interests in regulatory relief are likely to continue. An Overview of H.R. 6312 The Credit Union, Bank and Thrift Regulatory Relief Act of 2008 ( H.R. 6312 ) was introduced on June 19, 2008, by Representative Kanjorski, and was cosponsored by 3 members. The legislation passed the House on June 24, 2008 and on June 25, 2008 was referred to the Senate Committee on Banking, Housing, and Urban Affairs. H.R. 6312 has four Titles: Credit Unions, Saving Association Provisions, Notice Provisions and Business Checking. The following is an overview of the legislation. Title I—Credit Unions Sec. 101 . Investments in Securities by Federal Credit Unions . This provision would expand federal credit unions' securities investment activities. Federal credit unions are presently limited in their investment activities for safety and soundness reasons by the Federal Credit Union Act. Currently, investment authority is limited to loans, government securities, deposits in other financial institutions and certain other investments. This provision would allow credit unions to have similar powers to banks in the securities business. It would allow credit unions to purchase certain investment-grade securities for the credit union's own account. The total investment in these instruments of any one obligor or maker could not exceed 10% of the credit union's net worth and the total investments could not exceed 10% of total assets. Sec. 102. Increase in Investment Limit in Credit Union Service Organizations. Organizations that provide services to credit unions and credit union members are commonly known as credit union service organizations (CUSOs). An individual federal credit union is currently authorized to invest in aggregate up to 1% of its unimpaired capital and surplus in CUSOs. The provision would raise the amount a credit union may invest in CUSOs from 1% to 3%. Banks and thrifts have the authority to make similar kinds of investments in their services related businesses. Sec. 103. Member Business Loan Exclusion for Loans to Non-profit Religious Organizations. Under current law, federal credit unions can make loans only to their members, to other credit unions, and to credit union organizations. The aggregate limit on a credit union's net member business loan balances is the lesser of 1.75 times the credit union's net worth, or 12.25% of the credit union's total assets. This legislation would exclude from the member business loan limit, loans or loan participations to nonprofit religious organizations, effectively increasing the amount of business lending credit unions could make. Sec. 104. Authority of the NCUA to Establish Longer Maturity for Certain Credit Union Loans . The Regulatory Relief Act of 2006 gave the NCUA the authority to increase the 12-year maturity limit on non-real estate secured loans to 15 years. This section would provide the NCUA with the additional flexibility to issue regulations to increase that 15-year maturity limit to a longer term for specific types of loans. Sec. 105. Providing the National Credit Union Administration with Greater Flexibility in Responding to Market Conditions. The rate of interest on loans made by a federal credit union may not exceed 15% (the usury limit) under most circumstances. This section would permit the NCUA to consider whether sustained increases in money market interest rates or prevailing market interest rate levels threaten the safety and soundness of individual institutions when the agency is determining whether or not to lift the usury ceiling. Sec. 106. Conversions Involving Certain Credit Unions to Community Charter. This section addresses a single or multiple common bond credit union converting to a community credit union. Community charters are required to be based on a single, geographically well-defined local community neighborhood, or rural district. This section would require the NCUA to establish the criteria used to determine that a member group or other portion of a credit union's existing membership, located outside the community base, can be satisfactorily served and remain within the newly constituted credit union's field of membership. Sec. 107. Credit Union Participation in the SBA Section 504 Program. This provision would clarify existing law and regulations that permit credit unions to participate in loan programs secured by the insurance, guarantees, or commitments of state or the federal governments. It requires that the loan maturities, terms, and other conditions of these loans be specified in applicable regulations. Sec. 108. Amendments Related to Credit Union Service to Underserved Areas. The 1998 Credit Union Membership Access Act ( P.L. 105-219 ) permits only credit unions with multiple common bond charters to expand services to individuals and groups living in areas of high unemployment and below median incomes that are underserved by other depository institutions. This proposal would permit all federal credit unions, regardless of charter type, to expand services to eligible underserved communities. These underserved areas include "investment areas" under the Treasury Department's Community Development Financial Institution (CDFI) program and qualified "low income area" under the New Markets Tax Credit Targeting formula adopted by Congress in 2000. Census tracts which would otherwise qualify but in which more than 50% of resident families make more than $75, 000 per year would not qualify. The provisions call for credit unions serving an underserved area to establish and maintain an office or facility within 24 months of receiving approval from the NCUA Board and would require such credit unions to report to the NCUA on their work in the underserved area. Sec. 109. Short-term Payday Loan Alternatives within the Field of Membership. This section addresses expanding access to a defined and limited set of services to non-member individuals. This section would permit credit unions to offer short-term loans as an alternative to payday loans to non-member individuals within their field of membership. Sec. 110. Credit Union Governance. This provision allows federal credit unions to limit the length of service of their boards of directors to ensure broader representation from membership. It provides for the expulsion of a federal credit union member for a good cause by a majority vote of a quorum of the institution's board of directors. Sec. 111. Encouraging Small Business Development in Underserved Urban and Rural Communities . This provision enables credit unions to make more business loans by excluding from a credit union's member business loan cap the member business loans made to underserved communities. It adds the clarification that business loans made to national operated businesses are not exempt from the cap, but business loans made to locally-owned franchises of businesses operating nationally would be exempt if they are in a underserved area. Title II—Savings Association Provisions Sec 201. Restatement of Authority for Federal Savings Associations to Invest in Small Business Investment Companies. Under this proposal the amount that federal savings associations could invest in Small Business Investment Companies (SBICs) and/or in entities established to invest solely in SBIC would increase from 1% to 5% of its capital and surplus. Sec. 202. Removal of Limitation on Investments in Auto Loans. Current law places an aggregate limit (35% of total assets) on thrift loans or leases for motor vehicles. This provision allows a savings association to invest in, sell, or deal in auto and other vehicle loans and leases for personal, family, or household purposes without a percentage of assets limitation. This provision is an attempt to level the playing field with credit unions' investments in auto loans and leasing. Sec.203. Repeal of Qualified Thrift Lending Requirements with Respect to Out-of -State Branches. Current law requires that federal savings associations must meet the qualified thrift lender (QTL) test both as a entity operating regionally or nationally and in each state where the association has a branch. This provision would eliminate the second requirement that a multi-state federal savings association meet the QTL test on a state-by-state basis. The beneficiaries of this proposal are thrifts operating in more than one state. Sec. 204. Small Business and Other Commercial Loans. This section would eliminate the current small business lending limit for federal savings associations, and would increase lending limit for other types of business loans from 10 to 20% of total assets. Sec. 205. Increase in Limits on Commercial Real Estate Loans. This section would expand the capacity of savings associations to make more commercial real estate loans. The aggregate limit for this category of loans would be increased from 400% to 500% of a thrift's capital. Sec. 206. Savings Association Credit Card Banks. This provision would change current law that requires a savings and loan holding company to charter a credit card savings association as a national or state bank in order to maintain its exemption from the activity restrictions imposed on companies that control multiple thrifts. Under this provision, a unitary thrift holding company would be permitted to charter a credit card savings association and maintain its exempt status. Title III—Notice Provisions Sec. 301. Exception to Annual Privacy Notice Requirements Under the Gramm-Leach-Bliley Act. Provisions of the Gramm-Leach-Bliley Act ( P.L. 106-102 ) require most financial institutions to issue annual privacy notices to their customers. These notices spell out privacy policies and how the institution may share information. This proposal would exempt institutions that (1) provide nonpublic personal information only in accordance with specified requirements; (2) do not share information with affiliates under the Fair Credit Reporting Act; and (3) have not changed their policies and practices with regard to disclosing nonpublic personal information from those disclosed in the most recent disclosure sent to their customers. In addition, state licensed institutions that are either prohibited or become prohibited (by regulation) from disclosing nonpublic personal information without the knowing and express consent of the consumer are also exempt. Title IV—Business Checking Sec. 401. Short Title. This act may be referred to as the "Business Checking Fairness Act of 2008" Sec. 402. Interest-Bearing Transaction Accounts Authorized for All Businesses. This proposal would legalize a common practice employed by banking institutions for many business accounts involving transferring deposits between interest earning accounts and checking accounts. This provision would authorize depository institutions to offer customers the ability to make up to 24 transfers per month from an interest-bearing or dividend earning account into any other account maintained by that customer in that institution. Sec. 403. Interest-bearing Transaction Accounts Authorized. This section would repeal the prohibition against the payment of interest on demand deposits (checking accounts), which would include personal deposit accounts. It would do this by amending the laws behind the prohibition: the Home Owners Loan Act and the Deposit Insurance Act. The repeal would be effective at the end of the 2-year period beginning on the date of the enactment of this Act. Sec. 404. Rules of Construction. This provision pertains to escrow accounts maintained at a depository financial institution in connection with a real estate transaction. The proposal describes certain expenses, fees, and benefits that could be incurred in connection with escrow accounts and states that these transactions shall not be treated as the payment or receipt of interest for the purposes of this legislation. In addition, this section would neither require nor prohibit an institution to pay interest on such an escrow account. Finally, this section would not preempt state law dealing with the payment of interest on escrow accounts. Sec. 405. Consumer Banking Costs Assessment. This section would amend the Federal Reserve Act to require the Board of Governors of the Federal Reserve System to conduct a biennial survey of retail banking fees, services, and products provided by insured banks, thrifts, and credit unions. The proposal details certain information that must be included in the survey. The proposal includes the requirement for a biennial report to Congress. It would also amend the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, to repeal certain reporting requirements. Reactions to H.R. 6312 The proposed Credit Union, Bank and Thrift Regulatory Relief Act of 2008 is viewed by many as a compromise between the positions taken by credit union and the banking industries. This compromise was reached after the banking industry launched an intense lobbying effort against the Credit Union Regulatory Relief Act ( H.R. 5519 ) and the Credit Union Regulatory Improvement Act ( H.R. 1537 ), which would have expanded the definition of the field of membership, allowing more credit unions to provide financial services in unserved areas; increased the cap on member business lending, allowing credit unions to make more business loans; and instituted a risk-based system of Prompt Corrective Action, which would allow credit unions use their capital more efficiently and increase their capacity to make more loans. The banking industry saw these provisions as making credit unions more competitive with banks in addition to the tax exemption they already possess. The compromise was reached after the credit union industry modified its definition of underserved areas by reducing them. In addition, H.R. 6312 would lift the cap on member business loans less than it was lifted in the earlier legislation, and would drop the risk-based system. Perhaps what was most important was that the compromise added the provisions of the Bank Regulatory Relief Act of 2008 ( H.R. 5841 ), the banking industry's own regulatory relief bill that had already passed the House. The resulting H.R. 6312 has the support of the Credit Union National Association, the Independent Community Bankers of America, and the American Bankers Association. One provision in H.R. 6312 that was opposed in the past by some small banking institutions is the provision to pay interest on business checking accounts. As mentioned above current law prohibits the payment of interest on checking account, because banks are required to keep higher reserve balance on transaction accounts as these deposits can be withdrawn at anytime. Smaller depository institutions that are failing at a higher rate than larger ones, are likely to be even less profitable if they are required to pay interest on business checking accounts.

Credit unions, banks and thrifts (savings associations) are subject to numerous safety, soundness, and consumer protection laws and regulations. Since 2001, both the banking/thrift and the credit union industries have worked with Congress to develop legislative proposals that would reduce existing regulatory requirements and what are seen as the burdens compliance enforcement places on depository financial institutions. During the 109th Congress, legislation was enacted (P.L. 109-351; 120 Stat. 1966) that provided some of the changes sought by the industries. The statute reduced regulatory requirements for all types of depository financial institutions. Both the banking/thrift and credit union industries remain interested in the regulatory relief provisions excluded from the law. Current legislation, the Credit Union, Bank, and Thrift Regulatory Relief Act of 2008 (H.R. 6312), would provide additional steps towards obtaining the package of regulatory relief originally sought. The legislation moved quickly through the House. H.R. 6312 was introduced on June 19, 2008, and on June 24, 2008, the bill was considered under suspension of the rules and passed by the House. On June 25, 2008, the legislation was referred to the Senate Committee on Banking, Housing, and Urban Affairs. This report will be updated as developments warrant.

Mechanisms to Expedite the Development and Review Process Accelerated Approval For the treatment of a serious or life-threatening illness, FDA regulations, promulgated in 1992, allow "accelerated approval" of a drug or biologic product that provides a "meaningful therapeutic benefit ... over existing treatments." The rule covers two situations. The first allows approval to be based on clinical trials that, rather than using standard outcome measures such as survival or disease progression, use "a surrogate endpoint that is reasonably likely ... to predict clinical benefit." The second situation addresses drugs whose use could be deemed safe and effective only under set restrictions that could include limited prescribing or dispensing. FDA usually requires postmarketing studies of products approved this way. Accelerated Approval involves different concerns than do the other programs designed to speed the normal process for important new products, and therefore this paper will not discuss it further. Fast-Track Mechanism The Food and Drug Administration Modernization Act of 1997 (FDAMA, P.L. 105-115 ) directed the Secretary to create a mechanism whereby FDA could designate as "Fast Track" certain products that met two criteria. First, the product must concern a serious or life-threatening condition; second, it has to have the potential to address an unmet medical need. Once FDA grants a Fast Track designation, it encourages the manufacturer to meet with the agency to discuss development plans and strategies before the formal submission of an NDA/BLA. The early interaction can help clarify elements of clinical study design and presentation whose absence at NDA/BLA submission could delay approval decisions. However, FDA makes similar interactions available to any sponsor who seeks FDA consultation throughout the stages of drug development. A unique option within Fast Track is the opportunity to submit sections of an NDA/BLA to FDA as they are ready, rather than the standard requirement to submit a complete application at one time. Priority Review Unlike Fast Track or Accelerated Approval, the Priority Review process begins only when a manufacturer officially submits an NDA/BLA. Priority Review, therefore, does not alter the timing or content of steps taken in a drug's development or testing for safety and effectiveness. For products believed to address unmet needs, however, it shortens the average amount of time from completed application until approval decision from 10 months to 6 months. Although Priority Review is not explicitly required by law, FDA has established it in practice, and various statutes, such as the Prescription Drug User Fee Act (PDUFA), refer to and sometimes require it. Measures of Program Effectiveness Approval Rates Are products that receive Fast Track designation more likely to have their NDA/BLA approved by FDA than products that receive no such designation? The answer is we don't know, because, while FDA provides statistics on the products it designates as Fast Track, it does not make public information on the NDA/BLAs it receives unless and until the product is approved/licensed. What we do know from material on the FDA website: Manufacturers have requested Fast Track designation for 569 drugs and 195 biological products since the Fast Track program was set into law. FDA granted the designation to 74.5% of those drug requests and 63.6% of those biologics requests. Of products with Fast Track designation, FDA eventually approved 10.6% of the drugs and licensed 17.7% of the biologics. What that means is obscured by what we do not know: For what percentage of products with Fast Track designation do sponsors submit NDA/BLAs? How many NDA/BLAs submitted each year are for Fast Track products? With only the numerator (approved products), one cannot calculate the percentage of NDA/BLA submissions that are approved among Fast Track products. FDA receives approximately 100-130 applications a year, and has stated that "close to 80 percent of all filed applications will eventually be approved." The 10.6 and 17.7% figures for Fast Track are not a comparable statistic because they include the apparently large, but unquantified, number of product development attempts that manufacturers discontinue (for safety problems, lack of effectiveness, business decisions, competing projects). A useful analysis would account for the percentage of Fast Track and non-Fast Track products of which FDA is aware (e.g., that have INDs) that result in submitted NDA/BLAs. Length of Decision Times for Approval How long it takes from the time a sponsor applies for marketing permission to the moment FDA makes its decision varies greatly. The length matters to the sponsor and its stockholders, to potential consumers and healthcare providers, and to FDA. Two factors contribute to longer review times: review staff constraints at FDA, and the quality and completeness of applications when they are first submitted. PDUFA and its three reauthorizations have addressed the staffing issue by authorizing industry user fees to support FDA reviewers. FDA's Web pages on the use of its Fast Track and Priority Review programs provide the review times for successful applications. Table 2 compares the review times, by year and type of review procedure, for all 787 approved NDA/BLAs applications that were submitted from FY1998 through FY2006. These applications received either a Standard Review or a Priority Review , and the review times for these two procedures are summarized in the first two pairs of data columns in the table. The third pair of columns summarizes review times for approved NDA/BLA applications for products that received a Fast Track designation. As discussed below, most, though not all, of these 55 applications received a Priority Review and thus are counted in the Priority Review columns; the remainder are captured in the Standard Review data. The final pair of columns provide data on Priority Review times for NDAs of New Molecular Entities (NMEs) and New BLAs . These applications represent a subset of all those subject to Priority Review, and are the group of products most similar to Fast Track products. Each row of Table 2 corresponds to approved applications submitted during a specific year. The total approval time includes the time FDA spends to review an application, plus the time the sponsor takes to respond to questions, if necessary, plus the time FDA spends on any additional review. The table provides the median approval time for each submission year group, which is the value at the mid-point of times in a group. FDA uses the median in its reports, stating, "It provides a truer picture of our performance than average time, which can be unduly influenced by a few very long or short times." Fast Track submissions in theory differ from routine NDA/BLA submissions because they address unmet needs in the treatment of life-threatening or serious conditions. Similar criteria apply to drugs that FDA gives Priority Review status. In fact, 80% of Fast Track NDA approvals were also given Priority Review, as were all of the approved Fast Track BLAs. Again, FDA makes public detailed data only regarding the products that it approves/licenses. Using the data in Table 2 to determine the impact Fast Track designation has on approval time is complicated by limitations in the data available. These include the following: Inadequate data: Available FDA tables aggregate applications by year and present only the median approval time value for each year. This precludes using the individual application times in subsequent calculations. Missing data: Data available for analysis come from approved applications. Inclusion of numbers of applications and total time to review decision (approval or not) would allow examination of additional aspects of the Fast Track program that may provide advantages that do not affect total approval time. Unavailable documentation of decisions: Without detailed documentation of the many decisions embedded in the FDA summary tables, accuracy or consistency in assignment to year of submission rather than year of approval cannot be assessed. If an application is assigned to one year in the Fast Track column and to another in the All Priority column, for example, relying on the annual median approval times could distort the comparisons. Overlapping categories: The All Priority and All Standard groups sum to the total number of approved applications in each submission year. The other categories, however, overlap. By definition, the Priority NMEs and New BLAs category is a subset of the All Priority NDAs and BLAs. For the Fast Track NDAs, at least 87% are counted in the Priority NDA group and at least 68% are also counted in the Priority NME group. (FDA lists some Fast Track NME applications as assigned to Standard Review.) As expected, based on program goals, times are shorter for Priority Review than for Standard Review. For seven of the nine years, median Fast Track times were shorter than Priority Reviews, suggesting that Fast Track may have reduced time-to-market beyond the shortening of review time afforded by Priority Review. A more detailed analysis of individual application data might indicate how group differences may be due to obvious exceptions, different procedures or application completeness or quality, or unknown factors or chance. For example, how does the wide range of approval times—from 2.4 to 34.1 months—for the eight Fast Track product NDA/BLAs submitted in 2001 affect group averages? Finally, review time from submission to approval is only one measure of Fast Track effect. If a Fast Track designation enables a sponsor to submit a completed NDA/BLA sooner than it would otherwise, that advantage would not be evident in this comparison of review times that begins with submission.

By statutory requirements and by regulation, guidance, and practice, the Food and Drug Administration (FDA) works with several overlapping yet distinct programs to get to market quickly new drug and biological products that address unmet needs. FDA most frequently uses three mechanisms for that purpose: Accelerated Approval, Fast Track, and Priority Review. The first two affect the development process before a sponsor submits a marketing application. Accelerated Approval allows surrogate endpoints in trials to demonstrate effectiveness and is relevant in fewer situations than the others. The Fast Track program encourages a sponsor to consult with FDA while developing a product. Unlike the others, Priority Review involves no discussions of study design or procedure; it relates only to an application's place in the review queue. Analysis of total approval time for approved applications under the Fast Track and Priority Review programs shows that for seven of the past nine years, Fast Track products have shorter median approval times than do all those applications assigned to Priority Review.

Overview of Key Concepts Improving border and transportation security (BTS) are essential strategies for improving andmaintaining homeland security. Border security entails regulating the flow of traffic across thenation's borders so that dangerous and unwanted goods and people are detected and denied entry. This requires a sophisticated border management system that balances the need for securing thenation's borders with facilitating the essential free flow of legitimate commerce, citizens, andauthorized visitors. Transportation security involves securing the flow of people and goods alongthe nation's highways, railways, airways, and waterways. (1) While in the immediate aftermath of 9/11 efforts primarilyconcentrated on an expanded federal role in aviation security (in particular on the heightenedscreening of passengers and baggage), increasingly attention is being turned towards other modesof transportation. Recent congressional actions concerning terrorism and border security fall into severalcategories including broad efforts to understand the terrorist threat (including several commissions:Gilmore, Bremer, and Hart-Rudman); structural changes to provide a proper framework for action(enacting legislation, P.L. 107-296 , to create the Department of Homeland Security (DHS), andenacting the USA Patriot Act, P.L. 107-56 ); highly specific actions to prevent immediate threats(legislative activity concerning aviation security, visa policy, bioterrorism, and maritime security);and a return to broader and more comprehensive approaches (including the creation of the 9/11Commission, and the recently passed intelligence reform bill). The indications are that in both alegislative and oversight capacity, the 109th Congress will be dealing with issues that confront bordersecurity and homeland security issues in a comprehensive and more integrated fashion. This report is intended as an overview of selected concepts and issues that may be of interestto the 109th Congress, and should not be considered exhaustive. It provides a brief description ofselected agencies and their border and transportation security responsibilities. (2) The paper then discussesselected concepts that are prominently featured in recent BTS debates; and provides a summary ofBTS-related provisions of the 9/11 Commission Report, and the Intelligence Reform and TerrorismPrevention Act of 2004. Finally, this report presents some specific border and transportation securityissues that may be of interest to the 109th Congress. (3) DHS Border and Transportation Security Responsibilities DHS is the primary agency responsible for the security of the borders. The HomelandSecurity Act of 2002 ( P.L. 107-296 ) transferred the relevant funding and most of the personnel of22 agencies and offices to the newly created Department of Homeland Security. DHS was organizedinto four main directorates: Border and Transportation Security (BTS); Emergency Preparednessand Response (EPR); Science and Technology (S&T); and Information Analysis and InfrastructureProtection (IAIP). Border security functional responsibilities are at their most vivid at the point at which goodsor people are expected to cross borders. (4) The border and transportation security responsibilities of DHS areprimarily located within the BTS Directorate. The Coast Guard is a stand alone agency within DHS,but has significant border security responsibilities. Within the BTS Directorate, Customs and Border Protection (CBP) has responsibility forsecurity at and between ports-of-entry along the border. These responsibilities include inspectingpeople and goods to determine if they are authorized to enter, and maintaining border crossingstations to process persons seeking entry to the U.S. The inspection and border-related functions ofthe Customs Service; the inspection functions of the former Immigration and Naturalization Service;the Border Patrol; and the inspection functions of the Animal and Plant Health Inspection Service(APHIS) program are consolidated under the CBP. Within CBP, the United States Border Patrol(USBP) is the agency responsible for the enforcement of federal immigration laws between ports ofentry. As currently comprised, the USBP's primary mission is to detect and prevent the entry ofterrorists, weapons of mass destruction, and unauthorized aliens into the country, and to interdictdrug smugglers and other criminals. Also within BTS, the bureau of Immigration and Customs Enforcement (ICE) focuses onenforcement of immigration and customs laws within the United States, as well as investigations intosuch activities as fraud, forced labor, trade agreement noncompliance, smuggling and illegaltransshipment of people and goods, and vehicle and cargo theft. In addition, this bureau overseesthe building security activities of the Federal Protective Service, formerly of the General ServicesAdministration; the operations of the Air and Marine Operations unit; and the Federal Air MarshalsService (FAMS) transferred to ICE from Transportation Security Administration (TSA) in Augustof 2003. The bureau combined the investigations and intelligence functions of the U.S. CustomsService and the former INS, the air and marine interdiction functions of those agencies, and theimmigration detention and removal programs, as well as the operations of the Federal ProtectiveService. ICE conducts investigations to develop intelligence to reduce illegal entry into the UnitedStates, and is responsible for locating and removing illegal aliens by inspecting places ofemployment for undocumented workers. ICE is responsible for identifying and finding persons whohave overstayed their visas, and the Bureau also develops intelligence to combat terrorist financingand money laundering, and to enforce export laws against smuggling and fraud. The TSA, created by the Aviation and Transportation Security Act (ATSA; P.L. 107-71 ), wasestablished to increase the protection of people and commerce as they traveled into and throughoutthe United States. TSA's primary focus in the aftermath of the 9/11 attacks has been aviationsecurity, which includes protecting the air transportation system against terrorist threats, sabotageand other acts of violence through the deployment of passenger and baggage screeners; detectionsystems for explosives, weapons, and other contraband; and other security technologies. TSA alsohas responsibilities for marine and land modes of transportation including assessing the risk ofterrorist attacks to all non-aviation transportation modes, issuing regulations to improve the securityof the modes, and enforcing these regulations to ensure the protection of the transportation system. TSA is further charged with serving as the primary liaison for transportation security to the lawenforcement and intelligence communities, and with conducting research and development activitiesto improve security technologies. The Coast Guard is the lead federal agency for the maritime component of homeland security. As such, it is responsible for border and transportation security as it applies to U.S. ports, coastal andinland waterways, and territorial waters. The Coast Guard also performs other missions, includingsome (such as fisheries enforcement and marine rescue operations) that are not related to homelandsecurity. The law that established DHS ( P.L. 107-296 ) directed that the Coast Guard be maintainedas a distinct entity within DHS and that the Commandant of the Coast Guard report directly to theSecretary of DHS. Accordingly, the Coast Guard exists as its own agency within DHS and is notpart of DHS's border and transportation security directorate. The Coast Guard does, however, workclosely with the BTS directorate. The Department of State (DOS) and the Department of Justice (DOJ) also have a role to playin border security. Foreign nationals not already legally residing in the United States who wish tocome to the United States generally must obtain a visa to be admitted. (5) Under current law, threedepartments -- DOS, DHS, DOJ -- play key roles in administering the law and policies on theadmission of aliens. (6) DOS's Bureau of Consular Affairs is responsible for issuing visas. DHS's Citizenship andImmigration Services Bureau (USCIS) is charged with approving immigrant petitions. In addition,DOJ's Executive Office for immigration Review (EOIR) plays a significant policy role through itsadjudicatory decisions on specific immigration cases. With this as background, the report now turns to a discussion of selected concepts thatfrequently appear in BTS debates. Selected Concepts This section of the paper discusses several BTS-related concepts that will likely be featuredduring the relevant legislative debates of the 109th Congress. Border Management In broad terms, good border management seeks to balance the competing, but not necessarilyconflicting, goals of (1) facilitating (and even expediting) access for people and goods that we bothneed and desire; with (2) interdicting and stopping "bad" people and "bad" things from entering thecountry. The key to success in this endeavor is the ability to accurately and efficiently identifyhigh-risk passengers and cargo, target them for inspection, and prevent the entry of dangerous goodsand people without impeding the flow of legitimate cross-border traffic. The task for the policymaker is to identify and promote those policies that will enhance the efficacy of the filters employedfor these tasks. More specifically, the border enforcement agent or inspector is ultimately engaged in anidentification and verification process. It is an effort to determine the identity of the people or cargoseeking entry, and to verify the legitimacy of the request for entry. There are many debates abouthow best to do this. The current entry processing procedures for both people and cargo are complex,and involve numerous steps each of which presents both an opportunity for interference or forinterception. Breadth, Depth, Coverage, and Jurisdiction Several of the issues that will likely confront policymakers in the 109th Congress essentiallyrevolve around a number of themes relating to breadth, depth, coverage, and jurisdiction. As notedabove, both the border and transportation security realms involve numerous actors (both public andprivate), and a tremendous volume of movements across the nation's borders or along the country'stransportation infrastructure. The environment created by numerous actors and high volumes oftraffic may lead to a potential goal conflict between security and efficiency, in the case whereincreased security measures impede the flow of people and goods across the border and throughoutthe country. Of course, this need not necessarily occur, and in fact policy choices can be made thatboth provide more security and speed the flow of legitimate traffic. In the 109th Congress, breadth (what and who should be inspected), depth (what should theintensity of the inspection be), coverage (how often should things and people be inspected, and forwhat purpose), and jurisdiction (who should be responsible for the inspection) are likely to be keyitems of debate. For example, many of these debates could center around the securing of goods andpeople that are entering the county and being transported throughout the country, and the level ofinspection that should be applied to them. There are several avenues of approach to inspections. Some argue that targeting procedures, trusted-traveler, and trusted-shipper (or known-shipper)programs are insufficient at identifying so-called high-risk people and cargo and that 100%inspection procedures should be applied. Others argue that because of limited resources (technology,people, time, space), and the potential impact on commerce, a targeted approach should be applied. If 100% inspection is not desirable, or unattainable, what should the appropriate level be? What arethe appropriate targeting mechanisms, and who should apply them? If a layered approach is applied,how often should goods or individuals be inspected or screened before they enter the country, or asthey are transported across the country, and what entities are or will be responsible for theseinspections? These are just some of the overarching questions that can be applied to many of theissues that are discussed in greater detail near the end of this report. Inspection and Screening. The term inspection can play a prominent role in discussions of border security. Confusion over the use of the terminvariably arises in conflicting estimates of what proportion of goods (containers, trucks, railcars)have been inspected . Depending upon the context, an inspection could entail anything (andeverything) from a review of the documentation attached to the entry of a particular shipment, to amore detailed document check; looking at the outside of a container; walking a K-9 unit around thecontainer; taking an x-ray or a gamma-ray image of the contents of the container; passing thecontainer through a radiation portal monitor; or physically unloading and examining the cargo. Oneoften reported statistic is that "only X% of cargo containers is inspected at the nation's ports." Doesthis mean that only X% was physically removed from the container and examined by inspectors? Or does this mean that X% was x-rayed or sent to what is sometimes referred to as secondaryinspection. These questions apply to the entry of people as well. In popular discussions, it is not alwaysclear whether an inspection means a documentary review, a biometric verification of identity, aninterview, a pass through a metal detector, a search of applicable databases, and/or a personalsearch? (7) As in the cargorealm, an often reported statistic is that X% of people were inspected at the nation's borders, orairports etc. Does this mean that X% were interviewed, or were sent to secondary inspection? Further, there can be differences in inspections depending upon the port of entry. For example,people arriving in the United States at an airport arguably undergo a more comprehensiveexamination than those arriving by car at land ports of entry. The concepts of primary and secondary inspection can further complicate the discussion. Aprimary inspection typically consists of some set of standard examination protocols that are appliedto every person or shipment of cargo seeking entry into the country. It follows then that thesecondary inspection is a further set of protocols applied to those shipments or people, which for avariety of possible reasons were unable to be satisfactorily processed during the primary inspection. Thus, when encountering reported statistics or debating policies and procedures, it is important tounderstand the context in which the term inspection is being used, and the subset of cargo and peopleit applies to. There are related issues with the use of the term screening . What does it mean to screencargo or people as they enter the country? Often this term is used interchangeably with the term inspection , and the same questions as highlighted above apply as well. The term screening is oftenused to describe the querying of databases to verify the identity of the person or good seeking entry,and the legitimacy of that claim. If this is the case, then against what were the individuals or cargoscreened -- terrorist watchlists, criminal history databases, and/or others? Systems Integration and Interoperability. The9/11 Commission recommended the integration of the U.S. border security system by expanding thenetwork of screening points to include the nation's transportation system and access to vital facilities. The Administration responded to this recommendation by issuing Homeland Security PresidentialDirective 11 (HSPD-11), which in large part builds upon HSPD-6, and related measures to improveterrorist screening. Many of these measures hinge on effective information sharing and, hence, onsystems integration and interoperability in a secure environment. Systems integration involvesestablishing standardized communication protocols and interface specifications for systems(hardware and software) that are usually part of a larger information technology (enterprise)architecture. Integrated systems are highly interoperable in that they are capable of effectively andefficiently sharing information through complementary operational systems, networks, anddatabases. On the other hand, interoperable systems that are not fully integrated usually involveinformation sharing across systems -- on a smaller scale -- based on standardized data formats andelements. Indeed, such systems may not be fully integrated for reasons of security and economy ofscale. Potential Issues for the 109th Congress This section of the report highlights some of the BTS-related issues that may be of concernto the 109th Congress. It should be noted that this list contains selected issues and should not beconsidered comprehensive. Border-Related Immigration Control US-VISIT/Entry-Exit Screening. The US-VISITprogram may be the subject of congressional oversight as the Administration continues to fullyimplement the program at the various ports of entry. Under current practice, certain foreign nationalsare exempt from the requirements of the U.S.-VISIT program (i.e., Mexican nationals who possessa Laser Visa and many Canadian nationals). However, the 108th Congress passed legislation thatrequires a biometrically secured document of everyone who presents themselves for entry at a U.S.port of entry (though this does not necessarily mean that everyone required to present a biometricallysecured document will be included in US-VISIT). This may continue to be of concern to the nextCongress. The Intelligence Reform and Terrorism Prevention Act (IRTPA) contains severalprovisions relating to the entry-exit system. One of the 9/11 Commission recommendations wouldfind completing the biometric entry-exit system to be an "essential investment" and require theSecretary of DHS to develop a plan to accelerate the full implementation of the system, and tosubmit a report to Congress no later than 180 days after enactment on the plan. Visa Policy, Visa Waiver and Pre-screening. Since the mid-1990s, immigration control has been shifting away from U.S. border inspections andapprehensions to overseas screening aimed at keeping inadmissible aliens from arriving in the UnitedStates. Since foreign nationals not already legally residing in the United States who wish to cometo the United States generally must obtain a visa to be admitted (with some notable exceptionsdiscussed below), strengthening visa issuance procedures has been a key element of border security. The 109th Congress will continue to oversee the implementation of several important provisionspertaining to visa policy enacted in recent years. These provisions mandated data sharing so thatconsular officers have access to relevant electronic information, required the development of aninteroperable electronic data system to be used to share information relevant to alien admissibility,and required that all visas issued after October 2004 have biometric identifiers. (8) Action most recently to keepinadmissible aliens abroad -- the Intelligence Reform and Terrorism Prevention Act of 2004 --expanded the overseas pre-inspection of travelers destined for the United States, requested thedeployment of technologies (e.g., biometrics) to detect potential terrorist indicators on traveldocuments, established within the Department of State (DOS) an Office of Visa and PassportSecurity, and required that consular officers have greater training in the detection of terrorist travelpatterns. Many visitors enter the United States without visas through the Visa Waiver Program(VWP), a provision of law that allows the visa requirements to be waived for aliens coming asvisitors from 27 countries that meet certain standards (e.g., Australia, France, Germany, Italy, Japan,New Zealand, and Switzerland). Notable among these requirements is that VWP participatingcountries must issue passports with biometric identifiers; however, this requirement has yet to be metby any of the participating countries. The 108th Congress extended the deadline to incorporatebiometric identifiers until October 26, 2005. The 109th Congress may choose to re-examine thebiometric passport deadline as there are indications that some countries will be unable to meet thenew deadline. Under law, there is no mechanism other than congressional action to extend thedeadline. Another potential issue may be DHS's management of the VWP. A recent report by DHS'sOffice of Inspections detailed several security concerns related to the program including lack ofadequate funding and trained personnel to administer the VWP, reliability issues with the data onlost and stolen passports, and the failure to conduct timely country reviews. (9) Biometrics and Documentary Requirements. Forover a decade, there has been a consensus that immigration documents should include biometricidentifiers. Congress imposed a statutory requirement for the biometric border crossing card knownas laser visas in 1996 and added requirements for biometric visas in 2001 and 2002. (10) For the past several years,DOS's Bureau of Consular Affairs has been issuing machine-readable visas. Consular officers usethe Consular Consolidated Database (CCD) to store data on visa applicants. Since February 2001,the CCD stores photographs of all visa applicants in electronic form, and more recently the CCD hasbegun storing finger prints of the right and left index fingers. The CCD is the nexus for screeningaliens for admissibility, notably screening on terrorist security and criminal grounds. The laser visa,which also includes a photograph and prints for both index fingers as biometric identifiers, is issuedto citizens of Mexico to gain short-term entry (up to six months) for business or tourism into theUnited States. The Mexican laser visa has traditionally been called a border crossing card (BCC). Since 1998, the card issued to legal permanent residents (LPRs), commonly called a "green card,"has included digital photographs and fingerprints, holograms, micro-printing, and an optical memorystripe. In addition to the VWP, there are exceptions to documentary requirements for a visa thathave been established by law, treaty, or regulation -- most notably with respect to citizens of Canada. The law also authorizes the Attorney General and the Secretary of State acting jointly to waive thedocumentary requirements, on the basis of unforeseen emergency in individual cases. (11) In 2003, theAdministration scaled back the circumstances in which the visa and passport requirements arewaived. (12) The 109th Congress may consider limits to the President's ability to waive general statutoryrequirements requiring U.S. citizens traveling abroad or attempting to enter the United States to beara valid U.S. passport. Some would restrict such a waiver only to U.S. citizens traveling to or fromforeign contiguous territories who are bearing identification documents that would be designated byDHS as reliable proof of U.S. citizenship, and would require that the documentation not be of a typeissued to an unlawfully present alien within the United States. Some would also amend the presentwaiver authority concerning document requirements for arriving nationals from foreign contiguouscountries or adjacent islands, so that such waivers may only be granted (in non-emergency situations)through a joint determination by the Secretaries of DHS and DOS on the basis of reciprocity, andthen only if the arriving foreign national is in possession of identification documents deemed secureby the Secretary of DHS. Smuggling and Trafficking. Alien smuggling andhuman trafficking share common elements and attributes but are different offenses. In some respectshuman trafficking is an aggravated form of alien smuggling, since during both offenses, aliens aresmuggled (brought illegally) into the country. Those who are smuggled are free when they reachtheir final destination, while those who are trafficked find themselves in a servitude arrangement thatdoes not end after they are smuggled to their final destination. ICE as the lead agency collaborateswith the Department of State and the Federal Bureau of Investigation (FBI) as well as other federaland local law enforcement agencies on investigations into alien smuggling and trafficking whichinclude an overseas investigative component. Some contend that targeting major smuggling andtrafficking organizations for investigation and prosecution reduces illegal entries into the UnitedStates. Moreover some are concerned that terrorists may use human smuggling networks toclandestinely enter the United States. In the Intelligence Reform and Terrorism Prevention Act of 2004, Congress established theinteragency Human Smuggling and Trafficking Center for the purposes of combating terrorist travel,migrant smuggling and trafficking in persons. At issue may be the need for other tools to combatsmuggling such as increasing the criminal penalties for alien smuggling. In addition, ICE has beendeveloping a strategy to address alien smuggling and human trafficking at the internationallevel. (13) At this timethere is little published on the new strategy, and it is unclear how the strategy will integrate theexpertise and personnel of multiple law enforcement agencies. Furthermore, the authorization forthe Victims of Trafficking and Violence Protection Act of 2000, (14) which contains programsto help prevent trafficking and to aid victims, expires in FY2005. Asylum and Expedited Removal. The UnitedStates has long held to the principle that it will not return a foreign national to a country where hislife or freedom would be threatened. Aliens seeking asylum must demonstrate a well-founded fearthat if returned home, they will be persecuted based upon one of five characteristics: race, religion,nationality, membership in a particular social group, or political opinion. In addition, regulationsimplementing the United Nations Convention Against Torture and Other Cruel, Inhuman orDegrading Treatment or Punishment (hereafter referred to as the Torture Convention) prohibit thereturn of any person to a country where there are "substantial grounds" for believing that he or shewould be in danger of being tortured. An immigration officer, however, can summarily exclude,through a process known as expedited removal, an alien arriving without proper documentation oran alien present in the United States for less than two years, unless the alien expresses a fear ofpersecution. Although the United States Citizenship and Immigration Services Bureau (USCIS) and theDepartment of Justice's Executive Office for Immigration Review (EOIR) are clearly the leadagencies in asylum policy, the first contacts many asylum seekers have with the U.S. governmentare with Border and Transportation Security (BTS) officials. Some have expressed concern that theCBP inspectors, U.S. Border Patrol officers, and Immigration and Customs Enforcement (ICE)agents are not adequately trained in asylum policy and other humanitarian forms of immigrationrelief. Others point out that the CBP inspectors, U.S. Border Patrol officers, and ICE agents followthe policy and procedural guidelines to ensure that aliens who express a fear of returning home aregiven the opportunity to have their fears considered by an asylum officer and/or an immigrationjudge. Although there are many who would revise U.S. asylum law and policy, those advocatingchange have divergent perspectives. Some express concern that potential terrorists could use asylumas an avenue for entry into the United States, especially aliens from trouble spots in the Mideast,northern Africa and south Asia. Others maintain that current law does not offer adequate protectionsfor people fleeing human rights violations. Some state that -- given the religious, ethnic, and politicalviolence in various countries around the world -- it is becoming more difficult to differentiate thepersecuted from the persecutors. At the crux is the extent an asylum policy forged during the ColdWar can adapt to a changing world and the war on terrorism. Conferees on the intelligence reform law enacted by the 108th Congress droppedHouse-passed provisions to revise asylum and expedited removal, and these options are expectedto be considered early in the 109th Congress. Some proponents of these revisions would expand theclass of aliens subject to expedited removal without further hearing or review, by increasing the priorcontinuous U.S. physical presence required for exemption from such removal from two years to fiveyears. Some also would restrict access to an interview with an asylum officers by those aliens inexpedited removal who are seeking asylum to those aliens who have been physically present in theUnited States for less than a year. Other legislative options would raise evidentiary standards forasylum. IDENT/IAFIS Database Integration. The currentproject underway to integrate CBP's Automated Biometric Identification System (IDENT) and theFederal Bureau of Investigation's (FBI's) Integrated Automated Fingerprint Identification System(IAFIS), has recently been of significant concern to Congress, and will likely remain a concern intothe 109th Congress. The USBP uses IDENT to identify and track illegal aliens. IDENT combinesa digital photograph, two flat fingerprints, and biographical data into two databases which can beused to track repeat entrants and better identify criminal aliens. The FBI's IAFIS is an automated 10rolled fingerprint matching system linked to a database that holds over 40 million records, includingwanted persons, stolen vehicles, deported felons, gang members, and terrorists. Integration of thetwo systems is widely regarded as a vital component of tightening border security, as it would allowfrontline CBP inspectors and USBP agents to access the FBI's criminal database in order to establishwhether apprehended aliens have outstanding warrants or criminal histories. However, integrationhas proved difficult for various technical and organizational reasons. The conference report to theFY2005 DHS Appropriations Act ( P.L. 108-334 ), H.Rept. 108-774 , adopts reporting requirements:requiring DHS to fund the full cost of achieving real time interoperability between the two systemsusing the US-VISIT appropriation; directing the Under Secretary of BTS to report within 90 daysof enactment on the status of the integration effort including steps that will be taken to integrateIAFIS into IDENT, needed funding, and a timetable for full integration. Cargo and Transportation-Related Border Control Cargo and Container Security. Cargo andcontainer security remain issues of concern. CBP is advancing its cargo security strategy primarilythrough two initiatives: the Customs-Trade Partnership Against Terrorism (C-TPAT), and theContainer Security Initiative (CSI). C-TPAT is a public-private partnership aimed at securing thesupply chain from point of origin through entry into the U.S. CSI is a CBP program stationing CBPofficers in foreign sea ports to target and inspect marine containers before they are loaded ontoU.S.-bound vessels. The Government Accountability Office (GAO) published a report concerningboth the CSI and C-TPAT programs. GAO credited CBP for quickly rolling out the two programsbut noted that CBP needs to develop: systematic human capital plans; performance measures foraccountability and program achievement; and a long-term strategic plan to successfully manage thetwo programs. (15) TheHouse report ( H.Rept. 108-541 ) attached to the House-passed version of the DHS Appropriationsbill requested a report from CBP detailing the implementation plan for CSI, and encourages CBPto develop an integrated network including "all relevant route, inspection, shipment, and intrusiondata." The conference report ( H.Rept. 108-774 ) to the DHS Appropriations Act directs the UnderSecretary of BTS to submit a comprehensive report by February 8, 2005 which should include(among other items): the steps DHS has taken to enhance container security and which BTS entityhas primary responsibility for implementing cargo container security measures; what steps this entitywill take to implement future cargo security standards, policies, procedures, or regulations; and thesecurity of in-bond shipments. (16) Questions for Congress include how the CSI and C-TPATprograms can be integrated into a wider screening network; and how to maintain the security ofshipments once they enter the country and are transported from the ports of entry to their finaldestination within the country. Also, CSI focuses on containers; and there are other forms of marinecargo including liquid or dry bulk; break bulk; and vehicles. Congress may wish to consider if thereshould be some type of CSI-type pre-inspection of these cargoes as well. Targeting and Risk Assessment. CBP uses a riskassessment tool, the Automated Targeting System(ATS) to focus inspections on high-risk shipments.ATS automatically sorts shipments according to risk based on specific weighted rule sets, andassigns each shipment a risk score. The higher the score, the more attention a shipment requires, andthe greater the chance it will be targeted for inspection. While many observers note the importanceof developing sophisticated targeting mechanisms others have raised concerns, including GAOwhich recently noted that while CBP's targeting strategy incorporated some elements of riskmanagement, it lacked a comprehensive set of criticality, vulnerability and risk assessments, anddoes not follow certain recognized modeling practices. (17) Potential questions for Congress concerning risk assessmentsin general include the efficacy of the targeting mechanisms like the ATS; how this particularmechanism might be integrated into a broader screening network; the potential applicability of thismechanism to screening domestically shipped cargo; and how it might be paired with randominspections to identify potential gaps. Cargo Inspection Technology. CBP uses a varietyof inspection technologies to assist inspectors in detecting and identifying suspicious cargo. Thesetechnologies are referred to generally as non-intrusive inspection (NII) technology, and include bothgamma-ray (such as the Vehicle and Cargo Inspection System), (VACIS) and x-ray systems, amongothers. CBP also uses radiation detection devices, both personal (PRDs) and large-scale radiationportal monitors (RPMs). Potential questions for Congress regarding these technologies include howthey could possibly be integrated with a broader network of screening capabilities not just at portsof entry, but possibly used to improve the screening of domestically shipped cargoes; and howinformation gleaned from security risks identified during the screening of goods might beincorporated into a larger screening network; how these technologies might be inserted into the flowof cargo through ports and transportation nodes to screen more goods; and how best to systematicallydevelop and deploy the next generation of cargo inspection technology. Privatized Airport Screening Program. Ofpossible issue to Congress is the number of airports that may request to opt-out of the federalscreener program after November 18, 2004. The conference report ( H.Rept. 108-774 ) to the FY2005DHS Appropriations Act requires TSA to report on: cost savings resulting from opt-out; the numberand location of each airport applying for participation under the opt-out program; the decision by theAdministrator on the application; if an application by an airport is not accepted, the reasons why theapplication was not approved; and the results of the competitive acquisition for contract screeningservices at those airports whose applications have been approved. Computer Assisted Passenger Pre-screening System (CAPPS) and"Secure Flight". Currently, air carriers are responsible for implementing the CAPPSsystem at airports. TSA had been developing a more advanced passenger pre-screening systemcalled CAPPS-II. However, due to mounting privacy concerns and operational problems, TSAannounced it was scrapping plans to implement CAPPS-II in August 2004. (18) Instead, TSAAdministrator David M. Stone testified that CAPPS-II is being "reshaped and repackaged" to addressthe privacy issues. (19) TSA recently announced the replacement program, entitled "Secure Flight," which will differ fromCAPPS II because it focuses on identifying terrorists rather than on serving other law enforcementpurposes. (20) One of the9/11 Commission Report recommendations suggested that TSA take over the existing CAPPSsystem from the airlines until whatever program that replaces it becomes operational. This wouldprobably add to TSA screener workload and may result in an increased need for funds within TSA. Possible issues for Congress include whether current appropriations levels are adequate for the"reshaping" of CAPPS-II into the recently announced "Secure Flight" program, and whether morefunds should be appropriated for TSA if in fact the agency takes over the implementation of theexisting CAPPS system from air carriers. The conferees to the FY2005 DHS Appropriations Act ( P.L. 108-334 ) agreed to provide $35million for Secure Flight and noted that an additional $10 million is provided under a separate TSAaccount for crew vetting. The conferees note their concern that 90 days may not be sufficient to plan,test, and analyze the system before its full implementation. Therefore, the conferees encourage theTSA to focus first on getting watchlists operational and expect TSA to cooperate with GAO in itsreview of Secure Flight. The conferees further note that DHS is proposing to check all passengersusing the new Secure Flight system as recommended by the 9/11 Commission. Subtitle B of Title IV of The Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L.108-458 ) essentially implements the 9/11 Commission recommendations to improve passengerprescreening for both domestic and international flights, and improve the use of 'no-fly' and'automatic selectee' lists while ensuring that passenger prescreening measures do not violate privacyor civil liberties. Explosive Detection Systems (EDS) and Explosive TraceDetection (ETD). Explosive detection remains an issue of concern to Congress. The FY2005 DHS Appropriations Act provided $180 million for the purchase of EDS/ETDmachines for screening checked baggage. Subtitle B of the Intelligence Reform and TerrorismPrevention Act of 2004 contains a provision implementing the 9/11 Commission recommendationto give priority attention to screening passengers and their carry-on baggage for explosives. Further,this subtitle also contains provisions, requiring TSA to develop a plan for implementing enhancedexplosive detection equipment. The 9/11 Commission recommended that the TSA expediteinstallation of in-line baggage screening systems. Potential issues for Congressional debate couldinclude the adequacy of current funding levels, and the equity of cost-sharing for in-line EDSintegration. Air Cargo Security. Air cargo security remainsan issue of significant concern to Congress. Most recently, this issue was addressed in the 9/11Commission recommendations, the FY2005 DHS Appropriations Act, and the Intelligence reformlegislation. P.L. 108-334 required (among other things) that TSA: "research, develop, and procurecertified systems to inspect and screen air cargo on passenger aircraft at the earliest date possible,to enhance the known shipper program, and to triple the percentage of cargo inspected on passengeraircraft. TSA shall require cargo screened on passenger aircraft to meet the tripling threshold asmeasured by the average percentage of cargo inspected per day, per airline, per airport." Additionally, the conferees (in H.Rept. 108-774 ) direct TSA to work more aggressively to strengthenair cargo security by: strengthening the known shipper program to include regular checks; workingwith indirect carriers to ensure their compliance with security directives; and validating indirectcarriers' security measures where the carriers consolidate freight and transport it to passenger andall cargo aircraft. Subtitle C of Title IV of the Intelligence Reform and Terrorism Prevention Actof 2004 concerns air cargo security and requires TSA to develop better technologies for air cargosecurity; authorizes funding for equipment, research and development; requires DHS to finalize itsair cargo requirements within eight months; and requires a pilot program using blast-resistantcontainers for suspicious cargo. Issues for Congress could include further debate over newapproaches to air cargo security; levels of physical inspection of cargo; and improving efforts toidentify and screen cargo. Non-Aviation Transportation Security. In theimmediate aftermath of the 9/11 attacks much focus understandably has been placed on aviationsecurity issues. However, after the March 2004 train bombings in Madrid, Spain, attention hasturned to the security of non-aviation modes of transportation. For instance, P.L. 108-334 , theFY2005 DHS Appropriations Act provided specific funding amounts for TSA, and several otherDHS offices, for rail security. TSA is the federal agency tasked with ensuring the security of thenation's transportation systems, and is responsible for the development of the national transportationsecurity plan. The IRTPA addresses one of the 9/11 commission recommendations by requiring theSecretary of DHS, jointly with the Secretary of Transportation, to develop and implement a nationalstrategy for transportation security which shall include (among other items): the identification andevaluation of all transportation assets in the country; risk-based priorities and realistic deadlines foraddressing security needs; and a forward-looking strategic plan setting forth the roles andresponsibilities of federal, state, regional, local authorities as well as private entities. The initialstrategy is to be delivered to Congress no later than April 15, 2005. Potential issues for Congresscould include the division of responsibilities for transportation security; how the nationaltransportation security plan will be integrated with existing plans and security initiatives such as theAir Cargo Strategic plan, administered by TSA; the maritime security plans required by the MaritimeTransportation Security Act, administered by the Coast Guard; and the forthcoming National CargoSecurity Strategy, currently being developed by DHS. Coast Guard Deepwater Program. The Deepwaterprogram is a planned 22-year, multibillion-dollar project to replace or modernize 93 aging CoastGuard ships and 207 aging Coast Guard aircraft. The Deepwater program presents several potentialissues for Congress. One potential issue concerns the mission requirements to be met by theprogram, which were established in the late 1990s and reflect a pre-9/11 understanding of the CoastGuard's future mission requirements. A 2004 RAND Corporation report on the Deepwater programstates that the baseline Deepwater program "will not provide the USCG with adequate assets andcapabilities to fulfill demands for traditional missions and emerging responsibilities. To satisfy thesedemands, the USCG will need the capabilities of twice the number of cutters and 50% more airvehicles than it has been planning to acquire over the next two decades." The Coast Guard isreassessing the program's mission requirements to take post-9/11 mission demands into account. Coast Guard officials have stated that existing deepwater-capable assets are wearing out morequickly than anticipated, suggesting that new assets might need to be procured sooner than planned. Coast Guard Legacy and Replacement Assets. Both the Senate and House Committee reports to the FY2005 DHS Appropriations bill voicedconcern over the condition of Coast Guard legacy assets. The Senate cited a GAO report whichnoted that Coast Guard assets are being used 40% more intensively than originally anticipated whenthe Deepwater program was conceived, resulting in an accelerated deterioration. The Senate reportnoted that the Coast Guard is expending more Deepwater funding on maintaining legacy assets andless on acquiring replacement assets. The House Committee, conversely, is concerned that the CoastGuard is having problems maintaining its legacy assets due to a perceived need to expend allavailable funding on Deepwater procurement. The House Committee requires the Coast Guard toreport, within 30 days of enactment of the Appropriations Act, its plans for maintenance of all legacyvessels and aircraft, including the entity responsible for the maintenance and the estimated costs. Further, the Coast Guard is directed to submit quarterly reports on its legacy maintenance planbeginning with the submission of the President's FY2006 budget. The conferees adopted this HouseCommittee report language. Coast Guard -- Automatic Identification System. A potential issue for Congress concerns the Automatic Identification System (AIS) -- avessel-tracking system that the Coast Guard wants to implement as a key part of its strategy forachieving maritime domain awareness (MDA) at each major port. AIS is a system that will identifythe ship, its size, and its cargo before it enters an American seaport. Questions include theavailability of a radio frequency needed for AIS and whether the system as currently planned willadequately cover all categories of ships that might pose a threat to U.S. homeland security. TheFY2005 DHS Appropriation Act ( P.L. 108-334 ) provides $24 million for AIS. Non-Homeland Security Missions of the CoastGuard. A key potential issue is whether the Coast Guard's resources are sufficientto adequately perform both its homeland and non-homeland security missions (fisheries enforcement,marine environmental protection, and search and rescue, for example). The terrorist attacks ofSeptember 11, 2001, increased Coast Guard requirements for homeland-security missions withoutdirectly reducing requirements for other missions. After September 11, 2001, the Coast Guardsignificantly increased homeland security operations while reducing operations in other missions. GAO, in reports and testimony on this topic, have noted the reduced number of Coast Guardoperating hours devoted to non-homeland security missions, and have expressed concerns regardingthe Coast Guard's ability to link application of resources to performance levels achieved for variousmissions. Staffing. Staffing of primary border agencies maycontinue to be of concern to Congress. The conference report ( H.Rept. 108-774 ) to the FY2005DHS Appropriations Act requires CBP to submit a comprehensive staffing plan immediately, andto submit an updated plan no later than 90 days after enactment. The Intelligence Reform andTerrorism Prevention Act (IRTPA), contains provisions authorizing, subject to the availability ofappropriations, no less than 2,000 full-time Border Patrol agents, and 800 full-time Immigration andCustoms Enforcement Inspectors, in fiscal years 2006-2010. With regard to the authorized increasein Border Patrol agents, the IRTPA further stipulates that no less than 20% of the net increase inagents shall be assigned to the northern border in each fiscal year. Appendix: Provisions Relating to Border and Transportation Security in the 9/11Commission Report, Intelligence Reform Bill, and HSPD-11 This appendix provides summaries of the BTS -related provisions of the 9/11 Commissionrecommendations, (21) the Intelligence Reform and Terrorism Prevention Act (IRTPA) of 2004, and a summary ofHSPD-11. HSPD-11 is the Administration's response to one of the 9/11 Commissionrecommendations, and significant portions of the IRTPA similarly reflect these recommendations. Oversight of the changes made by the IRTPA, and legislative activity surrounding those 9/11Commission recommendations that were not included are likely to be of interest to the 109thCongress. 9/11 Commission Recommendations The 9/11 commission made numerous recommendations relating to border and transportationsecurity. These recommendations include (but are not limited to the following): the United States should combine terrorist travel intelligence, operations, andlaw enforcement in a strategy to intercept terrorists, find terrorist travel facilitators and constrainterrorist mobility; the U.S. border security system should be integrated into a larger network ofscreening points that include our transportation system and access to vital facilities, such as nuclearreactors; the President should direct the Department of Homeland Security to lead theeffort to design a comprehensive screening system, addressing common problems and settingcommon standards with systematic goals in mind (see the summary of HSPD-11below); the Department of Homeland Security, properly supported by Congress, shouldcomplete, as quickly as possible, a biometric entry-exit system, including a single system forspeeding qualified travelers, [i]t should be integrated with the system that provides benefits toforeigners seeking to stay in the United States; the U.S. government ... should do more to exchange terrorist information withtrusted allies, and raise U.S. and global border security standards for travel and border crossing overthe medium and long term through extensive international cooperation; the federal government should set standards for the issuance of birthcertificates and sources of identification, such as drivers licenses; the U.S. government should identify and evaluate the transportation assets thatneed to be protected, set risk-based priorities for defending them, select the most practical andcost-effective ways of doing so, and then develop a plan, budget, and funding to implement theeffort, [t]he plan should assign roles and missions to relevant authorities (federal, state, regional, andlocal) and to private stakeholders; improved use of "no-fly" and "automatic selectee" lists should not be delayedwhile the argument about a successor to CAPPS continues, [t]his screening function should beperformed by TSA, and it should utilize the larger set of watchlists maintained by the federalgovernment, [a]ir carriers should be required to supply the information needed to test and implementthis new system; the TSA and the Congress must give priority attention to improving the abilityof screening checkpoints to detect explosives on passengers, ... each individual selected for specialscreening should be screened for explosives; and the TSA should conduct a human factor study ... to understand problems inscreener performance and set attainable objectives for individual screeners and for the checkpointswhere screening takes place. HSPD-11 The President issued Homeland Security Presidential Directive (HSPD)-11 on August 27,2004. (22) This directivewas issued in response to one of the 9/11 Commission recommendations. HSPD-11 concerns"comprehensive terrorist-related screening procedures" which are defined in the directive to mean: "the collection, analysis, dissemination, and use of information related to people, cargo,conveyances, and other entities and objects that pose a threat to homeland security." HSPD-11 statesthat it is the policy of the U.S. to enhance terrorist-related screening through comprehensive,coordinated procedures; while safeguarding legal rights, freedoms, civil liberties, and informationprivacy; in a manner that facilitates the efficient movement of people, cargo, conveyances andassociated activities of commerce. HSPD-11 further states that this comprehensive and coordinatedapproach is to be implemented in "immigration, law enforcement, intelligence, counterintelligence,and protection of border, transportation systems, and critical infrastructure." HSPD-11 required the Secretary of Homeland Security (in coordination with the heads of allthe appropriate departments) to submit to the President a report outlining a strategy to enhance theeffectiveness of terrorist-related screening activities, and developing comprehensive, coordinated,and systematic screening procedures. This report was submitted to the President on November 9,2004. (23) HSPD-11required an additional report (due November 24, 2004) describing a 'prioritized investment andimplementation plan' for the policies and activities outlined by the first report. Further, the Secretaryof DHS is required to provide a status report on the implementation of the plan six months after theissuance of the directive (February of 2005). Intelligence Reform and Terrorism Prevention Act of 2004 The Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA) has numerousBTS-related provisions, many of which embody some of the recommendations made by the 9/11Commission. Title IV of the act relates to Transportation Security. Subtitle A of Title IVimplements the 9/11 commission recommendations by requiring the Secretary of DHS, jointly withthe Secretary of Transportation, to develop and implement a national strategy for transportationsecurity. Subtitle B of Title IV implements the 9/11 Commission recommendations to improvepassenger prescreening for both domestic and international flights, and improve the use of no-fly and automatic selectee lists while ensuring that the watchlists do not violate privacy or civil liberties. Subtitle B also contains a provision implementing the 9/11 Commission recommendation to givepriority attention to screening passengers and their baggage for explosives. Further, this subtitle alsocontains provisions: requiring TSA to develop a plan for implementing enhanced explosive detectionequipment; preserving the anonymity of federal air marshals; improving screener performance;enhancing in-line baggage screening; improving the security of pilot licenses; improving biometrictechnology and technology to protect against the threat of shoulder fired missiles. Subtitle C of Title IV concerns air cargo security and: requires TSA to develop bettertechnologies for air cargo security; authorizes funding for equipment, research and development;requires DHS to finalize its air cargo requirements within eight months; and requires a pilot programusing blast-resistant containers. Subtitle D of Title IV concerns maritime security and requires TSAto begin screening cruise ship passengers and crew against consolidated terrorist databases within180 days, and requires maritime-security plans to be submitted in a timely fashion. Title V contains provisions relating to border protection, immigration and visa matters. Subtitle A authorizes pilot programs on the northern and southern borders which would testadvanced technologies to increase border security between ports of entry. Subtitle B requires theSecretary of DHS to submit a plan to the President and the Congress to use remotely piloted aircraftto surveil the southwest border. This subtitle also authorizes funding to implement this plan as apilot program. Subtitle B also requires the Secretary of DHS to increase staffing each year duringfiscal years 2006-2010 (subject to the availability of appropriations) by the following amounts: thenumber of Border Patrol agents by not less than 2,000 each year; the number of Immigration andCustoms Enforcement agents by not less than 800 agents per year; and the number of detention bedspaces by not less than 8,000 per year. Subtitle C contains provisions: requiring in-personinterviews of certain applicants for nonimmigrant visas; requiring applicants for nonimmigrant visasto completely and accurately provide information requested in the application; and making therevocation of a nonimmigrant visa grounds for removal. Subtitle D contains provisions concerningthe smuggling and harboring aliens, the deportation of aliens who receive military training from oron behalf of designated terrorist organizations. Subtitle E contains provisions concerning theinadmissibility and deportation of aliens who commit acts of torture, extrajudicial killings, or otheratrocities abroad. Title VII is entitled the 9/11 Commission Implementation Act of 2004, and Subtitle Bcontains a number of BTS-related provisions. Subtitle B establishes the Human Smuggling andTrafficking Center, and an interagency program devoted to countering terrorist travel; and requirestraining improvements for border, consular, and immigration officers so they can better detectterrorist travel indicators. The provisions in Subtitle B also authorize an additional 150 consularofficers in each of the fiscal years 2006-2010; requires the Secretary of DHS in consultation with theDirector of the National Counter-Terrorism Center (NCC) to establish a program overseeing DHS'sterrorist travel responsibilities; and establishes a Visa and Passport Security Program within theBureau of Diplomatic Security at the Department of State. Further Subtitle B provisions call for theaccelerated deployment of the biometric entry-exit system, and for individuals entering into the U.S.to bear a passport or other citizenship document (including U.S. citizens, and visitors from Canadaand other Western Hemisphere countries). Subtitle B, also requires DHS to issue regulations onminimum identification standards for passengers boarding domestic flights; includes placing moreU.S. immigration experts at foreign airports, and increases the number of airports where U.S.-boundpassengers will be pre-inspected.

Enhancing border and transportation security (BTS) are essential strategies for improving andmaintaining homeland security. Border security entails regulating the flow of traffic across thenation's borders so that dangerous and unwanted goods and people are detected and denied entry.This requires a sophisticated border management system that balances the need for securing thenation's borders with facilitating the essential free flow of legitimate commerce, citizens, andauthorized visitors. Transportation security involves securing the flow of people and goods alongthe nation's highways, railways, airways, and waterways. (For more information on the complexityof the BTS challenge, see CRS Report RL32839 , Border and Transportation Security: TheComplexity of the Challenge , by [author name scrubbed].) While in the immediate aftermath of 9/11 effortsprimarily concentrated on an expanded federal role in aviation security (in particular on theheightened screening of passengers and baggage), increasingly attention is being turned towardsother modes of transportation. The effective implementation of border and transportation security measures requires theparticipation of numerous agencies. Federal responsibility for border and transportation securityefforts is primarily contained within the Department of Homeland Security (DHS). DHS's Borderand Transportation Security Directorate houses: the Bureau of Customs and Border Protection(CBP), which has responsibility for security at and between ports-of-entry along the border; theBureau of Customs and Immigration Enforcement (ICE), which has responsibility for investigatingand enforcing the nation's customs and immigration laws; and the Transportation SecurityAdministration (TSA), which is responsible for the security of the nation's transportation systems. The U.S. Coast Guard is a stand-alone agency within DHS, and has primary responsibility for themaritime components of homeland security (U.S. ports, coastal and inland waterways, and territorialwaters). DHS's Citizenship and Immigration Services Bureau (USCIS) is charged with approvingimmigrant petitions. In addition, the Department of State's (DOS) Bureau of Consular Affairs isresponsible for issuing visas; and the Department of Justice's (DOJ's) Executive Office forImmigration Review (EOIR) has a significant policy role through its adjudicatory decisions onspecific immigration cases. For more information on border agencies, see CRS Report RS21899 , Border Security: Key Agencies and Their Missions , by [author name scrubbed]. For more information oncurrent BTS programs and policies, see CRS Report RL32840 , Border and Transportation Security:Selected Programs and Policies , by [author name scrubbed] et al. This report provides a summary of the roles and responsibilities of various federal agenciesengaged in border and transportation security activities; describes selected concepts and termsprominent in border and transportation security debates; and discusses selected issues that might beof interest to the 109th Congress. For more information on BTS policy options, see CRS Report RL32841 , Border and Transportation Security: Possible New Directions and Policy Options , byWilliam Robinson et al. This report will be updated as significant developments occur. Key Policy Staff: Border and Transportation Security

Introduction The misclassification of employees as independent contractors contributes to the tax gap. Consequently, congressional interest has been expressed about the importance of the proper classification of workers. The Internal Revenue Service (IRS) defines the gross tax gap as the difference between the aggregate tax liability imposed by law for a given tax year and the amount of tax that taxpayers pay voluntarily and timely for that year. And it defines the net tax gap as the amount of the gross tax gap that remains unpaid after all enforced and other late payments are made for the tax year. For tax (calendar) year 2001 (the most recent year available), the IRS estimated a gross tax gap of $345 billion, equal to a noncompliance rate of 16.3%. For the same tax year, IRS enforcement activities, coupled with other late payments, recovered about $55 billion of the gross tax gap, resulting in an estimated net tax gap of $290 billion. A business owner "must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee." In contrast, a business owner does not "have to withhold or pay any taxes on payments to independent contractors." Employers are more likely to withhold and submit taxes than independent contractors are to voluntarily pay their tax liabilities. In 1984, the IRS made its last comprehensive misclassification estimate, which found that 15% of employers misclassified 3.4 million workers as independent contractors, causing an estimated total tax loss of $1.6 billion in Social Security tax, unemployment tax, and income tax. For 84 percent of the workers misclassified as independent contractors in tax year 1984, employers reported the workers' compensation to IRS and the workers, as required, on the IRS Form 1099-MISC information return. These workers subsequently reported most of their compensation (77 percent) on their tax returns. In contrast, workers misclassified as independent contractors for whom employers did not report compensation on Form 1099-MISC reported only 29 percent of their compensation on their tax returns. The Government Accountability Office (GAO) estimated that in February 2005, independent contractors numbered 10.342 million or 7.4% of the U.S. workforce. GAO also estimated that independent contractors accounted for 24% of the total contingent workforce of 42.6 million. GAO states that "broadly defined, contingent work refers to work arrangements that are not long-term, year-round, full-time employment with a single employer." Independent contractors and other contingent workers provide flexibility to the labor market for both employers and workers. Because they can be readily terminated and receive fewer fringe benefits, employers are more willing to hire these workers. Consequently, the overall unemployment rate for the economy is lower and total output level is somewhat higher. Independent contractors, however, have less job security and workplace protections. Usually an employer prefers to classify a worker as an independent contractor but the worker prefers to be classified as an employee. But sometimes a worker may prefer to be classified as an independent contractor because he or she can establish his or her own pension plan, deduct contributions to this plan, and have a greater ability to deduct work-related expenses. This report examines the policy question of whether or not the benefits of a reduction in the misclassification of employees, including a decrease in the tax gap, are greater than the costs. In order to analyze this issue, the evolution of the definition of employee versus independent contractor is discussed. Then, the findings of a Treasury Inspector General for Tax Administration (TIGTA ) report are presented, proposed legislation in the 112 th Congress is described, President Obama's proposal for modification is examined, and two new IRS programs relating to the misclassification of employees are explained. Next, the costs and benefits of improved classification are compared. Definition of Employee Versus Independent Contractor Under common-law rules, a worker is an employee if the employer can control what the worker does and how the worker does it. The definition of "employee" has been affected by Section 530 "Safe Harbor Rules," IRS Ruling 87-41, and current IRS common-law rules. Section 530 "Safe Harbor Rules" In the late 1960s and 1970s, the IRS increased enforcement of the collection of employment taxes. Some employers complained about the reclassification of their workers by the IRS as employees rather than independent contractors. In response, Congress enacted Section 530 of the Revenue Act of 1978 ( P.L. 95-600 ), which established "safe harbor rules" generally allowing an employer to treat a worker as not being an employee for employment tax purposes, regardless of the individual's actual status under the common-law test. Initially a temporary provision, the safe harbor provisions were extended indefinitely by P.L. 97-248 , the Tax Equity and Fiscal Responsibility Act of 1982. These safe harbor rules were amended by subsequent legislation. Currently, the IRS specifies that, in order to qualify for "safe harbor," the employer must meet the following three Section 530 relief requirements: 1. Reasonable Basis . The employer must have a reasonable basis for not treating workers as employees. The employer can establish reasonable basis by showing that (1) the employer relied on a court case about federal taxes or a ruling issued by the IRS, (2) the employer was audited by the IRS at a time when the employer treated similar workers as independent contractors and the IRS did not reclassify those workers as employees, (3) the employer treated its workers as independent contractors because he knew that was how a significant segment of his industry treated similar workers, or (4) the employer relied on some other reasonable basis such as the advice of a business lawyer or accountant who knew the facts about the employer's business. 2. Substantive Consistency. The employer must have treated his workers, and any similar workers, as independent contractors . 3. Reporting Consistency. The employer must have filed all required federal tax returns (including information returns) consistent with his treatment of each worker as not being employees. These safe harbor rules prevent the Internal Revenue Service (IRS) from retroactively reclassifying workers as employees for employment tax purposes, thus shielding employers from retroactively imposed employment taxes as well as penalties and interest on those taxes. IRS Ruling 87-41 In January 1987, the IRS issued Revenue Ruling 87-41 specifying 20 factors that identified whether or not an employee-employer relationship existed under common law. An "employee status" of the worker would obligate the employer for purposes of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source on Wages. A list of these 20 factors is shown in Appendix A . Eight of these 20 factors refer to independent contractors at least once, which suggests that this list of factors was compiled by the IRS to distinguish an employee-employer relationship from an independent contractor-employer relationship. There is no relative weighing of these 20 factors, hence the classification of the status of a worker is at least partially subjective. Current IRS Common Law Rules Currently, the IRS states that three categories of common-law rules provide evidence of the degree of control and independence that an employer or worker can use to determine if the worker is an employee or an independent contractor. These categories are as follows: 1. Behavioral : Does the company control or have the right to control what the worker does and how the worker does his or her job? 2. Financial : Are the business aspects of the worker's job controlled by the payer? (These include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) 3. Type of Relationship : Are there written contracts or employee-type benefits (i.e., pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? After reviewing these categories, if an employer or worker still is unclear about the proper classification of employee or independent contractor, either party may file with the IRS Form SS - 8, Determination of Worker Statu s for Purposes of Federal Employment Taxes and Income Tax Withholding . Form SS-8 includes a series of questions about each of the three categories of common-law rules: behavior, financial, and type of relationship. Then, an IRS official will review the form and determine the worker's status, but this review may take at least six months. TIGTA Report On February 4, 2009, the Treasury Inspector General for Tax Administration (TIGTA) issued a report concerning IRS actions "to address the misclassification of employees as independent contractors." TIGTA maintains that the misclassification of employees as independent contractors continues to grow and contribute to the tax gap. Because the last study of the impact of worker misclassification on the tax gap was done in 1984 by the IRS, the study indicates that the IRS does not know the current magnitude of the problem and is unable to determine the overall effectiveness of its policies to reduce misclassification. We recommended that the Deputy Commissioner for Services and Enforcement develop and implement an agency-wide employment tax program to address the issue of worker classification to improve coordination among the business divisions, improve compliance, and reduce the tax gap. The Deputy Commissioner for Services and Enforcement should also consider conducting a formal National Research Program reporting compliance study to measure the impact of worker misclassification on the employment tax gap. In a memorandum, the IRS agreed with the TIGTA recommendations and stated that The Enterprise-Wide Tax Program has already made significant strides to develop an agency-wide employment tax program to improve coordination among the business operating divisions, improve compliance, and reduce the tax gap. We have also started planning for a formal National Research Program reporting compliance study to measure the impact of worker misclassification on the employment tax gap. Proposed Legislation in the 112th Congress Two companion bills have been introduced in the 112 th Congress concerning the misclassification of employees as independent contractors. On April 8, 2011, Senator Sherrod Brown introduced S. 770 , the Payroll Fraud Prevention Act . On October 13, 2011, Representative Lynn C. Woolsey introduced H.R. 3178 , the Employee Misclassification Prevention Act . Each bill would amend the Fair Labor Standards Act of 1938 (FLSA) to require every person (including every employer and enterprise) that employs an employee or non-employee who performs labor or services, including through an entity such as a trust, estate, partnership, association, company, or corporation, to (1) classify such individuals accurately as employees or non-employees; and (2) notify each new employee and new non-employee of his or her classification as an employee or non-employee, together with information concerning their rights under the law. Each bill would make it unlawful for any person to (1) discharge or otherwise discriminate against an individual (including an employee) who has opposed any practice, or filed a complaint or instituted any proceeding related to this act, including with respect to an individual's status as an employee or non-employee; and (2) wrongly classify accurately an employee or non-employee. Each bill would double the amount of liquidated damages for maximum hours, minimum wage, and notice of classification violations by an employer. Each bill would subject a person who: (1) violates such requirements (including recordkeeping requirements) to a civil penalty of up to $1,100; or (2) repeatedly or willfully violates such requirements to a civil penalty of up to $5,000 for each violation. Each bill directs the Secretary of Labor to establish a webpage on the Department of Labor website that summarizes the rights of employees and nonemployees under the FLSA and this act. Each bill would amend the Social Security Act to require, as a condition for a federal grant for the administration of state unemployment compensation, for the state's unemployment compensation law to include a provision for: (1) auditing programs that identify employers that have not registered under the state law or that are paying unreported compensation where the effect is to exclude employees from unemployment compensation coverage, and (2) establishing administrative penalties for misclassifying employees or paying unreported unemployment compensation to employees. Each bill would require any office, administration, or division of the Department of Labor to report any misclassification of an employee by a person subject to the FLSA that it discovers to the Department's Wage and Hour Division (WHD). Each bill would authorize the WHD to report such information to the Internal Revenue Service. As shown in Appendix B , Senator Brown and Representative Woolsey introduced similar companion bills in the second session of the 111 th Congress. Appendix B also describes of bills introduced in the 111 th Congress relating to the misclassification of employees. President Obama's Proposal in the Budget for FY2012 In his 2012 budget, President Barack Obama proposed to "increase certainty with respect to worker classification" by a modification of Section 530 of the Revenue Act of 197 8 . The proposal would permit the IRS to require prospective reclassification of workers who are currently misclassified and whose reclassification has been prohibited under current law. The Department of the Treasury and the IRS also would be permitted to issue generally applicable guidance on the proper classification of workers under common law standards. This would enable service recipients to properly classify workers with much less concern about future IRS examinations. Treasury and the IRS would be directed to issue guidance interpreting common law in a neutral manner recognizing that many workers are, in fact, not employees. Further, Treasury and the IRS would develop guidance that would provide safe harbors and/or rebuttable presumptions, both narrowly defined. To make that guidance clearer and more useful for service recipients, it would generally be industry- or job-specific. Priority for the development of guidance would be given to industries and jobs in which application of the common law test has been particularly problematic, where there has been a history of worker misclassification, or where there have been failures to report compensation paid. This proposed change would become effective for taxable years beginning after December 31, 2011. For FY2012 through FY2021, the U.S. Treasury estimates that this proposal will yield $8.71 billion. New IRS Programs Announced in September 2011 In September 2011, the Internal Revenue Service announced two new programs concerning worker misclassification: a "Memorandum of Understanding between the IRS and the U.S. Department of Labor (DOL)" and a new "Voluntary Classification Settlement Program" (VCSP). Although these announcements were only two days apart, an IRS official stated that there was no connection between the "Memorandum of Understanding" and the VCS. This official maintained that the announcement of the two programs at almost the same time was "just a coincidence." Memorandum of Understanding between IRS and DOL On September 19, 2011, the Commissioner of the IRS and the Secretary of Labor signed a "Memorandum of Understanding." In addition, labor commissioners and other agency leaders representing seven states signed memorandums of understanding with different parts of the DOL. The stated purpose of the "Memorandum of Understanding" was the following: The sharing of information and collaboration between the parties will help reduce the incidence of misclassification of employees as independent contractors, help reduce the tax gap, and improve compliance with federal labor laws. Increased collaboration will also strengthen the relationship between the IRS and DOL, enable both agencies to leverage existing resources and send a consistent message to employers about their duties to properly pay their employees and to pay employment taxes. This multi-agency approach presents a united compliance front to employers and their representatives. The IRS Commissioner Douglas Shulman reportedly said that the IRS would not initiate or participate in any new industry-specific investigations into employee misclassification. New Voluntary Classification Settlement Program On September 21, 2011, the IRS announced a new "Voluntary Classification Settlement Program." The purpose of this program was the following: The Internal Revenue Service (IRS) has developed a new program to permit taxpayers to voluntarily reclassify workers as employees for federal employment tax purposes. The Voluntary Classification Settlement Program (VCSP) allows eligible taxpayers to voluntarily reclassify their workers for federal employment tax purposes and obtain relief similar to that obtained in the current Classification Settlement Program (CSP). The VCSP is optional and provides taxpayers with an opportunity to voluntarily reclassify their workers as employees for future tax periods with limited federal employment tax liability for the past nonemployee treatment. To participate in the program, the taxpayer must meet certain eligibility requirements, apply to participate in VCSP, and enter into a closing agreement with the IRS. In order to be eligible, an employer must have (1) consistently treated its workers in the past as nonemployees, (2) have filed all required Forms 1099 for the workers for the previous three years, and (3) not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers. An employer participating in the VCSP program will pay 10% of the employment tax liability that may have been due on the compensation paid to the workers for the most recent year, with no liability for any interest or penalties. The employer will not be subject to an employment tax audit for prior years for those workers who are reclassified. Costs and Benefits of Improved Classification The misclassification of employees as independent contractors has been an ongoing congressional issue. As previously indicated, the classification of the status of a worker is at least partially subjective. There are numerous costs and benefits of improving worker classification. Benefits 1. Reduced federal tax gap. Employers are required to withhold and pay certain taxes (personal income, Social Security, Medicare, and unemployment taxes) for employees but not independent contractors. The tax compliance level is high when tax withholding is required. In contrast, the tax compliance level of independent contractors is much lower because each contractor must take the initiative to file his or her taxes. As previously indicated, misclassification of workers added an estimated $1.6 billion to the tax gap in 1984 or $2.72 billion in inflation-adjusted 2006 dollars. 2. Reduced state and local tax gaps. Not only would the federal tax gap decline, but state and local governments would experience reductions in their tax gaps. A study of misclassification for the state of New York found a loss in unemployment insurance tax revenue for audited industries of $205.9 million in 2005. 3. Reduction on government outlays for employee benefits . Workers misclassified as independent contractors receive fewer benefits such as health care insurance and workman's compensation. Consequently, many of these workers may rely more heavily on publicly provided assistance such as Medicaid, food stamps, and Temporary Assistance for Needy Families (TANF). 4. Higher worker compensation and protection . Deliberate misclassification by employers of employees as independent contractors denies these workers fringe benefits and protections under federal legislation. Key laws designed to protect workers but that only apply to employees include the Fair Labor Standards Act, Family and Medical Leave Act, Occupational Safety and Health Act, National Labor Relations Act, Unemployment Insurance, and Workers' Compensation. Thus, improving worker classification would raise worker compensation and protection. 5. Better allocation of resources . Employers who misclassify employees as independent contractors have an "unfair" competitive advantage over employers who properly classify their workers. Employers that have high levels of misclassification of workers earn higher profits and expand relative to compliant employers, which results in an inefficient allocation of productive resources. Costs 1. Higher federal outlays for tax enforcement . Increased enforcement of the classification of workers requires higher federal outlays or a reallocation of federal resources. These resources for increased enforcement have alternative uses that may yield greater social benefits. 2. Reduction in privacy . Personal privacy is reduced as the IRS collects and cross-checks more data. Audits of individuals are intrusive and often stressful. 3. Reduction in labor market flexibility . A reduction in the ability of employers to hire independent contractors would lessen employers' flexibility in expanding or contracting their workforces. Employers are less willing to hire workers if they must pay them higher fringe benefits and are subject to more worker protections. This decreased employer flexibility may result in a higher unemployment rate and lower gross domestic product. Conclusions The misclassification of employees as independent contractors contributes to the tax gap and imposes numerous costs on the economy. A reduction in this misclassification would reduce federal, state, and local tax gaps and provide other important benefits. But, the work necessary to reduce misclassification would impose significant costs. Accurate data on the current size of the tax gap caused by misclassification are unavailable. Furthermore, the magnitude of many effects of improved classification are unavailable or inherently subjective. With the current state of knowledge, whether or not the benefits of curtailing misclassification of workers outweigh the costs is a value judgment. Appendix A. Factors in IRS Revenue Ruling 87-41 1. Instructions . A worker who is required to comply with other persons' instructions about when, where, and how he or she is to work is ordinarily an employee. This control factor is present if the person or persons for whom the services are performed have the right to require compliance with instructions. 2. Training . Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person or persons for whom the services are performed want the services performed in a particular method or manner. 3. Integration . Integration of the worker's services into the business operations generally shows that the worker is subject to direction and control. When the success or continuation of a business depends to an appreciable degree upon the performance of certain services, the workers who perform those services must necessarily be subject to a certain amount of control by the owner of the business. 4. Services Rendered Personally . If the services must be rendered personally, presumably the person or persons for whom the services are performed are interested in the methods used to accomplish the work as well as in the results. 5. Hiring, Supervising, and Paying Assistants . If the person or persons for whom the services are performed hire, supervise, and pay assistants, that factor generally shows control over the workers on the job. However, if one worker hires, supervises, and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor and under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status. 6. Continuing Relationship . A continuing relationship between the worker and the person or persons for whom the services are performed indicates that an employer-employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring although irregular intervals. 7. Set Hours of Work . The establishment of set hours of work by the person or persons for whom the services are performed is a factor indicating control. 8. Full Time Required . If the worker must devote substantially full time to the business of the person or persons for whom the services are performed, such person or persons have control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An independent contractor, on the other hand, is free to work when and for whom he or she chooses. 9. Doing Work on Employer's Premises . If the work is performed on the premises of the person or persons for whom the services are performed, that factor suggests control over the worker, especially if the work could be done elsewhere. Work done off the premises of the person or persons receiving the services, such as at the office of the worker, indicates some freedom from control. However, this fact by itself does not mean that the worker is not an employee. The importance of this factor depends on the nature of the service involved and the extent to which an employer generally would require that employees perform such services on the employer's premises. Control over the place of work is indicated when the person or persons for whom the services are performed have the right to compel the worker to travel a designated route, to canvass a territory within a certain time, or to work at specific places as required. 10. Order of Sequence Set . If a worker must perform services in order or sequence set by the person or persons for whom the services are performed, that factor shows that the worker is not free to follow the worker's own pattern of work but must follow the established routines and schedules of the person or persons for whom the services are performed. 11. Oral or Written Reports . A requirement that the worker submit regular or written reports to the person or persons for whom the services are performed indicates a degree of control. 12. Payment by Hour, Week, Month . Payment by the hour, week, or month generally points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on a straight commission generally indicates that the worker is an independent contractor. 13. Payment of Business and/or Traveling Expenses . If the person or persons for whom the services are performed ordinarily pay the worker's business and/or traveling expenses, the worker is ordinarily an employee. An employer, to be able to control expenses, generally retains the right to regulate and direct the worker's business activities. 14. Furnishing of Tools and Materials . The fact that the person or persons for whom the services are performed furnish significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship. 15. Significant Investment . If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person or persons for whom the services are performed for such facilities and, accordingly, the existence of an employer-employee relationship. Special scrutiny is required with respect to certain types of facilities, such as home offices. 16. Realization of Profit or Loss . A worker who can realize a profit or suffer a loss as a result of the worker's service (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee. For example, if the worker is subject to a real economic loss due to significant investments or a bona fide liability for expenses, such as salary payments to unrelated employees, that factor indicates that the worker is an independent contractor. The risk that a worker will not receive payment for his or her services, however, is common to both independent contractors and employees and thus does not constitute a sufficient economic risk to support treatment as an independent contractor. 17. Working for More Than one Firm at a Time . If a worker performs more than de minimis services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor. However, a worker who performs services for more than one person may be an employee of each of the persons, especially where such persons are part of the same service arrangement. 18. Making Service Available to General Public . The fact that a worker makes his or her services available to the general public on a regular and consistent basis indicates an independent contractor relationship. 19. Right to Discharge . The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer. An employer exercises control through the threat of dismissal, which causes the worker to obey the employer's instructions. An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specification. 20. Right to Terminate . If the worker has the right to end his or her relationship with the person for whom the services are performed at any time he or she wishes without incurring liability, that factor indicates an employer-employee relationship. Appendix B. Proposed Legislation in the 111 th  Congress In the 111 th Congress, six bills were introduced concerning the misclassification of employees as independent contractors. Legislation in the First Session In the first session, two similar bills were introduced to address concerns about the misclassification of employees as independent contractors. On July 30, 2009, Representative Jim McDermott introduced H.R. 3408 , the Taxpayer Responsibility, Accountability, and Consistency Act of 2009, and this bill was referred to the House Ways and Means Committee. Representative McDermott stated on the House floor that The aim of this legislation is to reverse the growing trend of the misclassification of employees as independent contractors. Independent contractors serve a legitimate purpose in our workforce, our economy, and in many business models. These contractors are important to our economy and often provide the flexibility that many businesses need. Some employers, however, are using a loophole that exists in the Internal Revenue Code to treat workers that are actually employees as contractors in order to reduce their own tax liability and avoid federal and state labor law. When employees are misclassified as contractors, responsible companies lose business, workers lose rights and protections, and the federal and state governments lose out of billions of dollars in much-needed revenue. On December 15, 2009, Senator John F. Kerry introduced a similar bill with the same title, S. 2882 . These proposed bills would require reporting to the IRS of payments of $600 or more made by or to corporations, other than tax-exempt organizations. These bills would modify the three "statutory standards" under Section 530 of the Revenue Act of 1978. These modifications would make it more difficult for an employer to be eligible for safe harbor treatment of workers as non-employees in order for the employer to be exempt from paying employment taxes. In addition, the bill would place the burden of proof of entitlement to safe harbor relief on the employer. These bills would require the Secretary of the Treasury to issue an annual report on worker misclassification. This report would include the following: Information on the number and type of enforcement actions against, and examinations of, employers who have misclassified workers Relief obtained as a result of such actions against, and examinations of, employers who have misclassified workers An overall estimate of the number of employers misclassifying workers, the number of workers affected, and the industries involved The impact of such misclassification on the federal tax system Information on the outcomes of the petitions filed requesting review of employment statue classification Finally, these bills would increase information return penalties for (1) failure to file correct information returns, (2) failure to furnish correct payee statements, and (3) failure to comply with other information-reporting requirements. Legislation in the Second Session In the second session of the 111 th Congress, two set of companion bills (a total of four bills) were introduced to address concerns about the misclassification of employees as independent contractors. Misclassification Prevention Act On April 22, 2010, Representative Lynn C. Woolsey introduced H.R. 5107 , the Misclassification Prevention Act. Also on April 22, 2010, Senator Sherrod Brown introduced S. 3254 , the Misclassification Prevention Act. On June 17, 2010, the Senate Committee on Health, Education, Labor, and Pensions held hearings on S. 3254 . The Employee Misclassification Prevention Act would amend the Fair Labor Standards Act of 1938 (FLSA) to require every person to (1) keep records of non-employees (contractors) who perform labor or services (except substitute work), including through an entity such as a trust, estate, partnership, association, company, or corporation, for remuneration; and (2) provide certain notice to each new employee and new non-employee, including their classification as an employee or non-employee and information concerning their rights under the law. This bill would make it unlawful for any person to (1) discharge or otherwise discriminate against an individual (including an employee) who has opposed any practice, or filed a complaint or instituted any proceeding related to this act, including with respect to an individual's status as an employee or non-employee; and (2) fail to classify accurately an employee or non-employee. This bill would double the amount of liquidated damages for maximum hours, minimum wage, and notice of classification violations by an employer. This act would subject a person who (1) violates such requirements (including recordkeeping requirements) to a civil penalty of up to $1,100; or (2) repeatedly or willfully violates such requirements to a civil penalty of up to $5,000 for each violation. This bill directs the Secretary of Labor to establish a webpage on the Department of Labor website that summarizes the rights of employees under this act and other appropriate information. This bill would amend the Social Security Act to require, as a condition for a federal grant for the administration of state unemployment compensation, the state's unemployment compensation law to include a provision for (1) auditing programs that identify employers that have not registered under the state law or that are paying unreported compensation where the effect is to exclude employees from unemployment compensation coverage; and (2) establishing administrative penalties for misclassifying employees or paying unreported unemployment compensation to employees. The bill would require any office, administration, or division of the Department of Labor to report any misclassification of an employee by a person subject to the FLSA that it discovers to the Department's Wage and Hour Division (WHD). The act would authorize the WHD to report such information to the Internal Revenue Service. Fair Playing Field Act of 2010 On September 15, 2010, Senator John F. Kerry and Representative Jim McDermott introduced the Fair Playing Field Act of 2010 ( S. 3786 and H.R. 6128 ). This act declares Congress finds that Many workers are properly classified as independent contractors. In other instances, workers who are employees are being treated as independent contractors. Such misclassification for tax purposes contributes to inequities in the competitive positions of businesses and to the federal and state tax gap, and may also result in misclassification for other purposes, such as denial of unemployment benefits, workplace health and safety protections, and retirement or other benefits or protections available to employees. Workers, businesses, and other taxpayers will benefit from clear guidance regarding employment tax status. In the interest of fairness and in view of many service recipients' reliance on current section 530, such guidance should apply only prospectively. Consequently, This act states that its purposes are "to permit the Secretary of the Treasury to provide guidance allowing workers and businesses to clearly understand the proper federal tax classification of workers and to provide relief allowing an orderly transition to new rules designed to increase certainty and uniformity of treatment."

The misclassification of employees as independent contractors contributes to the tax gap. Consequently, congressional interest has been expressed about the importance of the proper classification of workers. The Internal Revenue Service (IRS) defines the gross tax gap as the difference between the aggregate tax liability imposed by law for a given tax year and the amount of tax that taxpayers pay voluntarily and timely for that year. A business owner must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. In contrast, a business owner does not have to withhold or pay any taxes on payments to independent contractors. Employers are more likely to withhold and submit taxes than independent contractors are to voluntarily pay their tax liabilities. In 1984, the IRS made its last comprehensive misclassification estimate, which found that 15% of employers misclassified 3.4 million workers as independent contractors, causing an estimated total tax loss of $1.6 billion in Social Security tax, unemployment tax, and income tax. Under common-law rules, a worker is an employee if the employer can control what the worker does and how the worker does it. The definition of "employee" has been affected by Section 530 "Safe Harbor Rules," IRS Ruling 87-41, and current IRS common law rules. Congress enacted Section 530 of the Revenue Act of 1978 (P.L. 95-600), which established "safe harbor rules" generally allowing an employer to treat a worker as not being an employee for employment tax purposes, regardless of the individual's actual status under the common-law test. In January 1987, the IRS issued Revenue Ruling 87-41 specifying 20 factors that identified whether or not an employee-employer relationship existed under common law. Currently, the IRS states that three categories of common-law rules provide evidence of the degree of control and independence: behavior, financial, and type of relationship. On February 4, 2009, the Treasury Inspector General for Tax Administration (TIGTA) issued a report concerning IRS actions to address the misclassification of employees as independent contractors. In the 112th Congress, two companion bills have been introduced concerning the misclassification of employees: the Payroll Fraud Prevention Act (S. 770) and the Employee Misclassification Prevention Act (H.R. 3178). In his FY2012 budget, President Barack Obama proposed to "increase certainty with respect to worker classification" by a modification of the Section 530 of the Revenue Act of 1978. In September 2011, the IRS announced two new programs concerning misclassification of employees: a "Memorandum of Understanding" with the Department of Labor and a new "Voluntary Classification Settlement Program." In conclusion, the misclassification of employees as independent contractors contributes to the tax gap and imposes numerous costs on the economy. A reduction in this misclassification would reduce federal, state, and local tax gaps and provide other important benefits. But, this decline in misclassification would impose significant costs. Accurate data on the current size of the tax gap caused by misclassification are unavailable. Furthermore, the magnitude of many effects of improved classification are unavailable or inherently subjective. With the current state of knowledge, whether or not the benefits of curtailing misclassification of workers outweigh the costs is a value judgment. This report will be updated as warranted by legislative and economic events.

Introduction On June 18, 2008, the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 , the 2008 farm bill) became law when the House and Senate voted to override President Bush's veto of H.R. 6124 . Enactment of the new law suspends the provisions of permanent law that would have taken effect without a new law. For more details on the legislative history of the 2008 farm bill, see CRS Report RL34696, The 2008 Farm Bill: Major Provisions and Legislative Action , coordinated by [author name scrubbed] (pdf). A side-by-side summary of the provisions and changes in the 2008 farm bill is presented in CRS Report RL34696, The 2008 Farm Bill: Major Provisions and Legislative Action , coordinated by [author name scrubbed] (pdf). Background What were the consequences of Congress not having enacted a new farm bill before the end of FY2007, the commonly reported expiration date of many of the provisions of the 2002 farm bill? What might have happened if a new farm bill were not enacted in early 2008? Would programs authorized by the expiring legislation have ceased to operate, or would they have continued under non-expiring provisions of permanent law? Where there is permanent law, would the design and funding have changed? The 2002 omnibus farm bill ( P.L. 107-171 ) included a wide range of program authorities, some of which were mandatory and others discretionary. Mandatory, in this context, means that the authority to spend necessary funds is provided by statute. This mandatory category includes the commodity support programs, export programs, some conservation programs, and food stamps. Discretionary programs are authorized, but annual funding is subject to congressionally approved appropriations. Discretionary programs in the farm bill include some conservation programs, federal farm loan programs, rural development programs, agricultural research, and some foreign food aid, among others. In nearly all cases, a farm bill supersedes permanent authorizing law for a period of four to six years. The farm bill is important because it may substantially change program design from what is in the permanent law, as is the case with commodity support programs. Typically, with regard to appropriated programs, the farm bill sets policy parameters and upper limits on program activity levels and appropriations authority. Without an extension, most appropriated programs (also referred to as discretionary programs) in the 2002 farm bill and some mandatory programs, such as food stamps, would have faced the prospect of not having statutory authority for the appropriations committees to provide funding in FY2008 and subsequent years. The lack of authority to appropriate funds for authorized programs (and even for some programs not authorized) has not been a barrier for appropriations in past Congresses. Temporary Extensions FY2007 came to a close on September 30, 2007, without either a new farm bill or an FY2008 appropriations act. Hence, Congress adopted several continuing resolutions ( P.L. 110-92 , P.L. 110-116 , P.L. 110-137 , and P.L. 110-149 ) last fall that provided stopgap funding for most non-defense discretionary spending until the Consolidated Appropriations Act of 2008 ( P.L. 110-161 ) was enacted on December 26, 2007. For the farm bill specifically, six temporary extensions were enacted. The first extension was in the Consolidated Appropriations Act of 2008. It extended the authority for many expiring farm bill programs for nearly three months until March 15, 2008 ( P.L. 110-161 , Division A, Sec. 751). The second extension in P.L. 110-196 lasted for about one month until April 18, 2008. Then, P.L. 110-200 continued the extension for one week until April 25, 2008, and P.L. 110-205 for another week until May 2, 2008. The fifth extension in P.L. 110-208 lasted for two weeks until May 16, 2008. The sixth extension in P.L. 110-231 continued for one week until the earlier of May 23, 2008 or the date the 2008 farm bill was enacted. All but one title of the 2008 farm bill, except the trade title (which was mistakenly missing from the enrolled version), were enacted on May 22 when the House and Senate overrode the presidential veto of H.R. 2419 , and the 2008 farm bill became P.L. 110-234 . Because no further temporary extension was passed, the trade provisions in Title III of the 2002 farm bill expired. To deal with the omission of Title III, both chambers repassed the farm bill conference agreement (including the trade title) as H.R. 6124 . The President vetoed the measure on June 18, 2008, and both chambers again overrode the veto, which made H.R. 6124 law as P.L. 110-246 , superseding P.L. 110-234 . While the 2008 farm bill was being completed in Congress, the temporary extensions stated that, unless otherwise excepted, 2002 farm bill provisions in effect on September 30, 2007, shall continue until the new expiration date. The extensions funded three conservation programs 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). For the commodity title, the dairy and sugar programs were included in the extension, as were price support loan programs for wool and mohair. Programs that specifically were not extended included the direct, counter-cyclical, and marketing loan programs for the 2008 crop year for all other supported commodities (e.g., feed grains, oilseeds, wheat, rice, cotton, and peanuts), 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, the biodiesel fuel education program, and the renewable energy systems program. Commodity Support Programs6 The mandatory commodity support programs authorized in the 2002 farm bill cover the 2007 crops. So, all subsidy obligations related to 2007 crop production are covered by the law, even if spending occurs in FY2008. For commodity support programs, there was little reason to enact a farm bill before the end of calendar year 2007. In fact, past farm bills generally have been enacted late in the year, after the end of the fiscal year. The 1981 and 1985 farm bills were enacted in late December, and the 1990 farm bill was enacted in late November. What was expected to be a 1995 farm bill was not enacted until April 4, 1996, another case of belated action. Even in that case, payments were made on the 1995 crops and farmers went ahead with planting operations for their 1996 crops. Policy officials and the agriculture community expected a 2007 farm bill to be enacted before the end of calendar year 2007. However, lack of new commodity support legislation before harvest in 2008 did little harm other than leaving producers of "covered commodities" uncertain about the size of payments they might receive. The uncertainty about future policy could have affected some farmers' ability to acquire production loans from commercial lenders. But even if Congress had deemed a one-or two-year extension necessary for the commodity support programs beyond the 2007 crop year, that action likely could have waited until June 2008, when winter wheat—the first of the 2008 crop year commodities—was harvested. Possible Reversion to Permanent Law If Congress had not enacted the 2008 farm bill before the beginning of the 2008 harvest, then the non-expiring provisions of primarily the Agriculture Adjustment Act of 1938 and the Agriculture Act of 1949 would have taken effect. Provisions of these permanent laws are temporarily superseded by each farm bill. The commodity support provisions of permanent law are so radically different from current policy—and inconsistent with today's farming, marketing, and trade agreements, as well as potentially costly to the federal government—that Congress was unlikely to let permanent law take effect. Permanent law provides mandatory support for basic crops through nonrecourse loans, but without the option of settling the loan obligations at posted county prices or receiving loan deficiency payments. The only settlement options in permanent law are forfeiture of the commodities used as loan collateral or full repayment of the loans. Permanent law does not authorize counter-cyclical payments or decoupled direct payments. Also, nonrecourse loan rates could be as high as 90% of parity but not less than 50% of parity for corn, wheat, and rice, and 65% of parity for cotton. Acreage allotments and marketing quotas could be implemented for wheat and cotton. Milk support would be between 75% and 90% of parity. Support for soybeans, other oilseeds, and peanuts would not be mandatory. Other commodities now receiving mandatory support but not identified in permanent law are: sugar beets, sugar cane, wool, mohair, small chickpeas, dry peas, and lentils. For wheat and cotton, permanent law requires USDA to announce acreage allotments and marketing quotas during the prior crop year, and to hold producer referenda on whether to implement marketing quotas. A two-thirds or more affirmative producer vote for marketing quotas results in the highest levels of support, but also mandatory restrictions on planted acreage and therefore on the quantity eligible for support. For this analysis, it is assumed the Secretary announces no marketing quotas, and thus no producer referenda. Therefore, the only requirement is to announce wheat acreage allotments prior to the 2008 harvest. Table 1 summarizes the support estimates based on these assumptions. As shown in Table 1 , not all commodities currently receiving federal support would be covered by mandatory provisions in permanent law. The commodities losing mandatory support include peanuts, wool, mohair, sugar beats and sugar cane, soybeans and other oilseeds, dry peas, lentils, and small chick peas. Any and all of these commodities could receive support under discretionary authority given the Secretary of Agriculture in the Agriculture Act of 1949 and the CCC Charter Act. For budgetary and other reasons, that discretionary authority has been seldom used and was unlikely to be applied in 2008. Important to this supposition is the fact that, with few exceptions, market prices for agricultural commodities are high and there would be little economic justification for federal support to be implemented. Milk is supported currently and in permanent law through the offer of USDA to purchase manufactured dairy products (nonfat dry milk, cheddar cheese, and butter) at prices equivalent to the mandated support price for manufacturing grade milk. Under permanent law those purchase prices (based on January 2008 data) would be about three times as high a currently mandated and nearly 50% higher than market prices. Such high USDA purchase prices could result in the government outbidding commercial markets for a sizeable share of processor output. Under the 2002 farm bill, permanent law would have taken effect on January 1, 2008. However, temporary extensions continued the dairy price support program. Under permanent law, nonrecourse loan rates for wheat, corn, and other feed grains, and cotton function as USDA purchase prices. Unless commercial markets pay more than the nonrecourse loan prices, farmers simply put their crops under loan and forfeit the commodities to USDA when the nine-month loans come due. Thus loan prices effectively are government purchase prices. When market prices are lower than the nonrecourse loan rates, commercial buyers have to raise their prices to outbid the USDA to acquire wheat, feed grains, and cotton. These crop subsidy programs were not extended beyond the 2007 crop year by the temporary extensions. Conservation Programs12 Many of the USDA conservation programs administered by the Natural Resources Conservation Service (NRCS) deal with evaluating the causes and severity of resource problems, developing physical and management systems to address the problems, and providing technical and financial assistance to farmers implementing preventive and remedial practices. The cost of these programs largely relates to agency personnel who provide specialized technical training, cost-sharing with farmers, and administrative overhead. Conservation program spending recently has averaged about $5 billion annually. While most of the larger conservation programs were authorized by the 2002 farm bill and would have expired the end of FY2007, several mostly older programs, with total spending about $1 billion, are permanently authorized and appropriations committees are to provide such sums as necessary to meet program needs. Thus, there is no constraint on appropriators in future years. As with most appropriated (discretionary) programs, funding depends heavily on budget requests from the administering executive agency. So, the future of these programs, short of a change in the permanent authorizing law, largely is in the hands of the appropriators. These programs are listed at the top of Table 2 . The Food Security Act of 1985 ( P.L. 99-198 ) and subsequent amendments have become the legal foundation for another set of programs that now account for almost $4 billion, 80% of USDA conservation spending. Most of these programs are administered by NRCS, while the largest (the Conservation Reserve Program (CRP)) is administered by USDA's Farm Service Agency (FSA), with support from NRCS. The original authorizing legislation expired in 1990, but has been extended and amended by periodic farm bills. Many of these programs were extended by the 2002 farm bill and most of the programs expired September 30, 2007. However, the temporary farm bill extensions continued these programs. The absence of new mandatory program authority likely would mean that no new contracts could be signed with farmers. All existing contracts would stay in force for their specified lives, and payments would continue to be made on the existing contracts. Three mandatory conservation programs were funded at specific levels by the temporary extensions—the Farmland Protection Program ($97 million), the Wildlife Habitat Incentives Program ($85 million), and the Ground and Surface Water Conservation Program ($60 million). Also, two programs, the Environmental Quality Incentives Program (EQIP) and the Conservation Security Program (CSP), have been extended in earlier legislation to FY2010 and FY2011, respectively. The mandatory conservation programs are listed in the bottom half of Table 2 , with their temporary expiration dates. Nutrition Programs13 At the end of FY2007 (and with no enacted farm bill to extend them), a number of authorities in domestic food assistance laws expired. They effectively were extended by a series of appropriations actions and temporary farm bill extensions. Because the Appropriations Act provided funding for all domestic food assistance programs through the end of FY2008, most programs (and the terms and conditions under which they operate) would have been unaffected if temporary extensions expired without new legislation. However, some provisions of domestic food assistance law would have terminated. Without some action, authority to continue to pay out nutrition assistance grants to Puerto Rico and American Samoa (totaling some $1.6 billion for FY2008) would have terminated without a temporary extension. Provisions allowing USDA to reduce, by just under $200 million a year, states' regular federal matching payments for food stamp administrative costs also would have terminated without a temporary extension. This authority is intended to adjust for administrative costs shared with other federally supported public assistance programs. Other, less significant authorities that would have been affected include: continuation of several food stamp pilot projects in which elderly or disabled recipients receive cash benefits, $5 million in grants for simplified application projects, $5 million in grants for community food projects, directive for minimum, per-case administrative cost payments for Commodity Supplemental Food Program (CSFP) projects, provisions regarding the amounts of cheese and nonfat dry milk to be provided to the CSFP, and provisions regarding contracting with private companies to process USDA-donated commodities. Trade and Foreign Food Aid Programs15 Several agricultural trade and international food aid programs were subject to expiration unless a new farm bill was enacted. In fact, a short-term expiration occurred between May 22, 2008, and June 18, 2008—that is, the period between enactment of the 2008 farm bill without Title III ( P.L. 110-234 ) and enactment of the version with Title III ( P.L. 110-246 ). These trade programs were authorized by the 2002 farm bill to receive mandatory funding. The programs in question regarding expiration were export credit guarantees, export credit guarantees for emerging markets, facilities credit guarantees, export market promotion, general export and dairy export subsidies, and technical assistance for specialty crops. Authority to carry out international emergency and non-emergency food aid programs is provided by P.L. 480, the Agricultural Trade Development and Assistance Act. Several authorities in P.L. 480 expired without a temporary extension or a new farm bill. These include the authorization of minimum volumes of commodity assistance under Title II (Title II of P.L. 480, emergency and private assistance), the authority to finance sales (Title I) or enter into agreements to provide commodities for emergencies or development projects (Title II), and the authority to carry out P.L. 480-financed agricultural technical assistance in sub-Saharan African and Caribbean countries. Authority to replenish stocks of the Bill Emerson Humanitarian Trust, a reserve of commodities and cash used to meet unanticipated food aid needs, also expired without temporary extension. Rural Development Programs16 Most rural development loan and grant programs are authorized through permanent law and funded through annual appropriations, which were received for FY2008 in the Consolidated Appropriations Act ( P.L. 110-161 ). However, several mandatory rural development programs were newly authorized or extended by the 2002 farm bill. These programs expired on September 30, 2007, and were not included in the temporary extensions: Enhanced Rural Access to Broadband Technology Program; Value-Added Product Development Grants Program; Renewable and Alternative Energy Systems Grant Program. Historical Farm Bill Chronology of Major Actions 1973 Farm Bill P.L. 93-86 ( S. 1888 ), an original bill to extend and amend the Agricultural Act of 1970 for the purpose of assuring consumers of plentiful supplies of food and fiber at reasonable prices Summary of Major Actions Introduced May 23, 1973. Enacted August 10, 1973. Expiration: Appropriations authorities expire June 30, 1977. Commodity support authorities expire after the 1977 crop year. Chronology of Major Actions 05/23/1973— S. 1888 introduced in Senate 05/23/1973— S. 1888 reported to Senate, S.Rept. 93-173. 06/08/1973— S. 1888 passed by roll call vote (78-9). 06/20/1973— H.R. 8860 introduced in House 06/27/1973— H.R. 8860 reported to House, H.Rept. 93-337. 07/19/1973— H.R. 8860 laid on table in House, S. 1888 passed in lieu. 08/10/1973—Signed by President. 1977 Farm Bill P.L. 95-113 ( S. 275 ), Food and Agriculture Act of 1977 Summary of Major Actions Introduced January 18, 1977. Enacted September 29, 1977. Expiration: Appropriations authorities expire September 30, 1981. Commodity support authorities expire after the 1981 crop year. Chronology of Major Actions 01/18/1977— S. 275 introduced in Senate. 05/13/1977— H.R. 7171 introduced in House. 05/16/1977—Reported to Senate, S.Rept. 95-180. 05/16/1977— H.R. 7171 reported from the House Ag. Committee, H.Rept. 95-348. 05/24/1977—Passed Senate by roll call, 69-18. 07/28/1977—Passed House in lieu of H.R. 7171 by roll call, 294-114. 09/09/1977—Conference report S.Rept. 95-418 agreed to 9/12/1977 by roll call, 63-8. 09/16/1977—Conference report agreed to in House by roll call, 283-107. 09/29/1977—Signed by President. 1981 Farm Bill P.L. 97-98 ( S. 884 ), Agriculture and Food Act of 1981 Summary of Major Actions Introduced April 7, 1981. Enacted December 22, 1981. Expiration: Appropriations authorities expire September 30, 1985. Commodity support authorities expire after the 1985 crop year. Chronology of Major Actions 04/07/1981— S. 884 introduced in Senate. 05/18/1981— H.R. 3603 introduced in House. 05/19/1981—Reported by House Ag. Committee, H.Rept. 97-106, Part I. Reported by House Committee on Appropriations 6/11/1981, H.Rept. 97-106, Part II. Reported by House Committee on Ways and Means on 6/19/1981, H.Rept. 97-106, Part III. Discharged by House Committee on Banking, Finance and Urban Affairs on 6/19/1981. 05/27/1981— S. 884 reported by Senate Ag. Committee under the authority of the order of May 21, 1981, with written report S.Rept. 97-126. 09/18/1981—Passed Senate by yeas-nays, 49-32. 10/22/1981—Passed House by yeas-nays, 192-160. 12/09/1981—Conference Report H.Rept. 97-377 filed in House. 12/10/1981—Conference report agreed to in Senate by yeas-nays, 67-32. 12/10/1981—Conference report S.Rept. 97-290 filed in Senate on the disagreeing votes of the two Houses on the amendments of the House. 12/16/1981—Conference report agreed to in House by yeas-nays, 205-203. 12/22/1981—Signed by President. 1985 Farm Bill P.L. 99-198 ( H.R. 2100 ), Food Security Act of 1985 Summary of Major Actions Introduced April 17, 1985. Enacted December 23, 1985. Expiration: Appropriations authorities expire September 30, 1990. Commodity support authorities expire after the 1990 crop year. Chronology of Major Actions 04/17/1985— H.R. 2100 introduced in House. 09/13/1985—Reported to House by House Ag. Committee, H.Rept. 99-271, Part I; and reported to House by House Committee on Merchant Marine and Fisheries on 9/19/1985, H.Rept. 99-271, Part II. 09/19/1985—Senate Ag. Committee incorporated provisions of related measures S. 501 , S. 616 , S. 843 , S. 908 , S. 1036 , S. 1041 , S. 1051 , S. 1083 , S. 1119 , S. 42 , S. 171 , S. 1040 , S. 1049 , S. 1050 , S. 250 , S. 1069 into a single measure that was ordered to be reported. 09/30/1985— S. 1714 introduced in Senate and reported to Senate with written report S.Rept. 99-145. 10/08/1985— H.R. 2100 passed House by yeas-nays, 282-141. 11/23/1985— H.R. 2100 passed Senate in lieu of S. 1714 by yeas-nays, 61-28. 12/17/1985—Conference Report H.Rept. 99-447 filed in House and agreed to in House on 12/18/1985 by yeas-nays, 325-96; and agreed to in Senate by yeas-nays, 55-38. 12/23/1985—Signed by President. 1990 Farm Bill P.L. 101-624 ( S. 2830 ), Food, Agriculture, Conservation, and Trade Act of 1990 Summary of Major Actions Introduced July 6, 1990. Enacted November 28, 1990. Expiration: Appropriations authorities expire September 30, 1995. Commodity support authorities expire after the 1995 crop year. As a buget savings action, some support provisions for several commodities were reduced and extended beyond 1995 by P.L. 103-66 (Omnibus Budget Reconciliation Act of 1993). Support for milk was extended through 1996. Some provisions affecting cotton, wheat, feedgrains, rice, peanuts, wool, and mohair were extended through 1997. Support for honey was extended through 1998. Chronology of Major Actions 02/05/1990— H.R. 3950 introduced in House. 07/03/1990— H.R. 3950 reported by the House Ag. Committee with H.Rept. 101-569, Part I. Reported 7/16/1990 by the Committee on Foreign Affairs, H.Rept. 101-569, Part II. Supplemental report filed 7/17/1990 by the House Ag. Committee, H.Rept. 101-569, Part III. Reported 7/18/1990 by the Committee on Education and Labor, H.Rept. 101-569, Part IV. Reported 7/18/1990 by the Committee on Ways and Means, H.Rept. 101-569, Part V, filed late, pursuant to previous special order. Discharged 7/18/1990 by the Committee on Merchant Marine and Fisheries. 07/06/1990— S. 2830 introduced in Senate. 07/06/1990— S. 2830 reported to Senate under the authority of the order of June 26, 1990, with written report S.Rept. 101-357. 07/27/1990— S. 2830 passed Senate by yeas-nays, 70-21. 08/01/1990— H.R. 3950 passed House by recorded vote, 327-91. 08/04/1990— S. 2830 passed in House without objection. 10/22/1990—Conference report H.Rept. 101-916 filed. 10/23/1990—Conference report agreed to in House by yeas-nays, 318-102. 10/25/1990—Conference report agreed to in Senate by yeas-nays, 60-36. 11/28/1990—Signed by President. 1996 Farm Bill P.L. 104-127 ( H.R. 2854 ), Federal Agriculture Improvement and Reform Act of 1996 Summary of Major Actions Introduced January 5, 1996. Enacted April 4, 1996. Expiration: Appropriations authorities expires September 30, 2002. Commodity support authority expires after the 2002 crop year. Chronology of Major Actions 08/04/1995— H.R. 2195 introduced in House. 09/20/1995— H.R. 2195 marked up by House Ag Committee and voted down. 09/28/1995—Senate Ag Committee completed markup and approved unnumbered farm bill. 10/26/1995— H.R. 2195 included in H.R. 2491 , Balanced Budget Act of 1985. H.R. 2491 approved by House on 10/26. 10/28/1995—Senate Ag Committee farm bill approved as part of the Balanced Budget Reconciliation Act of 1995 ( S. 1357 ), which was incorporated in H.R. 2491 and approved. 12/06/1995— H.R. 2491 was vetoed by the President. 01/05/1996— H.R. 2854 introduced in House. 01/26/1996— S. 1541 introduced in Senate. 02/07/1996— S. 1541 passed Senate by yeas-nays, 64-32. 02/09/1996— H.R. 2854 reported by House Ag. Committee with H.Rept. 104-462 , Part I, and discharged on 2/9/1996 by Committee on Ways and Means. 02/29/1996— H.R. 2854 passed House by yeas-nays, 270-155. 03/12/1996— H.R. 2854 passed Senate by voice vote. 03/25/1996—Conference report H.Rept. 104-494 filed. 03/28/1996—Conference report agreed to in Senate by yeas-nays, 74-26. 03/29/1996—Conference report agreed to in House by recorded vote, 318-89. 04/04/1996—Signed by President. 2002 Farm Bill P.L. 107-171 ( H.R. 2646 ), Farm Security and Rural Investment Act of 2002 Summary of Major Actions Introduced July 26, 2001. Enacted May 13, 2002. Provisions applied to 2002 crops, superseding the unexpired provisions of the 1996 farm bill. Expiration: Appropriations authorities expire September 30, 2007. Commodity support authorities expire after the 2007 crop year. Chronology of Major Actions 07/26/2001— H.R. 2646 introduced in House. 08/02/2001— H.R. 2646 reported by House Ag. Committee, H.Rept. 107-191 , Part I. Supplemental report filed 8/31/2001 by House Ag. Committee, H.Rept. 107-191 , Part II. Reported by the Committee on International Relations 9/10/2001, H.Rept. 107-191 , Part III. 10/05/2001—Passed in House by yeas-nays, 291-120. 11/27/2001— S. 1731 introduced in Senate and reported to Senate by the Senate Ag. Committee without a written report. S.Rept. 107-117 was filed on 12/7/2001. 02/13/2002—Passed in Senate in lieu of S. 1731 by yeas-nays, 58-40. 05/01/2002—Conference report H.Rept. 107-424 filed. 05/02/2002—Conference report agreed to in House by yeas-nays, 280-141. 05/08/2002—Conference report agreed to in Senate by yeas-nays, 64-35. 05/13/2002—Signed by President. 2008 Farm Bill P.L. 110-246 ( H.R. 6124 ), Food, Conservation, and Energy Act of 2008 Summary of Major Actions Introduced May 22, 2007. Enacted June 18, 2008. Expiration: Appropriations authorities expire September 30, 2012. Commodity support authorities expire after the 2012 crop year. Chronology of Major Actions 05/22/2007— H.R. 2419 introduced in House. 07/23/2007— H.R. 2419 reported by House Ag. Committee, H.Rept. 110-256 . 07/23/2007— H.R. 2419 discharged by Committee on Foreign Affairs. 07/27/2007— H.R. 2419 passed in House (231-191). 12/14/2007— H.R. 2419 passed in Senate, with substitute language (79-14). Short-term extensions 12/26/2007— P.L. 110-161 (Consolidated Appropriations Act of 2008) included language to extend the 2002 farm bill, with specific exceptions, until March 15, 2008 (Division A, Title VII, Sec. 751). 03/14/2008— P.L. 110-196 further extended the 2002 farm bill and suspended permanent price support authority until April 18, 2008. 04/18/2008— P.L. 110-200 continued to extend the 2002 farm bill as in the previous extension until April 25, 2008. 04/25/2008— P.L. 110-205 continued to extend the 2002 farm bill as in the previous extension until May 2, 2008. 05/02/2008— P.L. 110-208 continued to extend the 2002 farm bill as in the previous extension until May 16, 2008. 05/14/2008— H.R. 2419 conference agreement passed in House (318-106). 05/15/2008— H.R. 2419 conference agreement passed in Senate (81-15). 05/18/2008— P.L. 110-231 continued to extend the 2002 farm bill as in the previous extension until the earlier of May 23, 2008, or enactment of the 2008 farm bill. 05/21/2008— H.R. 2419 vetoed by President Bush (enrolled without Title III). 05/21/2008— H.R. 2419 passed in House over veto (316-108). 05/22/2008— H.R. 2419 passed in Senate over veto (82-13). 05/22/2008— H.R. 2419 became P.L. 110-234 (without Title III). 05/22/2008— H.R. 6124 passed in House (306-110, text of H.R. 2419 with Title III). 06/05/2008— H.R. 6124 passed in Senate (77-15). 06/18/2008— H.R. 6124 vetoed by President Bush. 06/18/2008— H.R. 6124 passed in House over veto (317-109). 06/18/2008— H.R. 6124 passed in Senate over veto (80-14). 06/18/2008— H.R. 6124 became P.L. 110-246 (and superseded P.L. 110-234 ).

The 2002 farm bill (P.L. 107-171) authorized an array of agricultural, rural, and nutrition programs. Many provisions of the 2002 farm bill were scheduled to expire in 2007. If a new farm bill or year-long extension were not enacted before the 2008 harvest, permanent law would have taken effect. Under permanent law, eligible commodities would be supported at levels much higher than they are now, and many of the currently supported commodities might not be eligible (including soybeans and peanuts). Permanent law for the commodity programs is so radically different from current policy and inconsistent with today's farming, marketing, and trade agreements—as well as costly to the federal government—that Congress was unlikely to let it take effect. Lack of new legislation would have reduced or eliminated some conservation, domestic nutrition assistance, trade and foreign food aid, and rural development programs. Six temporary extensions continued the authority of most programs in the 2002 farm bill until May 23, 2008. A new farm bill was enacted on May 22, 2008 (P.L. 110-234), when the Senate joined the House in overriding the presidential veto of H.R. 2419. However, a clerical error omitted Title III, the trade and foreign aid title from the enrolled version sent to the President. To resolve the absence of Title III, another complete version of the farm bill (H.R. 6124) was passed, vetoed and overridden. The final enacted version of the 2008 farm bill is P.L. 110-246. Prior to enactment of the farm bill, programs that were not extended in the temporary extensions included the direct, counter-cyclical, and marketing loan programs for the 2008 crop year for the major crops (such as corn, soybeans, wheat, cotton, and rice), peanut storage, community food projects authorized under the Food Stamp Act, the rural broadband program, value-added market development grants, and certain renewable energy programs. However, the dairy, sugar, and wool and mohair programs were extended. Most of the long-standing USDA conservation programs were permanently authorized and had a current appropriation. Other conservation programs that pay farmers to remove fragile crop land from production were authorized and received mandatory funding from the 2002 farm bill but awaited renewal. Two conservation programs that pay farmers for adopting resource stewardship practices (the Environmental Quality Incentives Program and the Conservation Security Program) were extended beyond FY2007 by the Deficit Reduction Act of 2005 (P.L. 109-171). USDA's domestic food assistance programs (for example, food stamps) generally were permanently authorized, and, in most cases, they were not affected by the possible expiration of the farm bill, since they received a full-year FY2008 appropriation. However, two major provisions of the law could have been affected: nutrition assistance grants to Puerto Rico and American Samoa and authority to reduce food stamp administrative payments to states. This report will not be updated.

The Department of the Treasury This report examines FY2017 appropriations for the Treasury Department and its operating bureaus, including the Internal Revenue Service (IRS). More specifically, it describes the President's budget request for Treasury in FY2017 and the current status of legislation in the House and Senate to fund the department. In addition, the report discusses selected policy issues raised by the budget request and the House and Senate appropriations bills. Organizational Structure and Functions The Treasury Department performs a variety of critical functions. Foremost among them are protecting the nation's financial system against illegal activities, such as money laundering and terrorist financing; collecting tax revenue and enforcing tax laws; managing and accounting for the federal debt; administering the federal government's finances; regulating certain financial institutions; and producing and distributing coins and currency. At its most basic level of organization, the Treasury Department is a collection of departmental offices and operating bureaus. In general, departmental offices formulate and implement policy initiatives and manage Treasury's day-to-day operations, while operating bureaus handle specific tasks and duties assigned to Treasury, often as a result of statutory mandates. In the past decade, the bureaus have accounted for more than 95% of the Treasury Department's funding and workforce, on average. With one exception, the bureaus and offices can be divided into those engaged in financial management and regulation and those engaged in law enforcement. In recent years, the Comptroller of the Currency, U.S. Mint, Bureau of Engraving and Printing, Bureau of the Fiscal Service, and Community Development Financial Institutions Fund have been involved in the management of the federal government's finances or the supervision and regulation of key elements of the U.S. financial system. By contrast, law enforcement has been central to the duties handled by the Alcohol and Tobacco Tax and Trade Bureau, Financial Crimes Enforcement Network, and the Treasury Forfeiture Fund. The creation of the Department of Homeland Security in 2002 sharply curtailed Treasury's direct involvement in law enforcement. The lone exception to this dichotomy, arguably, is the IRS, whose main responsibilities encompass both the collection of tax revenue and the enforcement of tax laws and regulations. The operating budgets for most Treasury bureaus and offices are funded largely through annual discretionary appropriations. This is true for the IRS, Bureau of the Fiscal Service, Financial Crimes Enforcement Network, Alcohol and Tobacco Tax and Trade Bureau, Office of the Inspector General, Treasury Inspector General for Tax Administration, Special Inspector General for the Troubled Asset Relief Program, and Community Development Financial Institutions Fund. By contrast, funding for the Treasury Franchise Fund, the U.S. Mint, the Bureau of Engraving and Printing, and the Office of the Comptroller of the Currency comes exclusively from the fees they collect for the services and products they provide to the public and to other government agencies. Treasury Appropriations Accounts and Their Purposes Treasury appropriations in FY2016 were distributed among the following 11 accounts. Departmental Offices (DO) The Departmental Offices account covers the salaries and other expenses of offices in Treasury that formulate and implement policies dealing with domestic and international finance and taxation and the state of the domestic economy. Funding is also provided through DO for Treasury's financial and personnel management, procurement operations, and information and telecommunications systems. Office of Terrorism and Financial Intelligence (TFI) The Office of Terrorism and Financial Intelligence account pays for the salaries and other expenses associated with TFI's programs to prevent the use of the financial system by terrorist groups and their financial backers, drug cartels, and others who seek to launder funds from illegal activities. TFI also plays a central role in enforcing economic sanctions against countries deemed a threat to national security and shares the information it gathers with domestic and foreign law enforcement and intelligence agencies. Department-wide Systems and Capital Investments Program (DSCIP) The Department-wide Systems and Capital Investments Program account pays for investments in new technology and capital improvements intended to upgrade Treasury's administrative processes and increase the overall efficiency of its operations. Office of Inspector General (OIG) The Office of Inspector General account covers the salaries and other expenses related to the audits and investigations conducted by OIG staff. These evaluations are intended to improve the efficiency and effectiveness of Treasury's operations and programs; prevent waste, fraud, and abuse; and inform the Treasury Secretary and Congress about problems or shortcomings in those activities. Treasury Inspector General for Tax Administration (TIGTA) The Treasury Inspector General for Tax Administration account pays for salaries and other expenses related to the audits and investigations conducted by TIGTA staff. These evaluations focus primarily on the efficiency and effectiveness of IRS programs and operations. TIGTA's investigations are also intended to deter or prevent fraud and waste in IRS programs and operations and recommend changes in those activities to solve problems or remedy deficiencies. Special Inspector General for the Troubled Asset Relief Program (SIGTARP) The Special Inspector General for the Troubled Asset Relief Program account pays for the salaries and other expenses related to the audits and investigations into the management and effectiveness of TARP conducted by SIGTARP staff. The office was established by the same law that created TARP: the Emergency Economic Stabilization Act ( P.L. 110-343 ). Financial Crimes Enforcement Network (FinCEN) The Financial Crimes Enforcement Network account covers the salaries and other expenses related to the activities of FinCEN, whose main responsibility is to protect the domestic financial system from illicit uses, such as money laundering and terrorist financing. The statutory basis for this role is the Bank Secrecy Act (BSA, P.L. 91-508). FinCEN administers key provisions of the act by developing and implementing regulations and other guidance and working with private financial institutions and eight federal agencies to ensure the financial industry complies with the BSA's strict reporting requirements for a broad range of financial transactions. Bureau of the Fiscal Service (BFS) The Bureau of the Fiscal Service account funds two functions that up until FY2014 were handled by separate bureaus with separate appropriations accounts: the Financial Management Service and the Bureau of Public Debt. As a result of a consolidation of the two bureaus that began in FY2015, the BFS account covers the salaries and other expenses related to developing and implementing payment policies and procedures for federal agencies, collecting debts owed to those agencies and state governments, and providing financial accounting, reporting, and financing services for the federal government and its agents. In addition, the BFS account covers the salaries and other expenses related to the federal government's public debt operations and the sale of U.S. bonds. Alcohol and Tobacco Tax and Trade Bureau (ATTB) The Alcohol and Tobacco Tax and Trade Bureau account pays for the salaries and other expenses related to the activities of ATTB, which was established by the Homeland Security Act of 2002 ( P.L. 107-296 ) . ATTB enforces certain laws governing the domestic sale and production of alcohol and tobacco products. It also has jurisdiction over the federal consumer safety laws governing the consumption of alcohol and tobacco products. Community Development Financial Institutions Fund (CDFIF) The Community Development Financial Institutions Fund account funds the activities of community development financial institutions (CDFIs). These institutions (which include community development banks, credit unions, and venture capital funds) provide grants, loans, and equity capital for affordable housing projects, small businesses, and community development projects in eligible areas. In addition, the CDFIF administers the Bank Enterprise Award (BEA) program and the New Markets tax credit. Since its creation in 1994, the CDFIF has awarded more than $2.0 billion to community development financial institutions, community development entities (CDEs), and depository institutions insured by the Federal Deposit Insurance Corporation through the CDFI Program; the Native American CDFI Assistance Program; and the BEA program. In addition, the fund has allocated about $40 billion in New Markets tax credits to CDEs since the credit was created in 2000. Internal Revenue Service (IRS) The Internal Revenue Service account covers the salaries and other expenses related to IRS's operations. Two critical components of those operations are the services it offers taxpayers to help them understand and meet their tax obligations and the measures it takes to improve voluntary taxpayer compliance, including enforcement measures. Some appropriated funds are used to develop or upgrade business operations and information systems, as part of an ongoing effort by the IRS to improve the effectiveness and efficiency of taxpayer services and enforcement. FY2017 Treasury Appropriation Accounts: Current Status and Issues for Congress This section reviews the Obama Administration's FY2017 budget request for the Treasury Department and congressional action on the request. In addition, it discusses notable policy issues raised by the budget request or the House and Senate appropriations bills. These details are provided for each of the Treasury appropriation accounts (which number 10 or 11, depending on whether funding for TFI is counted as a separate account or folded into the DO account). Table 1 shows the enacted appropriations for each Treasury account in FY2016, the President's FY2017 request, and the amounts recommended for FY2017 by the House and the Senate Appropriations Committee. Departmental Offices Budget Request The President's FY2017 budget request for the Treasury Department included $334 million in appropriations for DO, or $5 million less than the amount enacted for FY2016. With the addition of anticipated reimbursable expenses from activities funded through the DO account, the DO operating budget would have totaled an estimated $437 million in FY2017. Of the requested funding, $38 million would have gone to executive direction, $59 million to international affairs and economic policy, $76 million to domestic finance and tax policy, $117 million to TFI, and $43 million to Treasury management and related programs. In addition, $22 million would have been available until September 30, 2018 for Treasury's Financial Statement Audit and Internal Control program, the modernization of Treasury's information technology systems, and the development and implementation of programs in the Office of Critical Infrastructure Protection and Compliance Policy. Relative to enacted funding for FY2016, the budget request called for increases of $2.1 million for program expansions (including data risk analysis and rationalization of the tax code) and $5.3 million to maintain FY2016 levels of operation. It also incorporated decreases of $1.0 million from non-recurring expenses, $1.4 million from efficiency improvements; $7.0 million from covering Treasury's cost for administering the Gulf Coast Restoration Trust Fund in through a withdrawal of $7.0 million from the Fund, and $3.0 million from transferring DO cybersecurity investments to a new account: the Cybersecurity Enhancement Account. H.R. 5485 The House passed a bill ( H.R. 5485 ) on July 7, 2016 that would have provided $250 million in appropriations for DO in FY2017. This amount did not include funding for TFI, which was addressed in a separate account under the bill. According to the text of the bill, $57 million of the recommended appropriation would have been available through the end of FY2018 to cover costs associated with Treasury's Financial Statement Audit and Internal Control Program, the modernization of Treasury's information technology, the oversight and administration of the Gulf Coast Restoration Trust Fund, and the development and operation of programs in Treasury's Office of Critical Infrastructure Protection and Compliance Policy. In its report on H.R. 5485 , the House Appropriations Committee directed Treasury to continue to enforce laws intended to prevent the laundering of funds from wildlife trafficking and ivory poaching. Treasury is required to submit reports six months apart in FY2017 to the two appropriations committees on the steps it is taking to implement the National Strategy on Wildlife Trafficking. The Committee also directed Treasury to submit a report to Congress sometime during FY2017 on the status of bilateral and multilateral sanctions against Iran and the steps taken by the "international community" to enforce them. Another issue addressed by the committee was funding for the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR). Both entities were created by the Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 ). Under current law, each office finances its operations by collecting fees from designated private institutions. As a result, Congress exercises no direct control over their operations through the appropriations process. To enhance congressional influence, the committee directed OFR to submit quarterly reports on its "budget obligations;" H.R. 5485 would also have brought funding for OFR into the annual appropriations process. S. 3067 S. 3067 , as reported by the Senate Appropriations Committee on June 16, would have given DO $347 million in appropriations in FY2017, or $3 million more than the budget request. Of that amount, $123 million would have been used to fund the operations of TFI, or $6 million more than the budget request. The measure would not have created a separate appropriations account for TFI. In its report on the bill, the committee ordered Treasury to continue using its powers to combat money laundering related to wildlife trafficking and ivory poaching. The report addressed several other issues. One was the financial literacy of American adults. According to data from Treasury's Office of Financial Education (OFE), one in seven adults is incapable of successfully completing financial tasks beyond those requiring the most "rudimentary" financial literacy skills. The committee recommended that OFE examine the extent to which individuals with rudimentary financial skills benefit from federal financial literacy programs and develop "measurable" objectives for the improvement of those skills for the Financial Literacy and Education Commission. The committee also expressed concern about Treasury's administration of economic sanctions against Iran and directed the agency to prepare two reports on the issue for the committee in FY2017. One should identify every person or entity that was removed from the Iran sanction list in the past two years and determine whether that person or entity subsequently engaged in prohibited activities. The other report should focus on the number of non-nuclear sanctions designations related to Iran issued by Treasury in the past three fiscal years. P.L. 115-31 Under the Consolidated Appropriations Act, 2017, DO is receiving $224.4 million in appropriations, or $1.9 million more than the amount enacted for FY2016. Of that amount, $24.0 million will remain available until the end of FY2018 to cover costs from the following activities: (1) Treasury's Financial Statement Audit and Internal Control Program, (2) information technology modernization projects, (3) management of the Gulf Coast Restoration Fund, (4) programs of the Office of Critical Infrastructure Protection and Compliance Policy, and (5) international operations. Issue for Congress Funding for DO in FY2017 again raised the question of how TFI's budget should be managed. The Obama Administration and the Senate Appropriations Committee wanted TFI appropriations to remain a component of DO appropriations. But the House Appropriations Committee disagreed and sought a separate appropriation account for TFI. The final appropriations act sided with the House. A key consideration in this disagreement was how congressional control over the amount of money available for TFI's operations and the use of those funds would be affected by carving out a separate account for the office. Department-wide Systems and Capital Investments Budget Request The FY2017 Treasury budget request called for $5.0 million in appropriations for DSCIP, or the same amount that was enacted for FY2016. There were no new appropriations for the account in FY2012 and FY2013. According to Treasury budget documents, the funds would have been used for two purposes. Much of the money ($3.0 million) would have been used to ensure that the Department and its bureaus could fulfill their basic responsibilities under the Data Accountability and Transparency Act (DATA, P.L. 113-101 ). The act requires the federal government to make available to the general public "consistent, reliable, and helpful" online data about how it spends taxpayer dollars. Treasury and the Office of Management and Budget are responsible for implementing by the end of May 2018 financial data standards for reporting spending by federal agencies and other entities that receive federal funds. In line with that requirement, the $3.0 million in appropriations would have been used to expand Treasury's Enterprise Data Management infrastructure to create a data repository that Treasury bureaus could use to undertake their own data analysis and management. The remaining $2.0 million would have gone to a proposed project to repair the bridge connecting the motor pool entrance and the Main Treasury Building. H.R. 5485 H.R. 5485 , as passed by the House, provided no funding for DSCIP in FY2017. S. 3067 The bill, as reported by the Senate Appropriations Committee, recommended that DSCIP receive $5 million in appropriations in FY2017, or the same as the amount enacted for FY2016 and the budget request. The report on S. 3067 offered no guidance on how the funds should be used. But it did include an administrative provision (Section 123) requiring Treasury to submit an annual "Capital Investment Plan" to the two appropriations committees within 30 days after the release of the annual budget request. Such a document would help the committees understand how appropriated funds are being used for multi-year projects. P.L. 115-31 The Consolidated Appropriations Act, 2017 provides $3.0 million in funding for DSCIP, or $2.0 million less than the amount enacted for FY2016. It authorizes Treasury to transfer these funds to "accounts and in amounts as necessary to satisfy the requirements of the Department's offices, bureaus, and other organizations." None of the funds, however, may be transferred to the IRS for use in operations support or the business systems modernization program. Office of Inspector General Budget Request The Obama Administration's FY2017 budget request for the Treasury Department included $37.0 million in appropriated funds for OIG or $1.6 million more than the amount enacted for FY2016. With the addition of an estimated $10.5 million in payments for services provided by OIG to other agencies, its operating budget for FY2017 would have totaled an estimated $47.5 million. Of the requested funding, $29.6 million would have been used for audits, and $7.4 million for investigations. Moreover, $2.8 million of the requested amount would have been available through the end of FY2018 for audits and investigations performed under Section 1608 of the Resources and Ecosystems Sustainability, Tourist Opportunities and Revived Economies of the Gulf Coast States Act of 2012 ( P.L. 112-141 , the RESTORE Act). The audits and investigations would have satisfied the requirements of the Inspector General Act, as well as those of several other statutes. Foremost among those laws were the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act, P.L. 111-203 ), the Federal Information Security Management Act ( P.L. 107-347 ), the Federal Deposit Insurance Act of 1950 (P.L. 81-797), the Improper Payments Elimination and Recovery Act ( P.L. 111-204 ), the Small Business Jobs Act of 2010 ( P.L. 111-240 ), the Digital Accountability and Transparency Act of 2014 ( P.L. 113-101 ), and the RESTORE Act. H.R. 5485 H.R. 5485 , as passed by the House, would have given $37.0 million in appropriations to OIG in FY2017, matching the budget request. In its report on the bill, the House Appropriations Committee noted that the recommended funding should cover the cost to Treasury of overseeing the RESTORE Act. S. 3067 The bill reported by the Senate Appropriations Committee ( S. 3067 ) also recommended that OIG receive $37.0 million in appropriations in FY2017. In its report on the bill, the committee encouraged the Inspector General (IG) to look into the security of Treasury's facilities and its information networks and systems. The committee also urged the IG to undertake an audit of the CDFIF's administration of the grants it distributed. More specifically, the told the IG to investigate the following issues: (1) the extent to which applications had been approved according to current laws and regulations, (2) whether the fund had adequate internal financial controls, (3) whether it monitored the grants it awarded, and (4) whether there was a "process" for assessing the extent to which outcomes match program goals. In addition, the committee ordered the IG to continue monitoring the treatment of BFS employees who were employed by the Fiscal Management Service before it merged with the Bureau of Public Debt. Of particular concern to the committee was the extent to which these employees had been harassed, demoted, or subject to other actions that would encourage them to leave the BFS. P.L. 115-31 OIG is receiving $37.0 million in appropriations in FY2017, or $2.0 million more than the amount enacted for FY2016. Of that amount, $2.8 million will be available for audits and investigations conducted under Section 1608 of the RESTORE Act. Cybersecurity Enhancement Account Budget Request In its budget request for the Treasury Department in FY2017, the Obama Administration proposed the creation of a new appropriations account dedicated to funding centralized programs intended to strengthen the Department's protection against and improve its response to threats to the security of its information systems and those of Treasury's bureaus. According to Treasury budget documents, the proposed Cybersecurity Enhancement Account (CEA) was also designed to "mitigate" threats to cybersecurity of the U.S. financial system. For FY2017, the Administration requested $109.8 million in appropriations for the new account. This amount would have been divided between spending on Treasury-wide cybersecurity protection programs ($48 million) and spending on similar programs at the IRS ($62 million). Under the budget request, funds in the CEA could be obligated and spent through "allocation accounts" for individual offices and bureaus. Treasury-wide investments would have focused on improving the security of several information systems used by most or all offices and bureaus, including the Treasury Secure Data Network and the Fiscal Service Trusted Internet Connections. In the case of the IRS, funds from the CEA would have been available to upgrade the security of its existing information systems and to improve the capability of the agency's e-Authentication system to verify the identity of existing users, register new users, and "validate their credentials for ongoing system access." H.R. 5485 The bill, as passed by the House, would not have created a CEA. S. 3067 The bill, as reported by the Senate Appropriations Committee, endorsed the Administration's request to establish a new appropriations account for new cybersecurity investments. It recommended that the CEA receive $47.7 million in appropriations in FY2017 to cover Treasury-wide cybersecurity programs only. These would have included investments intended to bolster the security of the Treasury Secure Data Network and the Fiscal Service Trust Internet Connections. None of the recommended funding could be used for IRS's cybersecurity programs. In its report on the bill, the committee directed the Treasury Chief Information Officer (CIO) to review and approve each proposed investment under the CEA. None of the money in the account could be spent without the prior approval of the CIO. In addition, the CIO would have to submit quarterly reports to both appropriations committees on the status of each approved investment. To ensure that the CIO retained the desired degree of control over the use of CEA funds, the bill would not allow the transfer of funds from the account. Nor would it allow the funds to be obligated and spent through the allocation accounts that would be available to individual offices and bureaus under the budget request. P.L. 115-31 The act creates a CEA and gives it $47.7 million in appropriations for FY2017. The funds are available for obligation until the end of FY2019 and are intended to supplement (not supplant) amounts appropriated for cybersecurity for other Treasury offices and bureaus. Use of the funds requires that the Treasury Chief Information Officer (CIO) review and approve proposed spending plans submitted by Treasury offices and bureaus before any money is obligated. Of the amount appropriated for the account, $1 million is set aside for the administrative expenses of the CIO. Office of the Special Inspector General for the Troubled Asset Relief Program Budget Request Under the budget request, SIGTARP would have received $41.2 million in appropriations for FY2017, or $0.5 million more than the amount enacted for FY2016. Taking into account unobligated balances from the previous year and funds received from the Public-Private Investment Program administered by the Treasury Department, SIGTARP's operating budget in FY2017 would have totaled an estimated $46.5 million. Relative to FY2016, the budget request called for an increase of $0.6 million to maintain FY2016 operating levels and a decrease of $0.1 million because of efficiency gains from a loss of eight FTE positions. The total number of FTEs at SIGTARP would not have declined, as the eight lost positions would have been "absorbed in SIGTARP's PPIP fund to more accurately reflect work performed and prior-year usage." SIGTARP deploys its resources to prevent or uncover waste, fraud, and abuse in the use of the $475 billion in bailout funds Congress ultimately authorized for the Troubled Asset Relief Program, which was a product of the EESA. Of the requested appropriations for FY2017, $8.6 million would have been used to perform audits and $32.5 million to conduct investigations. SIGTARP operates as a temporary agency that will cease to exist (or sunset) when all TARP program no longer have any outstanding investments or commitments. Several mortgage programs remain active, including the Home Affordable Modification Program, which has been projected to last at least until 2023. H.R. 5485 The bill, as passed by the House, would appropriate $41.2 million for SIGTARP in FY2017, or the same amount as the budget request. In its report on the bill, the House Appropriations Committee acknowledged that the initial operating expenses of SIGTARP were funded through no-year appropriations, but that those funds have decreased over time and might be used up in FY2017. As a result, H.R. 5485 would have provided supplementary discretionary appropriations so the office could maintain "vigorous oversight" of outstanding TARP programs. S. 3067 The bill, as reported by the Senate Appropriations Committee, would also have provided $41.2 million in appropriations for SIGTARP in FY2017. P.L. 115-31 Under the act, SIGTARP is receiving $41.2 million in appropriations in FY2017, the same amount that was enacted for FY2016. No guidance on the use of those funds is provided. Treasury Inspector General for Tax Administration The Obama Administration requested $169.6 in appropriations for TIGTA in FY2017, or $2.4 million more than the amount enacted for FY2016. Of the requested amount, $5.0 million would have been available for obligation through the end of FY2018. TIGTA also receives funds for its operating budget from reimbursements for services it provides to other parties. Treasury estimated that these reimbursements could total $1.5 million in FY2017, giving TIGTA an operating budget of $171.1 million. The requested increase in funding reflected an additional $2.4 million to maintain FY2016 operating levels and a decrease of $17,200 because of efficiency savings from an anticipated reduction in the number of investigations TIGTA will need to conduct in FY2017. TIGTA's funding pays for audits, investigations, and evaluations of IRS operations. In FY2017, according to the budget proposal, the Office of Audit would have received $66.0 million in appropriations and $600,000 in reimbursements, while the Office of Investigations would have received $103.6 million in appropriations and $900,000 in reimbursements. According to Treasury budget documents, TIGTA's investigations and audits and other oversight activities generate a return on investment of $168 for each dollar spent on its operations. This return reflects both cost savings from changes to IRS's operations and additional revenue from the collection of taxes. H.R. 5485 The bill, as passed by the House, would have given TIGTA $169.6 million in appropriated funds for FY2016, or the same as the budget request. Of that amount, $5.0 million would have been available for obligation through the end of FY2018. In its report on the bill, the House Appropriations Committee expressed concern over the vulnerability of the IRS to cyberattacks. To address that concern, the committee directed TIGTA to submit a report to the two appropriations committees within six months of the enactment of H.R. 5485 that examined the following issues: (1) the consequences of past cyberattacks against the agency, (2) the steps taken or being considered by the IRS to prevent future attacks and lessen their effects, (3) IRS's current cybersecurity policies and procedures (including those ensuring the safe use of computers by IRS employees), and (4) the efforts made by the agency to inform employees and contractors about the risks of cyberattacks. S. 3067 S. 3067 , as reported by the Senate Appropriations Committee, would also have provided TIGTA with $169.6 million in appropriations for FY2017. In its report on the bill, the committee noted that TIGTA had designated safeguarding the confidentiality of taxpayer information as the top concern facing the IRS every year since FY2011. The committee also noted that it expected to review TIGTA reports during FY2017 on the measures the IRS is taking (or planning to take) to enhance the security of online taxpayer account information, the effectiveness of controls already in place to protect IRS information systems against cyberattacks, and the security of data transfers to third parties. In addition, the committee encouraged TIGTA to investigate and issue a report on IRS's performance on two other issues. One was the IRS's use of appropriated funds in FY2016 to improve taxpayer services. The second issue was IRS's implementation of two key provisions of the ACA: the verification of taxpayers' compliance with the minimum essential health insurance coverage requirement and the verification of the authenticity of claims for the health insurance premium tax credit. P.L. 115-31 Under the act, TIGTA is receiving $169.6 million in appropriations, or $2.6 million more than the amount enacted for FY2016. Of that amount, $5.0 million is available for obligation through the end of FY2018. Community Development Financial Institutions Fund20 The Obama Administration asked for $245.9 million in appropriations for CDFIF in FY2017, or $12.4 million more than the amount enacted for FY2016. With the addition of projected reimbursements, user fees, and unobligated balances and recoveries from previous years, the budget request would have given CDFIF an operating budget of $257.9 million in FY2017. Of the requested funding, $153.4 million was designated for the CDFI Program, $15.5 million for the Native American CDFI Assistance Program (NACA), $19.0 million for the Bank Enterprise Award Program, $22.0 million for the Healthy Food Financing Initiative (HFFI), $10.0 million for the Small Dollar Loan Program (SDLP), and $26.0 million for administrative expenses. Relative to the enacted amounts for FY2016, the budget request called for a decrease of $0.3 million for data collection and increases of $0.4 million to maintain current operating levels and $12.3 million for program expansions. The requested funding for those expansions would have been allocated as follows: $2.3 million for administrative expenses related to allocating $74 million in awards under the Capital Magnet Fund (CMF) and to developing a modeling tool known as the Community Development Impact Measuring Estimator, and $10.0 million for the SDLP. Although no direct appropriations are used for this purpose, the CDFIF has administered the New Markets Tax Credit (NMTC) since its creation in 2000. The credit is available through 2019 under current law. Taxpayers who make qualified equity investments in Community Development Entities may claim a credit equal to 39% of their investment; the credit is distributed in equal amounts over seven years. It is awarded to investors through a competitive selection process. Congress authorized a total of $40 billion in NMTCs to be awarded through 2013, and there was an annual limit of $3.5 billion in new credits from 2010 to 2013. In 2015, Congress extended the credit through 2019 and authorized $3.5 billion a year in new credits from 2014 to 2019 under the Protecting Americans from Tax Hikes Act of 2015 ( P.L. 114-113 ). The Small Business Jobs Act of 2010 ( P.L. 111-240 ) established the CDFI Bond Guarantee Fund (BGF). Bonds issued under the program support CDFI lending in poor communities underserved by banks and other financial services companies by providing a source of long-term capital. Bonds issued by CDFIs (or their designees) are guaranteed by the Treasury Department, and the proceeds are used to capitalize new loans or refinance existing ones. The maturity of the bonds cannot exceed 30 years. Between FY2013 and FY2015, the Treasury Department issued seven bond guarantees with a combined face value of $852 million to qualified issuers, which in turn provided bond loans to 16 CDFIs. In FY2016, Treasury had the authority to issue up to $750 million in guarantees. The budget request would have extended the BGF through FY2017, raised the limit for newly issued loan guarantees to $1 billion in FY2017, and reduced the minimum bond issue from $100 million to $25 million. H.R. 5485 As passed by the House, the bill would have provided $250.0 million in appropriations for the CDFIF in FY2017, or $4.1 million more than the budget request. Of the recommended funding, $184.0 million would have gone to technical and financial assistance grants for CDFIs, $16.0 million to NACA, $19.0 million to BEA, and $25.0 million for administrative expenses. There was no designated funding for HFFI or CMF. In addition, H.R. 5485 would have established a new program for technical and financial assistance for low-income disabled persons with $6.0 million in funding in FY2017. Of the recommended appropriations for administrative costs, "no less than" $2.0 million was set aside to help CDFIs modify their programs to better meet local needs for the education, housing, transportation, and employment of disabled persons. The bill would have imposed a limit of $250 million on the new loan guarantees that could be issued in FY2017 under the CDFI Bond Guarantee Fund. In its report on the bill, the committee encouraged the CDFIF to expand service in America Samoa, the Northern Mariana Islands, and other "U.S. insular areas" through its Capacity Building Initiative. The committee also directed the CDFIF to submit quarterly reports to the two appropriations committees during FY2017 on the status of efforts to establish an application pool among CDFIs willing to compete for technical and financial assistance grants to assist low-income disabled persons, and the selection criteria used to award the grants. The reports should look at the number of awards, the amount of each award, the impact of the awards on the lives of affected disabled persons, and any recommendations on how to improve the program. S. 3067 The bill, as reported by the Senate Finance Committee, would have provided $233.5 million in appropriations for CDFIF in FY2017, or $12.4 million less than the budget request. Of the recommended funding, $171.4 million was designated for technical and financial assistance grants to CDFIs, $15.5 million for NACA, $23.0 million for BEA, and $23.6 million for administrative expenses. Funding for the HFFI was included in the recommended appropriations for financial and technical assistance grants for CDFIs. And would have allowed the Treasury Department to guarantee up to $500 million in bonds under the BGF in FY2017. In its report on S. 3067 , the committee expressed concern about the CDFIF's ability to accurately assess the results of its investments and what it called a "lack of transparency" regarding the operation of the fund's programs. It also cited evidence that some award recipients have not been held accountable for using their awards for the approved purposes and at locations that differ from the recipients' approved applications. In the committee's view, issues like these continued to make it difficult to determine whether the programs were achieving their goals. To address this difficulty, the committee set aside $1.0 million of the recommended appropriations to develop analytical tools that would provide better assessments of the results of CDFIF investments, improve the quality of program data, and allow the fund to allocate its resources more efficiently. The committee also directed the CDFIF to submit a report to both appropriations committees within 90 days of the enactment of S. 3067 that examined the steps it was taking (or had recently taken) to "better collect and evaluate performance-related data," to improve its ability to assess the effectiveness of its efforts to assist underserved populations (including rural and non-metropolitan communities), and to "better inform future decision-making." Another issue addressed in the report was the flow of CDFI investments and loans to underserved low-income rural and non-metropolitan areas. The committee directed the fund to take into consideration the "unique conditions, challenges, and scale" of those areas when designing programs to promote economic revitalization and community development and awarding CDFI grants for financial and technical assistance. As the committee pointed out, 12 U.S.C. 4706(b) requires the CDFIF to assist a geographically diverse set of low-income communities, including those in rural and non-metropolitan areas. P.L. 115-31 The act provides $248.0 million in appropriations for the CDFIF in FY2017, or $13.5 million more than the amount enacted for FY2016. Of that amount, $161.5 million is to be used for technical and financial assistance grants to CDFIs ($2.9 million of which is to be used for the cost of direct loans, and $3.0 million of which for training and financial and technical assistance grants to CDFIs that assist disabled persons. In addition, $15.5 million (available through the end of FY2018) of the total appropriation is set aside for NACA, $22.0 million is available until the end of FY2018 for the HFFI; and $26.0 million is reserved for administrative costs, including $1 million to develop new tools to assess the results of CDFI investments. The act also authorizes the Treasury Department to guarantee up to $500 million in bonds under the BGF in FY2017. In addition, at least 10% of the amount appropriated for the CDFIF (or about $25 million) is reserved for awards that finance investments in "persistent poverty counties." These are counties where 20% or more of the population have lived in poverty for the past 30 years, as determined by the 1990 and 2000 U.S. censuses and the most recent data available from the Census Bureau's American Community Survey. Issue for Congress Disagreements over funding the CDFIF in FY2017 raised questions about the future status of the Healthy Food Financing Initiative. While the Obama Administration requested $22 million in appropriations for HFFI in FY2017, S. 3067 and H.R. 5485 recommended no separate funding for the program. The lack of designated funding opens up the possibility that funding for HFFI would have to come from another source, such as financial and technical assistance grants for CDFIs. The report on S. 3067 seemed to endorse such an approach, but no such language was included in the report on H.R. 5485 . It may be the case that, although many Members of Congress support the objectives of the Initiative, a majority of them think there is a better way to achieve them than through the CDFIF. Financial Crimes Enforcement Network Under the Obama Administration's budget request, FinCEN would have received $115.0 million in appropriations in FY2017, or $2.0 million more than the amount enacted for FY2016. With the addition of an estimated $40.0 million from reimbursements, recoveries, and unobligated balances from previous years, FinCEN's operating budget in FY2017 would have totaled $155.0 million. The Administration requested that $34.3 million of the appropriated funds remain available for obligation until September 30, 2019. Relative to FY2016, the budget request contained increases of $1.8 million to maintain current levels of operation and $1.5 million to expand the use of contractors to support FinCEN's efforts to disrupt the financing of terrorist groups, and a decrease of $1.3 million as a result of efficiency gains and a loss of access to open-source commercial databases. In FY2016, contractors helped process alerts on mandatory filings under the Bank Secrecy Act (BSA) and prepare reports for FinCEN customers in law enforcement, government intelligence agencies, and foreign intelligence agencies. H.R. 5485 The bill, as passed by the House, would have provided $119.3 million in appropriations for FinCEN in appropriations for FY2017, or $4.3 million more than the budget request. In its report on H.R. 5485 , the committee recognized that the financial data gathered and analyzed by the agency serves as a "critical tool" for investigations into a variety of financial crimes, including money laundering, mortgage fraud, and terrorist financing. The committee also encouraged FinCEN to continue assisting investigations by domestic law enforcement agencies into human trafficking. S. 3067 Under the bill, as reported by the Senate Appropriations Committee, FinCEN would have received $114.5 million in appropriations in FY2017, or $0.5 million less than the budget request. In its report on the bill, the committee commended FinCEN for its role in assisting the efforts of law enforcement agencies to combat cybercrime by monitoring financial flows through U.S. financial institutions subject to the reporting requirements of the BSA. The committee also encouraged FinCEN to keep those institutions informed about the changes in the risk of criminals laundering the proceeds from the theft of online data through the U.S. financial system. To lower that risk, the committee recommended that FinCEN provide these institutions with updated lists of indicators of cybercrime that they could refer to when filing suspicious activity reports (SARs) regarding possible cybercrimes. P.L. 115-31 The act gives FinCEN $115.0 million in appropriations for FY2017, or $2 million more than the amount enacted for FY2016. Of that amount, $34.3 million will remain available through the end of FY2019. Alcohol and Tobacco Tax and Trade Bureau The Treasury Department requested $106.4 million in appropriations for ATTB in FY2017, the same amount that was enacted for FY2016. Including anticipated reimbursements for services provided by ATTB and a transfer of enforcement funds from the IRS through a proposed program integrity cap adjustment, the operating budget for the agency would have totaled an estimated $118.3 million in FY2017. Relative to the amount enacted for FY2016, the budget request included increases of $1.6 million to maintain current operating levels and $5.0 million to bolster the bureau's efforts to shrink the gap between excise taxes owed and excise taxes paid by tobacco and alcohol beverage companies. The budget request also called for a decrease of $1.6 million because of a deferral of planned enhancements to ATTB's alcohol beverage labeling program. Of the requested appropriations, $53.6 million would have been used to collect federal excise taxes on alcohol, tobacco, firearms, and ammunition, and $52.9 million to administer and enforce federal regulations governing the production and sale of alcohol and tobacco products. H.R. 5485 As approved by the House, the bill would have appropriated $111.4 million for ATTB in FY2017, or $5 million more than the budget request. Of the recommended funding, $5 million was designated for efforts to accelerate the processing of formula and label applications for alcohol products, and another $5 million was set aside for enforcement of the provisions of the Federal Alcohol Administration Act (FAA, P.L. 74-401, as amended) concerning industry-wide trade practices. In its report on H.R. 5485 , the House Appropriations Committee maintained that the FAA provisions were "critical to ensuring a competitive, fair, and safe marketplace" for alcohol products. To ensure that the agency did more to enforce the provisions, the committee ordered ATTB to submit a report to both appropriations committees within 60 days of the enactment of the bill on how the agency planned to use the additional funding to improve efforts to investigate and crack down on illegal activity. The committee also expressed concern about continuing delays in the approval of new label and formula applications by makers of alcohol products. The additional $5 million in funding for FY2017 was intended to enable the ATTB to accelerate the processing of those applications. To ensure the agency was taking appropriate action, the committee directed it to submit a report to both appropriations committees within 60 days of the enactment of the bill explaining how it plans to achieve that objective. S. 3067 The bill, as reported by the Senate Finance Committee, recommended that ATTB receive $111.4 million in appropriations for FY2017, or $5.0 million more than the budget request. In its report on S. 3067 , the committee urged ATTB to devote "sufficient resources" to combating alcohol and tobacco tax evasion and enforcing tobacco laws. In addition, the committee pointed out that a recent surge in the number of small breweries and wineries, coupled with "understaffing and outdated filing and processing procedures" in the agency's labeling program, had led to increasing delays in the approval of new label applications. The committee encouraged ATTB to streamline the process for approving label applications through "strategic investments" in the resources and technologies needed to speed up the review of these applications. As noted in the report on S. 3067 , the added $5 million, relative to the budget request, was intended to bolster ATTB's enforcement of the provisions on fair trade practice in the FAA. These provisions relate to the production, distribution, and sale of alcohol products in the United States. To ensure that the agency uses these funds as intended, the committee directed ATTB to submit a report to both appropriations committees within 60 days of the enactment of the bill on how it planned to use the added funding to step up its enforcement of the fair trade regulations. In addition, the committee directed the agency to publish "without delay" proposed rules on the labeling of wines to ensure the labels accurately reflect the established "terms" for American viticulture areas. P.L. 115-31 Under the act, ATTB is receiving $111.4 million in appropriations in FY2017, or $5 million more than the amount enacted for FY2016. Of that amount, no more than $25 million may be used for cooperative research and development programs involving laboratory services provided to state and local government agencies. In addition, the act sets aside $5 million for the expenses associated with accelerating the processing of formula and label applications. Another $5 million is available through the end of FY2018 to cover the cost of enforcing the trade practice provisions of the FAA. Bureau of the Fiscal Service The President's budget request would have given the BFS $353.1 million in appropriations in FY2017, or $10.8 million less than the amount enacted for FY2016. Of this amount, $4.2 million was designated for initiatives to upgrade the bureau's information systems and would have been available for obligation through the end of FY2019. The budget request also set aside $19.8 million to support the agency's activities to implement the Digital Accountability and Transparency Act (DATA Act, P.L. 113-101 ); this money would have been available for obligation through the end of FY2018. With the addition of $268.5 million in anticipated reimbursements for services provided by BFS, the agency's operating budget in FY2017 would have totaled an estimated $621.5 million. Relative to the FY2016 budget, the budget request contained an increase of $6.0 million to maintain current BFS operating levels and a decrease of $16.4 million to reflect efficiency gains and program cuts (including a decrease of $10.8 million for implementation of the DATA Act in FY2017). The budget request also included funding for several permanent appropriations accounts related to BFS's administrative responsibilities or strategic goals. These requested amounts were $529.4 million to Federal Reserve Banks for accounting, reporting, collection, and payment programs; $138.3 million to Federal Reserve Banks for acting as a fiscal agent for the Treasury Department; $679.5 million to financial institutions that act as financial agents for the Treasury Department; and $1.1 million for losses resulting from government shipments. The FY2017 budget request could also be broken down by function, of which there were six: (1) accounting and reporting, (2) collections, (3) debt collection, (4) payments, (5) retail securities service, and (6) wholesale securities services. The requested appropriations would have been allocated as follows: $114.2 million to accounting and reporting; $40.2 million to collections; $115.1 to payments; $71.2 million to retail securities services; and $12.3 million to wholesale securities services. Several legislative proposals were part of the budget request. One proposal was new and the others were included in the FY2016 BFS budget request. The new proposal would have increased the number of federal programs and agencies that could access the National Directory of New Hire Data, which is a federal database of employment and unemployment insurance information maintained by the Office of Child Support Enforcement at the Department of Health and Human Services (HHS). Access to the database is tightly controlled by statute, and HHS employs a variety of measures to prevent the unauthorized use or disclosure of the information. At the moment, several federal programs are using the database to improve the implementation of new initiatives. In addition, the FY2017 BFS budget request called upon Congress to adopt the following legislative proposals left over from the FY2016 budget request: Increase the collection of delinquent state income tax debt by allowing Treasury to offset federal income tax refunds for out-of-state residents. Allow states to send notices of intent to offset federal tax refunds to collect state income tax obligations by first-class mail, rather than certified mail. Allow federal agencies to collect non-tax debt by garnishing without a court order the bank and other financial institution accounts of commercial entities with non-tax debt. Authorize Treasury to locate and recover unclaimed assets owed to the federal government and keep a portion of the amounts collected to pay for the cost of recovery. H.R. 5485 As passed by the House, H.R. 5485 would have provided $353.1 million in appropriations for BFS in FY2017, or the same amount as the budget request. Of the recommended funding, $4.2 million would have been available for obligation until September 30, 2019 to modernize the bureau's information systems. In its report on the bill, the House Appropriations Committee noted that it would fund the USAspending.gov initiative. The committee also told BFS to meet its transparency objectives for the initiative through implementation of the DATA Act. To ensure the agency acts on these objectives, the committee directed BFS to work with the OMB to publish all unclassified federal vendor contracts and grant awards on USAspending.gov. BFS would also have to publish the data online and submit a report to both appropriations committees within 90 days of the enactment of the bill on the status of its efforts to make the reporting of government spending data more transparent for ordinary citizens. With regard to the DATA Act, the committee expressed concern about the ability of BFS to meet the May 2017 deadline for reporting government-wide spending information. The committee also directed BFS to issue within 60 days of the enactment of H.R. 5485 a report on payments from the Judgment Fund in FY2016. The report should provide the following details for each claim: (1) the names of all plaintiffs or claimants and their counsels, (2) the federal agency that submitted the claim, (3) a brief summary of the key facts for the claim, and (4) the amount paid on the claim, including attorney fees. S. 3067 As reported by the Senate Appropriations Committee, the bill also recommended that BFS receive $353.1 million in appropriations for FY2017. In its report on S. 3067 , the committee noted that a key objective of the recommended appropriation was to ensure that "consistent, reliable, and searchable government-wide spending data" are accessible to the general public through the USAspending.gov initiative. To achieve that objective, the committee directed the agency to make it a high priority to meet the May 17 deadline for implementing the reporting requirements of the DATA Act. In addition, the committee expressed concern about lingering morale problems among BFS employees in the wake of the merger of the Bureau of Public Debt and the Financial Management Service, which commenced in 2012. These problems included uncertainty about job security. To address this concern, the committee ordered BFS to prepare a "comprehensive consolidation plan" that identified the jobs that will be maintained and submit it to both appropriations committees within 180 days of the enactment of the bill. P.L. 115-31 The act provides $353.1 million in appropriations for DFS in FY2017, or $5 million more than the amount enacted for FY2016. Of that amount, $4.2 million will be available through FY2019 for projects intended to modernize the agency's information systems. The act also authorizes the use of $165,000 from the Oil Spill Liability Trust Fund to cover the cost to DFS of managing the Fund in FY2017. Treasury Forfeiture Fund (TFF) The Treasury Department's budget request for FY2017 would have canceled permanently $657.0 million in unobligated balances from the TFF. This would have come on top of a permanent reduction in those balances of $700.0 million enacted for FY2016. The fund serves as the receipt account for the deposit of non-tax assets seized by participating federal bureaus: the IRS's Criminal Investigation unit, the U.S. Secret Service, the Bureau of Customs and Border Patrol, and the Bureau of Immigration and Customs Enforcement. The Treasury Executive Office for Asset Forfeiture (TEOAF) manages the fund. Money in the fund is used for two purposes: (1) to pay for the operating expenses of TEOAF and (2) to support the enforcement activities of the bureaus involved in the National Money Laundering Strategy, the Southwest Border Strategy, and government programs to combat terrorist financing. TEOAF estimates that $413.0 million will be deposited in the fund from asset forfeitures in FY2017. After accounting for earned interest, the restoration of reductions from sequestration and temporary rescissions, recoveries from previous years, and unobligated balances from previous years, the fund could total an estimated $1.6 billion at the end of FY2017, or nearly $4 billion less than the estimated amount at the end of FY2016. According to TEOAF, expenses and obligations for FY2017 are expected to total $480.0 million. Combining those amounts with the Administration's proposed permanent rescission of $657.0 million would leave an unobligated balance in the fund of $398.6 million at the end of FY2017, or $241.5 million more than the estimated balance at the end of FY2016. Treasury also proposed in the budget request that the fund have a so-called Super Surplus of $100 million in FY2017. This surplus allows TEOAF to use unobligated balances to pay for law enforcement initiatives after enough money has been set aside to cover the fund's operating costs in the next fiscal year. Owing to a lack of funds, Treasury was unable to declare a Super Surplus in FY2015 and did not expect to do so in FY2016. If a surplus is declared in FY2017, Treasury would have to submit a plan to Congress explaining how it intends to use the surplus, under 31 U.S.C. § 9705. H.R. 5485 As passed by the House, the bill would have permanently decreased the unobligated balances in the fund by $753.6 million in FY2017, or $96.6 million more than the budget request. In its report on H.R. 5485 , the House Appropriations Committee stated that the resources in the fund should "neither augment agency funding nor circumvent the appropriations process." One way to prevent both outcomes was to reduce the unobligated balances in the fund. In addition, the committee directed Treasury to submit to both appropriations committees, for each month in FY2017, a table showing the interest earned, forfeiture revenue collected, unobligated balances, recoveries and expenses to date. The table should include an estimate of the fund's expenses for the remainder of the fiscal year. S. 3067 The bill, as reported by the Senate Finance Committee, recommended a rescission of $657.0 million, or the same as the budget request. Of that amount, $328.0 million would have been permanently rescinded. P.L. 115-31 The act rescinds $1.115 trillion in unobligated balances from the TFF in FY2017. Of that amount, $328 million constitutes a permanent rescission. This is $372 million less than the permanent rescission enacted for FY2016. Internal Revenue Service The Obama Administration requested $12.280 billion in appropriations for the IRS in FY2017, or $1.045 billion more than the amount enacted for FY2016. Of this amount, $2.469 billion was to go to taxpayer services, $5.216 billion to enforcement (including a $231.3 million program integrity cap adjustment under Section 251(b)(2) of the Balanced Budget and Emergency Deficit Control Act of 1985 ( P.L. 99-177 , BBEDCA)), $4.314 billion to operations support (including a $283.4 million program integrity cap adjustment), and $343.4 million to the Business Systems Modernization (BSM) program. Several conditions would have applied to these allocations. Of the requested funding for taxpayer services, at least $6.5 million was designated for the Tax Counseling for the Elderly program, at least $12.0 million for low-income taxpayer clinic grants, at least $15.0 million for Community Volunteer Income Tax Assistance program matching grants, and not less than $206.0 million for the operating expenses of the Taxpayer Advocate Service. In addition, $191.8 million of the funding for taxpayer services would have been available through the end of FY2018. Of the requested funding for enforcement, $54.9 million would have been available through the end of FY2018, and at least $60.3 million was set aside for the Interagency Crime and Drug enforcement program. And of the amount requested for operations support, $158.2 million would have been available through the end of FY2018. With the addition of funds from reimbursements, user fees, recoveries and unobligated balances from previous years, transfers in and out, resources from other accounts, and offsetting collections, the operating budget for the IRS in FY2017 would have totaled an estimated $13.245 billion in FY2017, or $870.5 million more than the estimated FY2016 operating budget. Relative to IRS's enacted appropriations for FY2016, the budget request called for increases of $170.3 million to maintain FY2016 operating levels and $878.5 million to expand programs aimed at improving taxpayer service and compliance, increasing the efficiency of IRS operations, and bolstering the agency's cybersecurity to prevent taxpayer identity theft. In addition, the budget request included a decrease of $3.8 million as a result of a cost savings from increases in e-filing levels. Nearly 59% of the requested amount for program increases (or $514.7 million) would have been paid for from the proposed integrity program cap increases. These increases could be implemented only if the BBEDCA is amended to lift the discretionary budget limits for IRS spending. The act created a mechanism for raising spending allocations among federal programs that generate a positive return on investment. Increases in those allocations are known as program integrity cap adjustments. According to the FY2017 budget request, the adjustments would have provided the IRS with another $231.3 million for tax enforcement and an added $283.4 million for operations support. (As noted earlier, $5 million of the cap adjustment for enforcement was to be transferred to ATTB to pay for new enforcement initiatives in FY2017.) The IRS estimated that the proposed new investments in enforcement programs would have resulted in a return equal to $5.6 of additional revenue for each additional dollar of investment when the needed adjustments in enforcement would be fully implemented in FY2019. Moreover, according to IRS, the new initiatives to strengthen cybersecurity and prevent taxpayer identity theft could yield an estimated return on investment of $12.3 for each additional dollar of spending for those purposes by FY2019. The budget request for the IRS included a legislative proposal to extend the IRS's Streamlined Critical Pay (SCP) authority through the end of September 2021. Its authority to make new SCP appointments expired on September 30, 2013. According to Treasury budget documents, the IRS was likely to find it increasingly difficult to recruit and retain talented individuals (especially IT specialists) from the private sector if the SCP authority is not renewed by the end of FY2017. Reducing the federal tax gap has been a high priority for the IRS for more than a decade. The gap is defined as the difference between the amount of federal income, excise, estate, and employment taxes owed in a year and the amount of those taxes paid in full and on time. According to the latest estimate by the IRS, the average annual gross gap totaled $458 billion from 2008 to 2010; after allowing for late payments and revenue collected through IRS enforcement activities, the average annual net gap for the period was an estimated $406 billion. The gap has three components: underreporting of income, failure to file, and underpayment of the taxes owed. Underreporting accounted for 85% of the 2008-2010 average annual gross tax gap, underpayment for 9%, and non-filing for 7%. The gross voluntary compliance rate in the period was 81.7%; after allowing for late payments and IRS enforcement actions, the net compliance rate rose to 83.7%. The budget request contained 24 legislative proposals, most of which were intended to reduce the tax gap. They can be grouped into three categories: (1) proposals to expand information reporting, (2) proposals to improve business taxpayer compliance, and (3) proposals to bolster tax administration. None could be implemented without congressional approval. According to an estimate by Treasury's Office of Tax Analysis, the proposals would increase revenue by $82.2 billion over 10 years. Among other things, the proposals would give the IRS the authority to expand the Taxpayer Identification Number matching program allow the IRS to correct specific errors on tax returns require paid tax preparers to have a minimum knowledge of the federal tax code require all corporations and partnerships of a certain asset size with more than 10 shareholders or 10 partners to file their returns electronically H.R. 5485 As passed by the House, the bill would have provided $10.999 billion in appropriations for the IRS in FY2017, or $236 million below the amount enacted for FY2016 and $1.281 billion below the budget request. The recommended funding would have been allocated as follows among the four appropriations accounts: (1) taxpayer services: $2.156 billion, (2) enforcement: $4.760 billion, (3) operations support: $3.502 billion, and (4) BSM: $290.0 million. Total funding for the IRS under H.R. 5485 would have been less in current dollars than the amount enacted for FY2008. Like the law providing appropriations for the IRS in FY2016, H.R. 5485 included an administrative provision (Section 115) that would have given the IRS an additional $290 million in FY2017. The funds would have been available for obligation through the end of FY2018. They could have been used for three purposes only: (1) to improve the level of customer service, (2) to lower the incidence of identity theft and refund fraud, and (3) to enhance the online security of taxpayer information. Before any of the additional money could be spent, the IRS had to present the two appropriations committees with a spending plan that explained how the IRS would measure its progress in achieving those objectives. H.R. 5485 also would have continued an administrative provision (Section 101) from FY2016 that allowed the IRS to transfer up to 5% of appropriated funds from one account to another with the advance approval of the appropriations committees. In addition, the bill would have imposed the following limits on the IRS's use of appropriated funds in FY2017: No funds could be used to grant bonuses and awards to employees that do not consider the past conduct and tax compliance of the recipients. No funds could be used to hire former employees without considering their conduct while at the IRS and their compliance with tax laws. No funds could be used to give additional scrutiny to groups applying for tax-exempt status because of their "ideological beliefs." No funds could be used to target individuals for extra scrutiny for "exercising their First Amendment rights." No funds could be used for conferences that do not conform to TIGTA's recommendations for such events. No funds could be used to produce videos that have not been reviewed for their cost, topics, tone, or purpose and certified to be "appropriate." No funds could be used to implement new regulations regarding the criteria used to determine whether organizations qualify for tax-exempt status under Section 501(c)(4) of the Internal Revenue Code. No funds could be transferred to the IRS from the Department of Health and Human Services to implement the ACA. No funds could be used to implement the individual mandate under the ACA. No funds could be used in ways that "violate the confidentiality of tax returns." No funds could be used to design pre-filled or pre-populated individual tax returns. Taxpayer Ser vices H.R. 5485 would have provided $2.156 billion for taxpayer services in FY2017, or the same amount that was enacted for FY2016 but $249.8 million less than the budget request. Of the recommended amount, $9.7 million would have been be set aside for the Tax Counseling for the Elderly program, $12.0 million for low-income taxpayer clinic grants, and $15.0 million (available through the end of FY2018) for matching grants under the Community Volunteer Income Tax Assistance program. In its report on the bill, the House Appropriations Committee expressed concern about the continuing problem of taxpayer identity theft and tax refund fraud. In its view, the problem had become "especially pernicious" in U.S. territories and possessions, where there were organized efforts to steal the taxpayer identification numbers of territorial residents to obtain tax credits and refunds from the U.S. government. To monitor the results of IRS's efforts to combat identity theft and related refund fraud and expedite the resolution of cases involving these fraudulent acts, the committee directed the agency to submit a report to the two appropriations committees by June 17, 2017. The report should cover the period from 2010 to 2016 and provide the following details: (1) the number of taxpayers who had their tax return rejected because their Social Security or taxpayer identification numbers had been stolen by someone to commit tax fraud; (2) the average time required to resolve the problem and send a refund to taxpayers who were due one; (3) the number of cases involving stolen taxpayer identification numbers of residents of U.S. territories and possessions; and (4) the steps the IRS has taken (and plans to take) to expedite the resolution of identity theft cases, to prevent others from becoming victims, and to educate the public on the risk of identity theft. The report should also address whatever progress the IRS has made in implementing the recommendations for enhanced cybersecurity issued by the Government Accountability Office (GAO) in a report released on March 28, 2016. The committee also opposed the development and use of pre-filled or "simple" tax returns. In its view, such a filing system would "change the relationship between taxpayers and their government," strain IRS resources, impose new compliance burdens on employers (especially small companies), and create a conflict of interest by forcing the IRS to act simultaneously as a tax collector and enforcer of tax compliance on the one hand, and as a tax preparer on the other hand. As a result, the committee ordered the agency to refrain from working on a pilot project involving a simple tax return without first obtaining the approval of the two appropriations committees, as well as appropriations for that purpose. Another issue the committee addressed in its report on H.R. 5485 was the level of service (LOS) the IRS provides to taxpayers. Recent declines in the quality of toll-free telephone service and the quantity of written correspondence have led some to question the IRS's priorities and how it allocates resources among its main responsibilities. The committee agreed with a recommendation by the GAO that the IRS should periodically compare its level of telephone service with the best performers in the private sector to identify gaps between actual and desired performance. To encourage the IRS to adopt such an approach, the committee directed the agency to submit a plan to both appropriations committees within six months of the enactment of the bill that sets forth specific goals for improving customer service and the strategies and needed resources to accomplish them. H.R. 5485 also would have continued an administrative provision (Section 104) from FY2016 that ensured adequate funds were available for "improved facilities and increased staffing to provide efficient and effective 1-800 number help live service for taxpayers." Enforcement H.R. 5485 would have given the IRS $4.760 billion in appropriations for enforcement in FY2017, or $100.0 million less than the amount enacted for FY2016 and $456.3 million less than the budget request. Of the recommended funding, $60.3 million would have supported IRS's involvement with the Interagency Crime and Drug Enforcement program. None of the funds could be used to implement the ACA. In its report on the bill, the committee said it "is looking forward" to receiving a report from the IRS on the regulation of paid tax preparers. In June 2014, responding to a federal court ruling that the IRS lacked the authority to regulate professional tax preparers, the agency initiated a voluntary regulatory program incorporating many of the same requirements as the mandatory program the court rejected. To assess the cost-effectiveness of the voluntary program, the committee directed the IRS, in its report on a bill ( H.R. 2995 ) to fund the IRS in FY2016, to submit a report (after it had been reviewed by the GAO) to both appropriations committees within 120 days of the enactment of the bill. The report was supposed to evaluate the accuracy of returns prepared by participants in the voluntary program and the amount of any improper IRS payments resulting from those returns. It was also supposed to compare the costs of voluntary and mandatory regulatory programs and evaluate the likely impact on accuracy of a mandatory program. In addition, the committee directed the IRS to submit a report to both appropriations committees within 180 days of the enactment of H.R. 5485 on the rationale for its decision (expressed in TD 9610 and TD 9657) to require withholding on non-cash value insurance premiums, including payments by foreign insurance brokers. Operations Support Under H.R. 5485 , the IRS would have received $3.502 billion for operations support in FY2017, or $136.0 million less than the amount enacted for FY2016 and $811.6 million below the budget request. None of the recommended funding could be used to implement the ACA. In its report on the bill, the House Appropriations Committee encouraged the IRS to continue to supply printed tax forms and instructions to "vulnerable populations." Foremost among these groups, according to the committee, were residents of rural areas where Internet usage tends to be below the national average. The committee directed the IRS to submit quarterly reports during FY2017 to both appropriations committees that provide details on the obligations made by the agency in the previous quarter, the obligations it anticipates making during the remainder of the fiscal year, and the estimated number of full-time equivalent employees by department during the remainder of the year. The IRS would also have to submit quarterly reports in FY2017 on the following information technology projects: IRS.gov, Returns Remittances Processing, EDAS/IPM, Information Returns and Document Matching, E-services, Taxpayer Advocate Service Integrated System, and administration of the ACA. Each report should provide certain details about each project, including total expenditures and the performance schedule to date (by fiscal year), the anticipated costs and performance schedule in the next three months, the expected cost of completing each project, when the project began, the expected date of completion, and the current and expected degree of functionality for the project. Both the Treasury Department (probably TIGTA) and the GAO would monitor IRS's management of the projects through annual reports to the appropriations committees. In early 2016, the IRS suspended a pilot program known as Identity Protection Personal Identification Numbers (IP PINs). It was intended to prevent tax refund fraud through identity theft. Nonetheless, some IP PINs were stolen and used to file fraudulent returns. The committee directs the IRS to submit a report on the steps it has taken to prevent future theft of IP PINs, the number of people with stolen IP PINs, the amount of refunds issued as a result of the stolen IP PINs, and the assistance the IRS provided to the victims to file their returns, obtain any refunds, and secure their personal information. Business Systems Modernization H.R. 5485 would have given the IRS $290 million for the BSM program, or the same amount that was enacted for FY2016 but $53.4 million less than the budget request. In its report on bill, the House Appropriations Committee expressed support for the IRS's efforts to upgrade its business systems, especially the development of CADE2, Enterprise Case Management systems, and the Return Review Program, which is intended to bolster the IRS's ability to detect, rectify, and prevent tax refund fraud. At the same time, the committee remained concerned about the risk of unnecessary cost overruns and schedule delays. Consequently, it directed the IRS to continue submitting quarterly reports to the two appropriations committees on two BSM projects: CADE2 and MeF. Each report should address the cumulative expenditures on and performance schedule for each system to date, their cost and schedule for the previous three months and the anticipated cost and schedule for the next three months, and the total expected expenditure to complete each system. Each report should also specify when each project began, its expected dates of completion, the percentage of planned work completed, and the project's current and expected operational capabilities. In addition, the committee wanted TIGTA and the GAO to monitor IRS's management of the BSM program. It directed TIGTA to file semi-annual reports on IRS's IT investments to ensure they are "transparent" with regard to cost, schedule, and goals. The GAO was required to provide an annual report on the cost and schedule for every major IT project in FY2017, especially the projects addressed in the IRS's quarterly reports. Under H.R. 5485 , the IRS would also be required to submit quarterly reports during FY2017 to the two appropriations committees and TIGTA on the status of the agency's efforts to implement the audit trail requirements set forth in TIGTA's semi-annual report to Congress for April 1, 2015 to September 30, 2015. The reports should cover both legacy and BSM systems, and a high priority should be given to the systems most vulnerable to taxpayer identity theft. S. 3067 The bill, as reported by the Senate Finance Committee, would have provided $11.235 billion in appropriations for the IRS in FY2017, or the same amount that was enacted for FY2016 but $1.045 billion less than the budget request. S. 3067 also would have continued an administrative provision (Section 113) from FY2016 that gave the IRS $290 million in additional appropriations to improve the level of customer service, strengthen the agency's ability to prevent taxpayer identity theft and refund fraud, and enhance its cybersecurity systems to better protect taxpayer information. Another administrative provision (Section 101) would have allowed the IRS to transfer up to 5% of appropriated funds for FY2017 from one account to another with the advance approval of the two appropriations committees. In its report on S. 3067 , the committee explained why it did not recommend an increase in IRS appropriations similar to the budget request. In its view, the agency "does not seem to have its priorities in order" in wanting to move most interactions with taxpayers to the IRS website. The committee also says that the IRS "continues to ignore the impact of its own behavior on the attitudes of taxpayers" and remains "out of touch with taxpayers and their concerns." Furthermore, it criticized the agency for what it deemed a willingness to "cut services to taxpayers in an effort to garner support (in Congress) for increased resources." And it claimed that the IRS "continues to take actions that demonstrate its inability to be transparent about its available resources and flexibility," referring to the user fees it collects. The committee also drew attention to the contribution of user fees to the IRS operating budget. Under current law, the IRS Commissioner has unlimited control over how the IRS uses the fees. In FY2016, according to the committee, the IRS planned to devote more than half of the user fees it received to acquiring information technology needed to implement the ACA. In order to gain more insight into the agency's plans for user fees in FY2017, the committee directed the IRS to submit a user fee spending plan within 60 days of the enactment of the bill. The plan should indicate to what extent user fees support the programs and investments funded through the IRS's four appropriations accounts. In addition, S. 3067 would have imposed many of the same limits on the use of appropriated funds in FY2017 as H.R. 5485 would have done: No funds could be used to "target" U.S. citizens for exercising their First Amendment rights. No funds could be used to target groups for additional regulatory scrutiny because of their "ideological beliefs." No funds could be used to give bonuses to current employees, or to hire former employees, without taking into consideration their conduct as IRS employees and their compliance with tax laws. No funds could be used for the purpose of violating the confidentiality of tax returns. No funds could be used to develop or implement pre-populated tax returns. Taxpayer Services As reported by the committee, S. 3067 would have provided $2.156 billion in appropriations for taxpayer services in FY2017, or the same as the amount enacted for FY2016 but $250 million less than the budget request. Of the recommended funding, at least $8.0 million would go to the Tax Counseling for the Elderly program; $12.0 million to Low-Income Tax Clinic grants; $15.0 million to the Volunteer Income Tax Assistance program for matching grants (available through the end of FY2018); and $206.0 million to the Taxpayer Advocate Service, of which $5.0 million would be set aside for assisting victims of identity theft and refund fraud. In its report on S. 3067 , the committee addressed several concerns it had about taxpayer services. One concern was the IRS's latest long-range plan for aligning the agency's capability to provide services with the expectations, needs, and preferences of taxpayers; the plan is known as Future State. A primary objective of the plan is to encourage more and more taxpayers to use online tools and support to get needed assistance. Some interested parties, including the National Taxpayer Advocate (NTA), have urged the IRS to get additional input from taxpayers and tax practitioners before moving ahead with the plan. In the committee's view, too few taxpayers might have the ability to access online information (like their own tax accounts) to make Future State a feasible alternative anytime soon to visits to Taxpayer Assistance Centers (TACs) and calls to IRS's toll-free phone lines. As a result, it directed the IRS to submit a report to the two appropriations committees, the Senate Finance Committee, and the House Ways and Means Committee no later than one year after online accounts are available for use by taxpayers. The report should be done in consultation with the NTA and should focus on current usage of and future plans for online accounts, including the number and percentage of taxpayers who tried to open an account and failed. The committee also expressed concern about recent closures of TACs and the increasing number of centers staffed by one person. Citing IRS estimates, it noted that the total number of taxpayers getting assistance at TACs was expected to drop by 16% from FY2015 to FY2016. Of particular concern to the committee was the impact of Future State on rural taxpayers. In its view, TAC closures tied to the initiative would increase the dependence of many of these taxpayers on paid preparers or leave them unable to obtain timely and reliable assistance with pre-filing or post-filling questions. To address this concern, the committee directed the IRS to hold a public hearing in any community where it plans to close a TAC and to notify both appropriations committees of its intention. In addition, the IRS is required to submit a report to the committees on its "strategic plan" for improving services for rural, elderly, disabled, minority, and low-income taxpayers, closing TACs, and providing alternative services under the Future State initiative. Another issue addressed by the committee in its report on S. 3067 was the availability of adequate service for taxpayers residing in Alaska and Hawaii. The committee directed the IRS to ensure that each Taxpayer Advocate Service Center in the two states is staffed with a Collection Technical Advisor and an Examination Technical Advisor, in addition to other staff. S. 3067 would also have continued an administrative provision (Section 104) from FY2016 that pledged that "funds shall be available" to improve facilities and to increase the staff as needed to provide "sufficient and effective" toll-free telephone service with reduced wait times for taxpayers, especially those who are victims of tax crimes such as identity theft and refund fraud. Enforcement S. 3067 , as reported by the committee, recommended that the IRS receive $4.860 billion in appropriations for enforcement activities in FY2017, or the same amount that was enacted for FY2016 and $125 million less than the budget request. The committee raised several issues regarding IRS enforcement activities in its report on the bill. Perhaps the most pressing issue concerned taxpayer identity theft and related refund fraud and the steps being taken by the IRS to remedy the problem. Such fraud arises when someone intentionally uses the personal identifying information of another person to file a falsified tax return with the intent of receiving a fraudulent refund. The scope of the problem has grown in the past few years: according to a study by the National Taxpayer Advocate. IRS's inventory of identity-theft cases at the end of FY2015 was 150% greater than the inventory at the end of FY2014. In a bid to spur the IRS to do more to combat identity theft, the committee ordered the agency to make it a top priority to develop stronger safeguards to prevent identity theft and faster ways to assist taxpayers who are the victims of such a crime, drawing upon the recommendations in recent reports by the GAO, TIGTA, and the NTA. Under S. 3067 , the IRS would be required to report to the committee within 90 days of the enactment of the bill on its plans for addressing the problem. In addition, the committee directed the IRS to assign each identity-theft case to a single contact person at the agency and to report back to the appropriations committees on how long it takes, on average, for such an approach to resolve the case. Another issue was the processing of applications to determine the federal employment tax status of workers under the SS-8 program. The committee maintained that staffing for the program had failed to keep pace with its growing workload in recent years. The classification of a worker as an independent contractor or employee has significant tax implications for employers, workers, and the IRS. At issue is whether an individual or an employer is primarily responsible for paying Social Security, Medicare, and federal unemployment taxes and for withholding federal income taxes. In 1994, the IRS established the Determination of Worker Status Program to permit an employer or a worker to request an IRS determination of a worker's status as an employee or independent contractor; the program is now known as the SS-8 program. According to a 2013 TIGTA report, the inventory of cases and processing times increased from FY2009 to FY2012; more recent estimates are not available. In January 2012, the IRS began using a new method for prescreening requests for worker status determinations intended to speed up the process. The committee directed the IRS to notify the House and Senate Appropriations Committees, the Ways and Means Committee, and the Senate Finance Committee before reducing or reassigning staff for the program. Operations Support S. 3067 would have provided the IRS with $3.638 billion in appropriations for operations support in FY2017, the same as the amount enacted for FY2016 but $393 million less than the budget request. According to a 2016 GAO report, 97% of IRS's planned 23 major IT investments in FY2017 (with a total cost of $1.8 billion) will be funded through appropriations: 81% from operations support and 16% from BSM. To monitor the results and costs of these investments and the steps taken by the IRS to protect taxpayer information from cyberattacks, the committee instructed the IRS to provide both appropriations committees and the GAO with quarterly reports in FY2017 on the following IT projects: IRS.gov, Returns and Remittance Processing, EDAS/IPM, Information Returns and Document matching, E-services, Taxpayer Advocate Service Integrated System, implementation of the ACA, and "other projects associated with significant changes in the law." Each report should discuss cumulative expenditures and performance schedules for each project in previous fiscal years, its cost and schedule for the previous three months, and the expected cost and schedule for the next three months. The report should also relate when the project began, its expected date of completion, the percentage of the planned work already completed, the current usefulness of the technology, and any anticipated changes in its schedule for completion. As an added layer of scrutiny, the committee directed the Treasury Department to review IRS's IT investments every six months to "ensure the cost, schedule, and scope goals are transparent." The GAO is already required to submit an annual report to both appropriations committees on the cost and results of all major IRS IT projects in FY2017, especially those addressed in IRS's quarterly reports. Business Systems Modernization S. 3067 recommended that the BSM program receive $290.0 million in appropriations in FY2017, the same amount that was enacted for FY2016 but $53.4 million less than the budget request. In its report on the bill, the committee again expressed concern about the ability of the IRS to prevent cyber-criminals from gaining access to sensitive taxpayer information and using it to file falsified tax returns. This concern sits atop a long-standing concern about the risk of cost overruns and delays in getting the desired results from BSM projects. Exercising its oversight authority, the committee instructed the IRS to continue to submit quarterly reports in FY2017 on the cost and performance schedules for two projects: CADE2 and MeF. The reports should note when the projects began, their expected dates of completion, the percentage of planned work completed, changes in schedule, and risks unrelated to funding amounts. In addition, the Treasury Department and the GAO would have to submit separate reports (the former semi-annually and the latter annually) on the cost and results of the two projects to date. P.L. 115-31 The act provides $11.235 billion in appropriations for the IRS in FY2017, the same amount that was enacted for FY2016. This amount is allocated among the four IRS appropriations accounts as follows: (1) taxpayer services: $2.156 billion, (2) enforcement: $4.860 billion, (3) operations support: $3.638 billion, and (4) BSM: $290 million. In addition, as happened in FY2016, an administrative provision (Section 113) of Division E, Title 1 of the act gives the IRS an additional $290 million (available through FY2018) for the purpose of making "measurable improvements" in the level of customer service, enhancing the online security of taxpayer information, and reducing the level of taxpayer identity theft and refund fraud. These added funds can be used only to supplement IRS appropriations in FY2015, not to replace them, and they can be accessed only after the IRS Commissioner submits a plan for the use of the funds to both appropriations committees. Several other administrative provisions in the act govern the use of FY2017 appropriations for the IRS. The key ones are the following: Section 101: up to 5% of the appropriated funds for the IRS may be transferred from one account to another with the prior consent of the appropriations committees. Section 104: funds provided to ensure that taxpayers receive "efficient and effective" toll-free telephone service. The Commissioner is directed to allocate sufficient resources to "enhance the response time to taxpayer communications," especially for victims of tax-related crimes. Section 107: no funds may be used to "target" U.S. citizens exercising their First Amendment rights. Section 108: no funds may be used to "target" groups for added regulatory scrutiny because of their "ideological beliefs." Section 110: no IRS employee may be paid a bonus or no former IRS employee may be re-hired without first considering the person's work record at the IRS and compliance with tax laws. Section 112: no funds may be used to develop pre-filled or pre-populated tax returns as part of an effort to implement a return-free filing system. Section 116: up to 2% of IRS appropriations may be transferred to TIGTA with the advance approval of the appropriations committees. Section 126: none of the funds may be used by the IRS to issue, revise, or make final any regulations or other guidance regarding the standards used to determine whether an entity qualifies for tax-exempt status under Section 501(c)(4) of the federal tax code. The "standards and definitions" for that statute in effect on January 1, 2010, shall apply after the date of enactment for this act (May 5, 2017). Taxpayer Services Under P.L. 115-31 , the IRS is receiving $2.156 billion for taxpayer services in FY2017. Of that amount, $8.9 million is set aside for the Tax Counseling for the Elderly Program, $12.0 million for low-income taxpayer clinic grants, and $15 million (available through the end of FY2018) for matching grants under the Community Volunteer Income Tax Assistance Program. In addition, $206.0 million is provided for the Taxpayer Advocate Service, $5 million of which is to be used for identity theft casework. Enforcement The act gives the IRS $4.860 billion for enforcement activities in FY2017. Of that amount, $50 million is available through the end of FY2018, and $60.3 million is available to support IRS's involvement in the Interagency Crime and Drug Enforcement program. Operations Support Under the act, the IRS is receiving $3.638 billion for operations support in FY2017. Of that amount, $50 million is available through the end of FY2018, $10 million is set aside for the purchase of equipment and the construction, repair, or renovation of facilities, and $1 million (available through the end of FY2019) may be used for research. The IRS is required to submit quarterly reports to both appropriations committees and the U.S. Comptroller General on the cost and performance schedule of major information technology (IT) systems, addressing such issues as the purpose and life-cycle stages of the investments and the reasons for any cost or schedule "variances." In addition, the act directs the IRS to include in its budget request for FY2018 a summary of the cost and performance schedule for the same IT systems. Business System Modernization The act provides $290 million for the BSM program; the funds will be available through the end of FY2019 for the purpose of acquiring IT systems developed under the program. In addition, the IRS is required to submit quarterly reports to both appropriations committees and the U.S. Comptroller General on the cost and performance schedule for the CADE 2 and Modernized e-File projects. Issues for Congress Congressional consideration of funding for the IRS in FY2017 raised a number of policy issues, three of which are discussed here: How much money does the IRS need to achieve its strategic goals and effectively and efficiently meet its statutory responsibilities? Is there a sound rationale for the Administration's proposed increase in the program integrity cap under the BBEDCA for the IRS to provide additional funding for enforcement and operations support in FY2017 and succeeding years? Should Congress take into account the return on investment from IRS enforcement activities when deciding how much to appropriate for IRS operations? Appropriate Size of the IRS Budget For the second year in a row, the Obama Administration asked Congress to increase the size of the IRS budget by more than $1 billion from the amount enacted for the previous year. It contended that a substantial expansion of the resources available to the IRS was essential if the agency was to continue to meet its legal responsibilities, achieve its main strategic goals, and handle its mounting work load. The requested increases in appropriations were $1.986 billion for FY2016 and $1.045 billion for FY2017. Supporters of a much larger IRS budget have pointed to several recent trends in resources, performance, and workload to support their argument: Real enacted IRS appropriations (in 2015 dollars) were $1.949 billion (or 14.8%) lower in FY2016 than there were in FY2010. IRS's full-time equivalent workforce directly funded through appropriations decreased by 12,774 FTEs (or 13.1%) from FY2010 to FY2016. The vast share of that decrease (95.3%) was due to a reduction in FTE staff engaged in enforcement activities; enforcement staff was 12,077 FTE employees (or 23.8%) lower in FY2016 than it was in FY2010. IRS's workforce is aging, as most employees lost through attrition are not being replaced by younger workers. In FY2010, 74% of taxpayer calls to the IRS for live assistance were answered; the average wait was 10.8 minutes. By contrast, 38.1% of calls were answered in FY2015, with an average wait of 30.5 minutes. The IRS expects the level of telephone service to rise to 47%, and the average wait to drop to 25.8 minutes in FY2016. During the 2015 and 2016 filing seasons, new internal IRS rules restricted IRS customer assistance employees to answering basic tax questions, and TACs were not allowed to prepare tax returns for low-income, disabled, and elderly taxpayers seeking assistance. The IRS conducted fewer audits of individual and large corporate tax returns in FY2015 relative to FY2010. For individual audits, the decrease was 22.3%, and for corporations with assets of $10 million or more, it was 27.4%. The overage rate for IRS correspondence with taxpayers more than doubled from FY2010 (20.3% of all correspondence received) to FY2015 (49.4%). According to IRS internal rules, a correspondence is considered overage if it is not resolved within 45 days of the IRS receiving it. From 2010 to 2016, the number of individual tax returns processed by the IRS (through July of each year) rose nearly 7 million (or 5.0%). The IRS has had to take on two new major responsibilities since FY2010: implementing the ACA and FATCA. Cases involving taxpayer identity theft and refund fraud have increased considerably in both volume and the amount of improper payments since FY2010. A primary concern of proponents of a larger IRS budget is that continued declines or slow or no growth in the resources available to the IRS would further erode the effectiveness of taxpayer services, delay or cancel the implementation of critical new business systems, increase the frequency and magnitude of tax evasion and identity theft, make the IRS more vulnerable to cyberattacks aimed at stealing taxpayer information, and undermine taxpayer confidence in the fairness and efficacy of the federal income tax system. Opponents of substantial increases in the IRS budget (or proponents of additional cuts) generally do not dispute the evidence cited by proponents. Rather, they argue that increases in the IRS budget cannot be seriously considered until the IRS demonstrates repeatedly over an extended period that it is able to perform certain "critical" tasks. One is to establish sound spending priorities and pursue them effectively with available resources. A second task is to take advantage of opportunities for greater program efficiencies and cost savings. Another task is to regain the trust of taxpayers, which was deeply shaken by allegations that surfaced in 2013 that the IRS discriminated against politically conservative social welfare organizations in evaluating their applications for tax-exempt status under Section 501(c)(4). Critics also maintain that with careful planning and appropriate allocations of the hundreds of millions of dollars in user fees the IRS collects each year, it should be able to meet its mandated responsibilities and make notable progress in achieving its strategic objectives, while making the changes required to satisfy the demands of critics. The arguments for and against an expansion of the IRS's budget raise at least two questions for lawmakers: Given the strategic goals, statutory responsibilities, and mounting workload of the IRS, what is the appropriate size of the IRS budget and how should it be allocated among the IRS's various functions? Is the current IRS budget sufficient to allow it to (1) reduce the federal tax gap, (2) uphold the integrity of a tax system that relies on voluntary compliance to raise needed revenue, (3) provide the services taxpayers demand to meet their tax obligations, (4) keep individuals from hacking into the IRS taxpayer databases to steal personal information and file fraudulent tax returns, (5) recruit and train younger workers to replace employees who retire or resign for other reasons, and (6) develop and install the information systems needed to increase the range of taxpayer services offered online? Increased Funding for Enforcement and Operations Support through Program Integrity Cap Adjustments The Budget Control Act of 2011 (BCA, P.L. 112-25 ) amended the BBEDCA by reinstating limits on discretionary budget authority that lapsed at the end of FY2002. The current discretionary caps apply from FY2012 to FY2021. Section 251(b) (2) of the BBEDCA authorizes certain adjustments to the spending caps after the enactment of appropriations. Under the BCA, the limits on discretionary spending can be adjusted for the following reasons: changes in budget concepts and definitions, appropriations designated for requirements for emergencies, appropriations designated for Overseas Contingency Operations/Global War on Terrorism, appropriations for continuing disability reviews and redeterminations, appropriations for controlling health care fraud and abuse, appropriations for disaster relief. The adjustments for health care fraud and abuse and for disability reviews and eligibility redeterminations allow for additional appropriations to carry out program integrity initiatives, which are activities intended to bring about a net reduction in federal spending, in part through a reduction in improper benefit payments. In each case, the adjustment must exceed a specified minimum amount of appropriations for those activities and cannot exceed a specified maximum amount. Those amounts vary from year to year between FY2012 and FY2021. This requirement is intended to ensure that the additional funding does not supplant other federal spending on these activities or is not diverted to other purposes . The Obama Administration asked Congress to provide added funding for IRS enforcement activities and operations support in FY2017 through a program integrity cap adjustment for collecting delinquent taxes (and related penalties and interest charges) and reducing improper refund payments. If it had been adopted, the request would have amended the BCA to allow for a series of adjustments to the discretionary spending limits for new investments by the IRS from FY2017 to FY2026. In FY2017, the adjustment would have totaled $514.7 million in budget authority and outlays. According to an IRS estimate, the proposed new investments over that decade would have resulted in the collection of $64 billion in additional revenue at a cost of $18 billion, yielding a net savings of $46 billion. Every budget request for the IRS since FY2006 has included a program integrity cap adjustment for enforcement funding. Congress enacted such a proposal for FY2006, FY2009, and FY2010, but not for FY2011 to FY2015. In reviewing future IRS budget requests, Congress may want to consider the advantages and disadvantages of paying for increases in IRS's enforcement activities through such an adjustment. Revenue Effects of IRS Appropriations Under current federal budget scorekeeping rules, any budgetary savings (such as increased revenue) from additional appropriations for government administrative programs is not counted as an offset to that spending. This rule goes back to the scorekeeping guidelines included in the conference report for the Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) and reaffirmed in the conference report for the Balanced Budget Act of 1997 ( P.L. 105-33 ). The guidelines are intended to ensure the consistent treatment of the budgetary effects of government programs over time. They can be changed only with the unanimous consent of all budget scorekeepers: the House and Senate Budget Committees, the Congressional Budget Office (CBO), and the Office of Management and Budget. For the IRS, this convention has meant that even though some of its activities raise substantial additional revenue, the additional receipts cannot be used under congressional pay-go rules to finance tax cuts or spending increases. For example, a proposed decrease in IRS funding of 50% from the amount enacted in FY2016 would be scored as a reduction in the baseline federal budget deficit of approximately $5.4 billion in FY2016; by contrast, a proposed 50% increase in FY2016 funding would be treated as an increase in the federal budget deficit of the same amount. In both cases, even if the proposed changes in IRS funding were to affect IRS's enforcement activities only, the increase or decrease in receipts would not alter the projected federal budget deficit in FY2017. Such a limitation also applies to the budgetary impact of other government compliance activities, such as measures to prevent improper Medicare payments or improper claims for federal student loans. A key justification for the limitation is that it deters federal agencies with enforcement budgets from shifting resources to collection functions to justify requests for larger budgets for their programs. By contrast, estimates of the revenue effects of legislative proposals to alter tax laws sometimes reflect both the indirect and dynamic revenue effects. H.Res. 5 (Adopting Rules for the 114 th Congress) requires the CBO and the Joint Committee on Taxation (JCT) to incorporate the macroeconomic effects of major legislation in their official estimates of the cost effect used to enforce the budget resolution and other House rules. Major legislation is defined as legislation with a "gross budgetary effect" equal to or greater than 0.25% of the projected GDP for the fiscal year to which the budget resolution applies. Some argue that the current practice of disregarding the revenue effects of changes in IRS funding leads Congress to appropriate less than it otherwise should, especially for enforcement activities. A change in IRS funding may affect taxpayer compliance in ways that generate an indirect revenue effect. This effect is not scored under current scorekeeping rules. Yet the JCT does score the indirect revenue effects of proposed tax code changes. In deciding how much in appropriations the IRS receives, Congress may wish to take into account the net contribution of IRS's administration of the federal tax code to the federal budget.

At its most basic level of organization, the Treasury Department is a collection of departmental offices and operating bureaus. The bureaus as a whole typically account for 95% of Treasury's budget and workforce. Most bureaus and offices are funded through annual appropriations. Treasury appropriations are distributed among 12 accounts in FY2017: (1) Departmental Offices (DO), (2) Office of Terrorism and Financial Intelligence (TFI), (3) Cybersecurity Enhancement Account (CEA), (4) Department-wide Systems and Capital Investments Program (DSCIP), (5) Office of Inspector General (OIG), (6) Treasury Inspector General for Tax Administration (TIGTA), (7) Special Inspector General for the Troubled Asset Relief Program (SIGTARP), (8) Financial Crimes Enforcement Network (FinCEN), (9) Bureau of the Fiscal Service (BFS), (10) Alcohol and Tobacco Tax and Trade Bureau (ATTB), (11) Community Development Financial Institutions Fund (CDFIF), and (12) the Internal Revenue Service (IRS). The President's budget request for FY2017 called for the Treasury Department to receive $13.144 billion in appropriations, including a rescission of $657 million for the Treasury Forfeiture Fund (TFF). Of the requested funds, $12.280 billion would have gone to the IRS; $353 million to the BFS; $217 million to DO; $117 million to TFI; $246 million to CDFIF; $170 million to TIGTA; $115 million to FinCEN; $106 million to ATTB; $41 million to SIGTARP; $37 million to OIG; and $5 million to DSCIP. In July 2016, the House approved a bill (H.R. 5485) providing appropriations for the Treasury Department and several other agencies in FY2017. Under the measure, Treasury would have received $11.694 billion in appropriations, including a rescission of $754 million from the TFF. This amount was $248 million less than the amount enacted for FY2016 and $1.450 billion less than the budget request. During the previous month, the Senate Appropriations Committee reported a bill (S. 3067) to fund Treasury in FY2017. Under the measure, Treasury would have received $12.040 billion in appropriations, including a rescission of $657 million from the TFF. The recommended amount was $98 million below the amount enacted for FY2016 and $1.104 billion less than the budget request. The congressional debate over funding for the IRS in FY2017 raised at least three issues: (1) the appropriate size of the IRS budget in light of recent budget cuts, (2) the advantages and disadvantages of using discretionary funding cap adjustments under the Balanced Budget Act of 2011 to pay for new IRS enforcement activities, and (3) the impact on the IRS budget of the budget scoring convention of disregarding the net revenue effect of agency administrative programs, including enforcement actions. Under the Consolidated Appropriations Act, 2017 (P.L. 115-31), the 12 Treasury appropriations accounts received the following amounts for FY2017: (1) DO: $224.4 million, (2) TFI: $123.0 million, (3) CEA: $47.7 million, (4) DSCIP: $3.0 million, (5) OIG: $37.0 million, (6) TIGTA: $169.6 million, (7) SIGTARP: $41.2 million, (8) FinCEN: $115.0 million, (9) BFS: $353.1 million, (10) ATTB: $111.4 million, (11) CDFIF: $248 million, and (12) IRS: $11.235 billion.

Distinguishing Characteristics of the Drug Industry Relevant to Its Federal Tax Burden Many industries have distinctive traits, which can be thought of as defining features tied to the goods and services they sell, the technologies used to produce them, and the main forces driving competitive success and long-term growth in employment and output. The drug industry is one of these industries. What arguably distinguishes firms that develop, produce, promote, and sell patented or branded drugs is their propensity to invest heavily in R&D and advertising, a focus on certain therapeutic categories to the exclusion of others, a strong reliance on patents to generate profits and bolster competitiveness, and an extensive network of foreign subsidiaries. As this report shows, several of these traits have important implications for the industry's federal tax burden. Heavy Spending on R&D Relative to Sales The drug industry is one of the most research-intensive of all U.S. industries. This means that it spends a large amount on R&D relative to its receipts. At the same time, drug firms receive little direct R&D funding from federal government agencies. According to estimates by the National Science Foundation, U.S. producers of drugs and medicines spent the equivalent of 12.7% of domestic net sales on domestic R&D in 2005; by contrast, the same ratio that year was 3.3% for all industries and 3.6% for manufacturing. U.S. producers of drugs and medicines spent $34.8 billion of their own and other non-federal funds on domestic R&D in 2005, while federal spending on domestic drug R&D totaled only $41 million. Many drug firms invest heavily in R&D simply because it has long served as the industry's primary engine for growth in sales and profits. Those that become industry leaders achieve and sustain their stature by developing a steady stream of products that gain wide acceptance among doctors and their patients. Though discovering and developing new drugs often is a time-consuming, risky, and costly process, firms that succeed can earn sizable profits, at least until generic versions of the drugs or so-called me-too patented drugs enter the market. Because drug patents have a finite life, leading drug firms face continuing pressure to develop new and innovative drugs to lay a solid foundation for future growth. Those firms whose development efforts falter often end up struggling to survive in the face of stiff generic competition for their key drugs whose patent protection has expired. In recent years, some firms in this position have merged with larger, more successful firms in order to remain in business, while those that develop so-called blockbuster drugs prosper. Advances in the technology for finding promising new drug candidates over the past quarter century have greatly increased the number of drug compounds with significant therapeutic potential being discovered. Yet the entry of new breakthrough drugs into the market appears to have slowed considerably in the past 10 to 20 years. A 2002 study by the National Institute for Health Care Management Foundation found that 35% of the 1,035 new drug applications approved by the FDA from 1989 to 2000 were new molecular entities (NMEs), which the FDA defines as drugs containing novel active ingredients, and that about one-third of those NMEs (or 15% of new drug approvals) were deemed to offer significant therapeutic advantages over existing drugs. In addition, the number of NMEs approved by the FDA has decreased steadily since reaching a peak of 56 in 1996: a total of 17 NMEs were approved in 2007. Substantial Investment in Advertising and Product Promotion Most major drug firms also spend large sums on promoting the use of their branded products directly to physicians and consumers. Firms that develop new innovative medicines seem especially inclined to invest heavily in advertising. Early in a new drug's commercial life cycle, advertising and promotion typically are aimed at capturing a major share of the market as quickly as possible. But later in the cycle, the main thrust of these efforts often shifts to fending off or thwarting competition from generic drugs or me-too drugs. According to one source, promotional spending by drug firms totaled $10.4 billion in 2007, down from $12.0 billion in 2006, but up from $4.3 billion in 1996. Of the amount spent in 2007, $3.7 billion went into direct advertising to consumers, and $6.7 billion was directed at physicians and other health care providers. The high priority given to informing doctors and encouraging what seems to be a form of brand loyalty among them reflects a fundamental feature of the market for prescription drugs that is absent from the markets for many other consumer goods and services. In deciding which drugs to use in treating an illness, consumers defer to the judgment and consent of third parties—namely, doctors and insurance companies. Fragmented Competitive Structure Another distinguishing trait of the drug industry is its fragmented competitive structure. This fragmentation has two critical aspects. One concerns the markets for brand-name drugs themselves; the other is related to what might be described as the technological focus or orientation of drug firms. No single firm or small cluster of firms dominates the domestic market for branded drugs. According to U.S. Census Bureau, in 2002, the most recent year for which figures are available, the four largest producers contributed 34% of the value of domestic shipments of medicines; the eight largest, 49%; and the 20 largest, 70%. The absence of a dominant seller is partly due to the multitude of therapeutic categories and the high cost of carving out a position of dominance in any particular category. Some drug formularies, which are lists of approved drugs that are covered under specific insurance plans, encompass as many as 16 therapeutic categories and over 100 sub-categories. Drugs classified in one sub-category generally cannot be substituted for drugs in another sub-category. For this reason, the economist F. M. Scherer once described the drug industry as a "collection of differentiated oligopolies." Nonetheless, some firms are able to establish at least a temporary supremacy in certain segments of the market for prescription drugs. Such dominance is most likely to arise when a firm brings a new innovative drug to the market. For example, Wyeth has dominated the market for female hormone replacement therapy, while Pfizer has captured a substantial lead in the market for cholesterol-reducing medications. Some firms create what amount to new markets with their drug innovations, as Pfizer did with its launch of Viagra for the treatment of erectile dysfunction, and Merck did with its development of Proscar for the treatment of enlarged prostrate glands. The drug industry can also be divided into three subgroups that differ primarily in their approach to new drug development. Those subgroups are pharmaceutical firms, biotechnology firms, and generic drug firms. Though mergers and strategic alliances involving firms from all subgroups have blurred the boundaries among the three subgroups in recent years, it still remains the case that pharmaceutical firms tend to focus on developing small-molecule drugs from chemicals; biotechnology firms tend to focus on developing biologics, which are large-molecule drugs derived from living cells; and generic drug firms tend to focus on making low-cost copies of branded drugs that have lost their patent protection. While comprehensive data on profits for firms in each subgroup are hard to find, there is little doubt that the average pharmaceutical firm is larger in assets, sales, and employment, and more profitable than the average biotech or generic drug firm. Pharmaceutical firms compete against biotech and generic drug firms in many therapeutic categories. But the scope of competition between the pharmaceutical and biotech subgroups has narrowed in recent years, as pharmaceutical firms have invested tens of billions of dollars in acquiring biotech firms. Strong Reliance on Patent Protection under Regulatory Oversight by the Food and Drug Administration The central role played by technological innovation in the growth and transformation of the drug industry over time points to another key distinguishing trait of the industry: a heavy reliance by leading firms on patents for drugs that have gained regulatory approval to generate relatively high rates of return on investment and bolster or sustain their dominance in segments of the market where they compete. Patents grant to their owners a temporary legal monopoly over the commercial uses of an invention. In the United States and most other advanced industrialized nations, the life of a patent has been 20 years from the date of application since June 8, 1995. A patent holder may license other firms to exploit the invention in exchange for royalties, which can be thought of as compensation for relinquishing exclusive control over the commercial applications of a new technology. Drug firms claim patents for the design of drug compounds, their formulation as drug therapies, their uses in treating diseases, and their methods of manufacture. Under the Drug Price Competition and Patent Term Restoration Act of 1984, drug companies may obtain an extension of the life of their patents of as much as five years to compensate for time lost during clinical testing. Patents serve as an important competitive weapon for leading drug firms. Their usefulness in the quest for profits and growth is inextricably bound up with the lengthy, costly, and stringent approval process that all promising new drug candidates must undergo before they can be sold in the United States. The Food and Drug Administration (FDA) regulates the introduction of new drugs. It requires that new drugs pass through three phases of clinical testing on humans. Phase I is intended to test the safety of a new drug. Phase II begins to test the efficacy of the drug, as it continues to examine its safety at higher doses. In the third and final phase, the drug is subjected to more complex and rigorous tests for the purpose of ascertaining its safety, efficacy, and optimal dosages using relatively large groups of ill patients. Once the FDA confers its stamp of approval, everyone in the industry knows what the innovating drug company knows: that the drug provides the desired therapy. In the absence of patent protection, imitators could easily develop identical substitutes at a fraction of the cost incurred by the innovator. But by obtaining a patent for the molecular design of the drug, the innovator can effectively block entry by substitutes for a number of years, as slight variations in the design must undergo the full testing and approval process. For this reason, it is not surprising that drug industry executives tend to view patents as a highly effective mechanism for appropriating the returns to investment in R&D. According to the results of a survey of 650 R&D managers from 130 industries conducted by Richard Levin in the mid-1970s, R&D managers in the pharmaceutical industry gave product patents a higher rating as a means of protecting the competitive advantages from technological innovation than did the R&D managers in any other industry. More recently, in an analysis of the results of a 1994 survey of R&D managers at U.S. manufacturing firms with a minimum of $5 million in sales or with business units with at least 20 employees, Wesley Cohen, Richard Nelson, and John Walsh found that the drug industry had the highest mean percentage (50.2%) of product innovations for which patents were deemed an effective mechanism for capturing the returns to those innovations; the average mean percentage for patents for all manufacturing industries was 34.8%. The industry's aggressive use of patents for products that have gained regulatory approval may explain why drug firms have long been among the most profitable of all firms. From 1960 to 1991, the reported rate of return on stockholders' equity for the pharmaceutical firms included in the annual ranking of the top 500 industrial corporations by Fortune magazine averaged 18.4%, compared to 11.9% for all firms; as recently as 2001, pharmaceuticals ranked first in return on shareholders' equity (33.2%) among the 48 industries represented in the Fortune 500; in 2007, the industry ranked 12 th (20.3%) out of 51 industries. One indication that patents are critical to the profitability of drug firms lies in the difference in selling prices between branded drugs and their generic counterparts. Patented medicines often command much higher prices than their generic counterparts, which enter the market only after the patents expire. Extensive Foreign Operations No account of the distinctive traits of the U.S. drug industry with a bearing on its federal tax treatment would be complete if it failed to mention the industry's extensive operations in U.S. possessions and foreign countries. For many U.S.-based drug firms, these operations have had a significant impact upon their revenue streams, competitive postures, and federal tax burdens. Most major U.S. drug firms own foreign subsidiaries that manufacture and sell drugs and conduct R&D; many of these subsidiaries are located in Europe and Japan, the two largest regional markets (measured in U.S. dollars) for patented medicines after the United States. Like U.S. automobile producers, major pharmaceutical firms recognized in the 1960s that if they were to have success in foreign markets, they needed to establish a manufacturing and research presence in those markets. There are several ways to illuminate the large foreign presence of the drug industry. Perhaps the most comprehensive source of data on foreign direct investment abroad by U.S. firms is the U.S. Department of Commerce. According to Commerce data, in 2005, a total of 46 U.S.-based drug firms with domestic assets valued at $447 billion had established a total of 421 majority-owned foreign affiliates with assets valued at $181 billion. Most of these firms should be regarded as pharmaceutical firms. Sales by the foreign affiliates that year totaled $126 billion, and they employed 207,900 workers. A second but more limited source of information on the foreign operations of U.S. drug firms is the Pharmaceutical Research and Manufacturers of America (PhRMA), the primary trade association for the domestic drug industry. Most member companies should be regarded as pharmaceutical firms. In 2007, domestic sales by PhRMA member companies amounted to an estimated $190 billion, while foreign sales by U.S.-based PhRMA member companies and the U.S. affiliates of foreign-based PhRMA member companies totaled an estimated $82 billion, or 43% of domestic sales. In the same year, PhRMA member companies spent an estimated $35 billion on domestic R&D, while foreign R&D spending by U.S.-based PhRMA member companies and the U.S. affiliates of foreign-based PhRMA member companies totaled an estimated $9 billion, or 26% of domestic R&D spending. Although the importance of foreign markets varies from company to company, it appears that the U.S. drug industry may derive as much as 40% of its revenue from foreign sales. The industry's foreign operations may account for an even higher portion of its overall profits. In 2003, six of the largest U.S.-based pharmaceutical firms received over 65% of their combined profits from foreign operations, up from about 38% in 1994. Federal Income Taxes Paid by the Drug Industry Between 1990 and 2006 Federal income taxes paid from 1990 to 2006 by corporations that derive the largest share of their income from the manufacture and sale of drugs are shown in Table 1 . The figures in the table are taken from tax returns filed by corporations with and without net income and include any corporate alternative minimum taxes owed by drug firms. In collecting and publishing corporate tax data by industry, the IRS defines the drug industry in the same manner as the North American Industry Classification System. According to that definition, the industry consists of firms that derive the largest share of their revenue from one or more of the following sources: manufacturing biological and medicinal products; processing botanical drugs and herbs; isolating active medicinal ingredients from botanical drugs and herbs; and manufacturing pharmaceutical products for internal and external use in forms such as tablets, capsules, vials, powders, and solutions. The industry's taxable income shown in Table 1 combines domestic income earned by U.S.-based corporations and U.S. affiliates of foreign-based firms and a portion of the income earned by foreign branches and subsidiaries of U.S.-based corporations. Such a mix is appropriate because the United States, unlike many other developed countries, taxes business income on the basis of residence, not according to territorial source. Consequently, corporations chartered in the United States owe taxes to the federal government on their worldwide income. U.S.-based firms also pay income taxes to foreign governments on much of the income earned by their foreign affiliates. To avoid double taxation of this income, U.S. tax law permits U.S.-based firms to claim a credit for foreign income tax payments that cannot exceed their U.S. tax liability on the foreign-source income. In addition, U.S. affiliates of corporations chartered in other countries are required to pay federal income taxes on any income they earn in the United States. Federal tax law permits U.S.-based firms to defer the payment of federal income taxes on profits earned by their foreign subsidiaries until those profits have been repatriated to the U.S. parent. It is clear from the figures in the table that the industry benefitted from existing business tax credits (excluding the foreign tax credit): from 1990 to 2006, its average tax liability after credits was 86% of its average tax liability before credits. (The reason for excluding the foreign tax credit from these calculations is explained below.) At the same time, it is clear that the combined value of these credits trended downward from 1990 to 2000 and then reversed course. The primary force behind this decline was a phase-out of the possessions tax credit that commenced in late 1997 and stretched through the end of 2005. In addition, the relatively high levels of taxable income in 2005 and 2006 were due to the billions of dollars in foreign earnings drug firms repatriated from overseas subsidiaries under the temporary repatriation tax holiday established by the American Jobs Creation Act of 2004 (see pp. 19-20). The main tax credits claimed by the drug industry are shown in Table 2 . Their impact on the industry's federal tax burden is discussed below. Foreign Tax Credit Unlike the other tax credits shown in the table, the foreign tax credit confers no benefit on a firm that claims it. Section 901 of the Internal Revenue Code (IRC) permits a corporation chartered in the United States and paying income and related taxes to a foreign government through a foreign subsidiary to claim a limited credit for those taxes in the tax year when the foreign earnings are repatriated as dividends. This statutory provision is intended to avoid the double taxation of income earned by foreign branches or subsidiaries of U.S.-based corporations and repatriated to the U.S. parents. As a result, the foreign tax credit should be added to a firm's tax liability in measuring its federal tax burden. The credit may not exceed the federal income tax owed on repatriated foreign-source income and may not offset any federal tax owed on domestic-source income. In addition, the U.S. Treasury does not refund foreign income taxes paid in excess of the federal tax liability for repatriated foreign-source income. For foreign tax credits earned after October 22, 2004, any such excess may be carried back one year and then carried forward up to 10 years, subject to the same limitations. Possessions and Puerto Rican Economic Activity Tax Credit The drug industry was a major beneficiary of what was known until 1996 as the possessions tax credit under IRC Section 936. Under the Small Business Job Creation Act of 1996, the credit was revised and reborn as the Puerto Rican Economic Activity Credit (PREAC) under IRC Section 30A; it expired on December 31, 2005. In 2005, the industry was able to reduce its federal income tax liability by more than 2% by using the credit; drug firms accounted for 53% of the total amount of the credit claimed by all industries. When the PREAC was available from 1997 to 2005, corporations chartered in the United States could exclude from federal taxation as much as 40% of their income from business operations in Puerto Rico, the U.S. Virgin Islands, and other U.S. territorial possessions. To take advantage of the exclusion, a firm had to derive 80% of its overall gross income from business operations in one or more of these possessions, and 75% from the active conduct of a business there. The PREAC itself was equal to a firm's tax liability on possession-source income, subject to one of two alternative caps enacted in 1993. Under one cap—known as the "economic-activity limitation"—the credit was restricted to certain wage and depreciation costs; under the second cap—known as the "percentage limitation"—the credit was limited to 40% of the credit a firm could have claimed under rules that applied before 1993. Under a provision of the Small Business Job Protection Act of 1996, the credit was modified to phase out by the end of 2005 for firms claiming it in 1996 and was repealed immediately for all other firms. The act also set forth separate phase-out rules for firms subject to the percentage limitation and those subject to the economic-activity limitation. There is some evidence the drug industry responded to the possessions tax credit by establishing a substantial manufacturing presence in Puerto Rico. According to a 1992 report by the then General Accounting Office, a total of 26 drug firms owned manufacturing operations there in 1990. The firms realized an estimated tax savings of $10.1 billion that year from those operations, which produced 17 of the 21 most commonly prescribed drugs in the United States in the early 1990s. Prior-Year Minimum Tax Credit Corporations over a certain size, like individuals, are subject to two parallel income tax systems: the regular income tax and the alternative minimum tax (AMT). Each tax year, a corporation is required to compute its tax liability under both systems and pay whichever is greater. Each tax system has its own rules for the measurement of income and use of deductions, and the tax rates for each differ. In general, the corporate AMT is erected upon a broader definition of income and a less generous set of deductions. Furthermore, most business tax credits, such as the research tax credit, cannot be used to reduce AMT liability. In computing its AMT, a corporation begins with its regular taxable income and modifies it through a series of additional computations known as adjustments and preferences. Adjustments may or may not raise taxable income for the AMT, while preferences are determined on a property-by-property basis and affect taxable income only to the extent that they increase it. Because the corporate AMT is based on a broader measure of taxable income than the regular corporate income tax, nearly every corporation would pay the AMT every year if it were not the case that the AMT rate is much lower than the maximum rate under the regular tax system. The tax rate under the corporate AMT is 20%, whereas the top corporate tax rate is 35%. This means that a corporation's taxable income must be at least 75% greater under the AMT than the regular tax before the corporation must pay the AMT. A firm ends up paying the AMT mostly because of differences in the timing of certain deductions, especially the deduction for depreciation. Many corporations can and do switch between paying the AMT and paying the regular tax. As a result, a credit for taxes paid under the AMT is allowed to keep the AMT from leading to the collection of taxes in excess of the value of timing differences for certain deductions. The tax credit for AMT payments can be used only to offset future regular income tax liability; any unused credits may be carried forward indefinitely. But the AMT credit cannot be used to lower a business taxpayer's regular tax liability below its tentative minimum tax. This means that if a corporation pays the AMT in two consecutive years and then uses its AMT credits over the following two years, its total tax liability in that period would be equal to what it would have been if it had paid the regular tax only. In effect, the AMT accelerates payment of the regular tax. There is an opportunity cost to this acceleration in the form of forgone earnings from using the AMT payments for some other purpose. The longer the gap between paying the AMT and using all AMT credits, the greater this cost. As shown in Table 2 , the AMT credits claimed by drug firms varied widely from year to year. Nevertheless, on the whole, they accounted for a small share of the credits used in any given year. In 2005, for example, the AMT credits used by pharmaceutical firms came to 2% of the AMT credits claimed by all industries. Such an outcome is not surprising. The corporations that are most likely to pay the AMT are those that invest heavily in assets subject to accelerated depreciation under the regular tax system, relative to their earnings. Differences in the treatment of depreciation of these assets between the corporate AMT and the regular tax system account for most of the adjustments and preferences that enter into the computation of the AMT. On the whole, drug firms invest less in such assets as a share of earnings than the manufacturing sector as a whole, which typically accounts for half of total corporate AMT liability in a tax year. In 2002, for instance, pharmaceutical firms spent the equivalent of 5.0% of their value added on plant and equipment; by contrast, manufacturing firms spent 6.6% of their combined value added for the same purpose. General Business Credit The general business credit (GBC) under IRC Section 38 consists of 31 separate and distinct tax credits. Each credit is computed separately on the appropriate tax form. In general, the GBC may not exceed a business taxpayer's net regular income tax, less the greater of its tentative minimum tax liability, or 25% of the net regular tax liability above $25,000. In this case, a taxpayer's net regular income tax liability is defined as the sum of its regular tax liability and alternative minimum tax liability, less all non-refundable credits. If the GBC is greater than this limitation in a tax year, the excess may be carried back one year or forward up to 20 years (with some exceptions). Thus, the GBC a firm may claim in a tax year is the sum of GBCs carried forward to that year, the GBC for that year, and GBCs carried back to that year. As Table 2 shows, most of the drug industry's allowable claims for the GBC since 1990 apparently have been derived from a single credit: the credit for increasing research expenditures under IRC Section 41. From 1991 to 2006, the research credit claimed by the industry exceeded its allowable GBC in every year except 1995, 2003, and 2005. In the same period, the cumulative value of the research credit claimed by the industry exceeded the cumulative value of its allowable GBC by $1.1 billion. These differences indicate that at least some pharmaceutical firms have had sizable reserves of unused research tax credits to draw upon to reduce their regular tax liabilities in future years. Research Tax Credit Under IRC Section 41, business taxpayers may claim a tax credit for their spending on qualified research above a base amount. The incremental design is intended to give firms an incentive to spend more on research than they otherwise would. The credit lowers the after-tax cost of undertaking qualified research above the base amount: one dollar of the credit reduces that cost by the same amount. The research credit is composed of five separate and distinct non-refundable credits: a regular research credit, an alternative incremental research credit (or AIRC), an alternative simplified incremental credit (or ASIC), a credit for contract basic research, and a credit for contract energy research. All five are due to expire at the end of 2009, and the AIRC is unavailable in 2009. A business taxpayer may claim no more than the basic and energy research credits and one of the remaining three in a single tax year. To prevent a taxpayer from reaping a double tax benefit from the same expenditure, any research tax credit claimed must be subtracted from the amount of qualified research expenses deducted under IRC Section 174. Most claims for the credit involve the regular credit. It has been extended 13 times and significantly modified six times. The credit is equal to 20% of a firm's qualified spending on eligible research conducted in the United States and its territorial possessions above a base amount. Several rules governing the use of the credit tend to push its marginal effective rate below its statutory rate for many of the firms that use it. Of particular importance are the definition of qualified research and the requirements that the deduction for qualified research expenses under IRC Section 174 be reduced by the amount of the research tax credit, and that the base amount equal 50% or more of current-year research expenses. The regular, alternative, and basic research credits apply to the following expenses only: wages and salaries of researchers, supplies and materials used in qualified research, leased computer time for qualified research, and 65% to 100% of payments for contract research (depending on the nature of the research and the type of entity conducting it). Among all industries, the drug industry is a leading beneficiary of the research credit: in 2006, it claimed $902 million in research tax credits, or 12% of the total amount of such claims by all industries. Yet there is reason to suspect that the credit has not had a major impact on investment in new drug development in recent years. From 2000 to 2006, the drug industry's total claims for the credit represented 3% of total domestic R&D spending by PhRMA member companies. In addition, even drug firms that spend hundreds of millions of dollars or more on R&D cannot expect to take advantage of the regular credit in a given tax year. A 2001 CRS report estimated that Merck was unable to claim a regular research tax credit in 1998, despite spending $1.8 billion on R&D that year. The explanation for this result lay in the rules governing the regular credit's use, especially the requirement that the base amount be equal to 50% or more of current-year expenditures on qualified research. These rules may also explain why relatively few drug firms claim the research credit from year to year: in 2005, for instance, no more than one in five of pharmaceutical firms that filed a corporate income tax return claimed the research tax credit. Orphan Drug Credit Only one of the credits shown in Table 2 seems targeted at the drug industry: the orphan drug tax credit. In 2006, firms classified in the industry by the IRS contributed 52% of the total value of claims for the credit by all industries. Under IRC Section 45C, a firm may claim a tax credit equal to half the cost of human clinical trials for drugs intended to treat rare diseases; such drugs are also known as orphan drugs. The credit indirectly subsidizes the cost of capital for investment in the development of such drugs, as human clinical trials, which are conducted in three phases, constitute the most time-consuming and costliest step in the new drug development process. The statutory provision defines a rare disease or condition as one likely to afflict fewer than 200,000 individuals residing in the United States, or one likely to afflict more than 200,000 such individuals but for which there is no realistic prospect of recovering R&D costs from U.S. sales alone. The credit applies to expenditures for the supplies and the wages and salaries of researchers used in clinical trials for orphan drugs, but not for the structures and equipment used in the trials. It is a permanent provision of the tax code and a component of the general business credit, and thus subject to its limitations. Since the orphan drug credit was enacted in 1983 as one of a series of measures aimed at stimulating increased investment in the development of new drugs to treat rare diseases and conditions, at least 325 such drugs have gained regulatory approval in the United States. But contrary to the credit's intended purpose, some of them went on to become major sources of revenue for their producers, including Glaxo Wellcome's anti-AIDS drug Retrovir AZT, Amgen's anti-anemia drug Epogen, and Genentech's human growth hormone Protropin. Federal Tax Burden on the Drug Industry and Major U.S. Industries from 2000 to 2006 Generally, the federal tax burden on an industry refers to how the tax code affects its return on past investment. This effect emerges through the definition of taxable income, adjustments to taxable income (e.g., deductions and exemptions), tax rates, and adjustments to tax liability (e.g., tax credits and minimum tax payments). For the most part, these provisions serve the dual purpose of raising the revenue needed to fund government operations and programs and offering firms meaningful incentives to engage in or eschew certain activities. The tax credit for increasing research expenditures obviously exemplifies the second purpose. Expressed in its simplest terms, an industry's federal tax burden indicates how much of its profits it must surrender to comply with current tax law. As this burden expands and all other things being equal, firms have fewer funds than they otherwise would to use as they wish. Economists define a firm's tax burden as its share of real pre-tax economic income paid in taxes. But it is difficult to determine a firm's economic income from business tax return data, as certain provisions in the tax code drive a wedge between a business taxpayer's economic income and its taxable income. So another approach must be taken to measure business tax burdens. One option is to substitute taxable income as determined under current federal tax law for pre-tax economic income. This approach is used here. A widely used measure of an industry's federal tax burden is its average effective tax rate, which is the ratio of its federal income tax liability after credits to its taxable income, expressed as a percentage. As such, the ratio reveals the net effect of the federal tax code on the industry's pre-tax returns on previous investments. Some economists construe this effect as the extent to which the tax code penalizes or rewards the economic activities of the firms making up the industry. There are some limitations to the usefulness of the average effective tax rate as a measure of an industry's federal tax burden. One limitation is that the rate reflects the impact of the tax code on the returns to an industry's previous investments; thus it may be an unreliable indicator of the federal tax burden on current or future investments. In addition, average effective tax rates do not provide a comprehensive measure of the federal tax burden for an industry because they cannot capture the influence of provisions in the tax code that accelerate the timing of tax deductions or delay the recognition of income for tax purposes. A better measure would be the marginal effective tax rate for an industry, which would capture the effect of all relevant tax provisions on its pre-tax returns on new investment. But it is difficult to compute such a rate for most industries because the value of some widely used tax benefits (e.g., expensing of R&D costs) cannot be estimated using available financial or tax return data, and not all firms in an industry invest the same amount in the same mix of assets in a given tax year. Nonetheless, if average effective tax rates are applied consistently across industries and over time, they can shed light whether their federal tax burdens differ, and if so, to what extent. Table 3 shows the average effective federal tax rates for the drug industry and all major U.S. industries from 2001 to 2006. As noted above, the rates compare the industries' federal income tax liability after all credits except the foreign tax credit with their worldwide taxable income (as reported on their federal income tax returns). As such, they address neither the domestic tax burden on domestic income nor the worldwide tax burden on worldwide income for the industries. Instead, the rates represent something of a hybrid of the two measures: the federal tax burden on domestic income plus foreign income that has been recognized for federal tax purposes. As noted earlier, the foreign tax credit should be excluded from an industry's net tax liability because the credit is intended to prevent the double taxation of foreign-source income. Including it would understate the federal tax burden on the industries, in some cases by a significant margin. The data in the table indicate that the drug industry's federal tax burden in 2001 to 2006 was similar to the average tax burden for all industries. Such a finding may come as a surprise to those who have the impression that the industry long has benefitted unfairly or disproportionately from certain business tax preferences. Though the table does not show this, the industry's tax burden did rise in the late 1990s, driven by a phase-out of the possessions tax credit that began in 1997 and lasted through 2005. If marginal effective federal tax rates could be computed for typical investments made by the industries shown in Table 3 , it is likely that the rate for the drug industry would be among the lower ones. This is because the effects of some tax preferences that tend to benefit drug firms more than other firms are not fully reflected in average effective tax rates. These preferences involve both the deferral of federal income taxes and accelerated depreciation. Three tax preferences in particular are likely to yield significant tax savings for U.S.-based drug firms and thus warrant further examination: (1) the deferral of federal income taxes on net income retained by foreign subsidiaries of U.S.-based corporations; (2) the expensing (or deduction as a current cost) of qualified research spending; and (3) the expensing of advertising and promotional costs. Deferral of Federal Income Taxes on Foreign-Source Income As noted above, the federal government taxes corporations based or chartered in the United States on their worldwide income and grants them tax credits for foreign income tax payments they make on foreign-source profits up to their federal tax liability on those profits. But federal tax law does not treat all foreign-source income equally. Profits earned by foreign branches of a U.S.-based corporation are subject to federal taxation in the year when they are earned, regardless of whether the profits are repatriated to the U.S. corporate parent. In contrast, profits earned by foreign corporate subsidiaries of the same corporation are subject to U.S. taxation only when they are repatriated to the parent firm in the form of dividends, royalty payments, or other income. The subsidiaries' profits may be taxed by the host countries, but any profits they retain are exempt from federal taxation until the profits are repatriated. Such an exemption represents a deferral of U.S. income tax liability. Deferral of this variety can generate a substantial tax benefit, particularly in cases where U.S. firms locate subsidiaries in countries with lower tax rates than the United States. The reason lies in the time value of money. In essence, a dollar received today is worth more than the same dollar received in some future year. So the longer a taxpayer can defer a tax payment, the less it is worth in current dollars. As a result, U.S.-based firms with subsidiaries in countries with lower tax rates than the United States can reduce the present value of their federal tax burden by having the subsidiaries retain their earnings for one or more years. Although these subsidiaries may pay income taxes on their annual earnings to host-country governments, those taxes would be lower than the U.S. income taxes that would be due on the same profits in the year when they were earned. Thus, the opportunity to defer federal taxes on foreign-source income gives U.S.-based firms a significant incentive to invest in countries with lower income tax rates than the United States. There is some evidence that U.S.-based drug firms have taken advantage of this opportunity. According to a 2004 article in Tax Notes , the effective foreign income tax rate on the foreign profits of six major U.S. pharmaceutical firms was 17.6% in 2003, while the maximum U.S. corporate tax rate was 35%. Unrepatriated foreign earnings reported by the same six companies rose from $10.1 billion at the end of 1993 to $101.0 billion at the end of 2004, a tenfold increase. And another report in Tax Notes pointed out that six pharmaceutical firms were among the top 20 of 67 U.S.-based multinational firms ranked according to accumulated undistributed or unrepatriated foreign earnings reported in the 10-K reports they filed for 2003 with the Securities and Exchange Commission. Temporary Dividends Received Deduction Under IRC Section 965 Further evidence that the drug industry is a major beneficiary of the opportunity to defer federal taxes on profits earned by the foreign corporate subsidiaries of U.S.-based corporations comes from the industry's response to a provision in the American Jobs Creation Act of 2004 (AJCA, P.L. 108-357 ) that granted U.S.-based firms a temporary tax reduction for the repatriation of some of those profits. Under IRC Section 965, which was added by AJCA, U.S. corporations could claim a deduction equal to 85% of the cash dividends above a base-period-amount they received from their controlled foreign corporations (CFCs) and then invested in the United States according to an eligible plan approved by a top corporate officer and the board of directors. For corporations paying a marginal tax rate of 35%, the deduction lowered the tax rate on any dividends received to 5.25%: 0.35 x 0.15. Corporations were allowed to claim the dividends received deduction (DRD) once: either in their last tax year before October 22, 2004 (the date when AJCA was signed into law) or their first tax year during the 12 months starting on October 22, 2004. The base-period amount for a corporation was defined as the average amount of cash dividends it received from CFCs in three of the five most recent tax years ending on or before June 30, 2003, disregarding the years with the lowest and highest repatriation amounts. In addition, the DRD was limited to the greater of $500 million, or the amount of earnings permanently reinvested outside the United States (as shown on a firm's most recent balance sheet after June 30, 2003), or 35% of the tax liability attributed to earnings permanently reinvested outside the United States. A recent study by the Internal Revenue Service (IRS) found that 843 U.S.-based corporations claimed the one-time DRD by repatriating $362 billion in cash dividends from 2004 through 2006. Drug firms accounted for 3% of all the firms claiming the deduction but contributed 32% of the entire amount of repatriated cash dividends. The average drug firm repatriated $3.6 billion in qualifying dividends, compared to $370 million for the average firm. In addition, drug firms claiming the deduction reported permanently reinvested foreign earnings equal to 13% of their assets; for all firms claiming the deduction, the same ratio was under 2% of their assets. Transfer of Intangible Assets Like Drug Patents to Low-Tax Countries The opportunity to defer U.S. taxes on the profits of foreign corporate subsidiaries is linked to a practice used by major U.S.-based pharmaceutical firms to reduce their worldwide tax burdens. It entails the transfer of drug manufacturing and intangible assets like drug patents to offshore subsidiaries in countries whose corporate tax rates are lower than those of the United States. While the extent of this practice and its impact on the federal tax burdens of drug firms are not well-documented, its basic elements are well-established. In what could be regarded as the standard or classic case, seeking to lower the effective worldwide tax rate it reports to shareholders, a U.S.-based drug company transfers a patent for a drug it has developed to a subsidiary located in a country with lower corporate tax rates than the United States. The subsidiary then helps fund further research in the United States on the drug, allowing it to claim ownership of the patent without having to buy it from its American parent. Once the drug is approved for sale in the United States, the subsidiary produces it at a cost of a few cents a pill. The pills are then shipped to the American parent, which sells them to pharmacies or wholesalers for several dollars a pill. But in accounting for the profit from U.S. sales of the drug on its federal income tax return, the American parent company attributes almost the entire amount to the foreign subsidiary, not itself, because the subsidiary holds the patent for the drug. The final result is that most of the profit is transferred to the host country for the subsidiary and taxed there, while the remainder is taxed at a higher rate in the United States. No federal income tax can be levied on the subsidiary's share of the profit until it is repatriated. This practice is not necessarily illegal under U.S. tax law. But it does make it possible to use loopholes or gaps in the law to shelter profits in so-called foreign tax havens. Since drug prices are higher in the United States than in most other developed countries, the legality of this practice has been questioned. Some argue such a price difference is proof that the vast share of industry profits should be attributed to U.S. operations, not to any foreign operations. Yet that apparently is not the case. According to a 2006 analysis by Martin Sullivan of Tax Analysts, nine of the largest U.S. pharmaceutical firms reported to shareholders that foreign earnings accounted for 69.9% of their combined worldwide profits in 2005, up from 39.2% in 1999. Proceeding on the assumption that an industry's profits should be assigned to the location of "value-creating economic activity" for tax purposes, Sullivan estimated that reported foreign profits should have accounted for 43% of the combined worldwide profits for these firms in 2005. This meant that an additional 27% of the firms' worldwide profits that year should have been subject to U.S. taxation. Expensing of Qualified Research Spending Drug firms also derive substantial benefit from the tax treatment of research expenditures under IRC Section 174. Under that provision, a business taxpayer may deduct as a current expense (or expense) its research expenditures in the tax year when they are made. To qualify for this treatment, those expenditures must meet the following criteria: (1) they must relate to a firm's trade or business, (2) they cannot be considered capital costs, and (3) they must be directed at "activities intended to discover information that would eliminate uncertainty concerning the development or improvement of a product." In practice, only the wages and salaries of research personnel, the cost of supplies and materials used in qualified research, and related overhead costs may be deducted under IRC Section 174. By contrast, the cost of structures and equipment used in this research must be recovered over 15 years and three years, respectively, using allowable depreciation methods. Business spending on R&D typically creates intangible assets (such as patents) that generate a stream of revenue over a number of years. Such an outcome indicates that the economic life of these assets is longer than one year, a view that has been backed by several studies. So it seems reasonable and fair that a firm, in computing its taxable income, should treat its spending on R&D as a capital expense that is recovered over the useful life of the assets it generates, using an appropriate depreciation method. Yet the tax code allows firms to treat R&D expenditures as a current expense rather than a capital expense. This option gives rise to a significant subsidy for business R&D investment in the form of a reduced marginal effective tax rate on the returns to this investment. In theory, expensing (or the deduction of the entire amount of a capital expenditure in the year when it is made) lowers the marginal effective tax rate on the returns to investment in affected assets to zero. The addition of the research tax credit under IRC Section 41 makes the rate negative for eligible investments. Consequently, the user cost of capital for R&D investment is significantly lower than for many other investments a firm might make, including the acquisition of new plant and equipment. Supporters of the expensing of R&D expenditures say that such a subsidy is justified on the grounds that it addresses a market failure associated with investment in research: namely, that firms tend to invest less than optimal amounts in research because they cannot appropriate all the returns to innovation. Drug firms are likely to benefit from this tax subsidy more than many other firms because of the drug industry's strong propensity to invest in R&D. In 2006, according to estimates by the National Science Foundation (NSF), drug firms spent an estimated 13.5% of their domestic net sales on R&D performed in the United States. By contrast, the same ratio for all industries was 3.4%; for manufacturing firms, 3.6%; and for non-manufacturing firms, 2.9%. Drug firms spent $38.8 billion on R&D in 2006, according to the NSF. Assuming that its average effective federal tax rate that year was the same as its average effective federal tax rate for 2000 to 2005 (31%), and that the entire amount could be deducted as a current expense under IRC Section 174, the industry was able to lower its tax liability in 2006 by $12 billion by deducting the full amount of its R&D expenditures. Expensing of Advertising Spending Drug firms also appear to benefit disproportionately from the tax treatment of outlays for business advertising. Under current federal tax law, advertising expenses are deductible in the tax year when they are incurred, provided they pass two tests: (1) they are reasonable in amount; and (2) they are related to a firm's lines of business. These expenses must serve the purpose of developing goodwill among customers or soliciting immediate sales. There is a clear similarity in the tax treatment of outlays for advertising and outlays for R&D: both are deductible as a current expense. Expensing constitutes a significant tax subsidy in that it theoretically leads to a marginal effective tax rate of zero on any profits generated by an asset. In the case of advertising, this tax treatment would be justified on economic grounds if advertising yielded no benefits for a firm beyond the year when the cost of the advertising is incurred. But this might not be the case. There is some evidence that spending on advertising can create intangible assets with economic lives extending beyond a single year. In certain markets (including prescription drugs), advertising fosters the growth of what might be called brand recognition and consumer loyalty. These effects can operate like an intangible asset in that they can boost a firm's profits and keep them at levels they might not attain otherwise. For instance, Ernst R. Berndt and three colleagues found in a study of the U.S. market for anti-ulcer drugs that efforts by leading manufacturers to promote H 2 -antagonist prescription drugs to physicians through detailing and medical journal advertising had "substantial effects" on the growth of domestic demand for the drugs and the sellers' market shares from 1977 to 1993. In doing the study, they divided these marketing efforts into those aimed at expanding overall demand for H 2 -antagonist drugs, and those aimed solely at expanding the market shares of the leading sellers. Berndt and his colleagues then estimated that the cumulative value of the marketing intended to expand overall demand depreciated at a rate of zero, but that the cumulative value of the marketing intended to expand market shares depreciated at an annual rate of close to 40%. Others have estimated that the depreciation rate for the intangible assets created by commercial advertising falls in the range of 20% to 30%. To the extent that advertising creates intangible assets with economic lives of longer than one year, the expensing permitted under current tax law has the effect of lowering the cost of capital for investment in advertising, relative to the cost of capital for investment in assets with longer tax lives, all other things being equal. Still, there is lingering uncertainty about the actual rate at which advertising loses its economic value. Available evidence points to differing conclusions about the economic life of advertising; it also indicates that the true depreciation rate may differ considerably by mode of advertising (e.g., television advertising, magazine advertising, radio advertising). As a result, it is difficult to assess to what extent the tax code subsidies investment in advertising. Whatever the actual degree of subsidy, there is little question that drug firms benefit more from the expensing of advertising expenditures than many other firms because of their relatively strong propensity to invest in advertising. In 2005, the most recent year for which U.S. corporate tax data are available, the drug industry claimed a total deduction for advertising equal to 4.6% of business receipts; for all industries, the share was 1.2%. Drug firms deducted $13.1 billion for advertising that year, yielding a tax savings of $4.3 billion at the industry's average effective federal tax rate of 32.5% that year. Federal Tax Policy and Investment in New Drug Development Tax policy is one of many channels through which the federal government influences the domestic climate for new drug development. Business taxation helps shape this climate through its impact on a firm's user cost of capital for R&D investment and its supply of internal funds (or retained earnings). The user cost of capital is the cost a firm incurs as a result of owning a tangible or intangible asset. It embraces both the opportunity cost of forgoing other investments and the direct costs of ownership, such as depreciation, the acquisition cost of the asset, and taxes. In general, the user cost of capital indicates the rate of return an investment project must earn in order to break even. As a firm's user cost of capital declines, the number of investment projects it can profitably undertake increases, all other things being equal. There is considerable evidence that business investment responds to changes in the user cost of capital, although the magnitude and duration of the response over the business cycle are matters of ongoing debate and research among economists. One factor affecting the user cost of capital is the tax burden on the returns to an investment. Generally, as this burden decreases, so does the cost of capital. A widely used measure of this burden is the marginal effective tax rate. This rate, which is calculated by subtracting the after-tax rate of return on a new investment from the pre-tax rate of return and dividing by the pretax rate of return, reflects the statutory income tax rate faced by a firm, as modified by any tax provisions that subsidize or penalize the investment. Under current law, the federal tax burden on the returns to R&D investment is relatively low because of two research tax subsidies discussed earlier: (1) the tax credit for increases in research spending above a base amount under IRC Section 41, and (2) the option to deduct qualified research expenditures as a current expense under IRC Section 174. In combination, they have the potential to push the cost of capital for R&D investments below that of most other investments a firm might make, such as purchases of plant or equipment or instituting a new training program for employees. According to an analysis by economist Bill Cox, the credit and expensing allowance have the combined effect of taxing the returns to R&D investment at a negative rate, which is to say that after-tax rates of return exceed pre-tax rates of return. The same two tax subsidies can also boost R&D investment by increasing a firm's cash flow or supply of internal funds. Some firms base their annual R&D budgets on the amount of money they expect to have on hand after paying all expenses in a given year. For them, the cost of internal funds may be significantly lower than the cost of external funds, such as capital raised through borrowing or issuing new shares of stock. Small start-up biotechnology firms are especially likely to find themselves in this position, as potential investors or lenders may lack the needed information to evaluate their long-term prospects for commercial success. A firm's supply of internal funds depends in part on how much it earns in profits and how much of those profits it must set aside to cover its anticipated income tax liability. In the short run, firms that rely heavily on retained earnings to finance new R&D investments can invest more as their tax liabilities fall, all other things being equal. Of course, a firm could use any increase in cash flow for other purposes, including hiring new employees, training current employees, or paying higher dividends to shareholders or owners. In addition, the opportunity under federal tax law to move profits to subsidiaries located in low-tax countries through the transfer of drug patents to those subsidiaries and the deft use of transfer pricing can make it possible for major U.S.-based pharmaceutical firms to reduce their worldwide tax burden. An indicator of the effect of tax policy on new drug development is the drug industry's federal tax burden, as measured by average effective tax rates. From 2000 to 2006, the industry's rate was nearly the same as the average rate for all industries. Yet in the same period, the average drug firm devoted a much higher percentage of its revenue to R&D than the average firm. So while the average drug firm pays about the same amount of federal income tax per dollar of taxable income as the average firm, the former spends a larger share of each dollar of gross income on the development of new technology. This difference suggests that new drug development is driven by forces other than federal tax subsidies. Among the key ones are the opportunities for novel drug compounds opened up through advances in basic research, the regulatory requirements for the drug approval process, the competitive strategies of drug firms, and the potential earnings from investing in the development of new drugs. It is also worth noting that not all drug firms are affected equally by federal taxation. The typical pharmaceutical firm has profits and thus can take advantage of the research and orphan drug tax credits, the expensing of advertising and research expenditures, and the deferral of profits earned by foreign subsidiaries to lower its tax burden and boost its after-tax rate of return on equity. By contrast, the typical biotech firm has a net operating loss and thus can take advantage of none of those tax incentives in the short run. The typical generic drug firm has a tax profile that more closely resembles that of the pharmaceutical firm, with the exception that the former spends a fraction of what the latter spends on drug discovery, drug testing and clinical trials, and advertising and promotion.

A key issue in congressional debates over expanding consumer access to prescription drugs is the impact of proposed initiatives on the development of new medicines. Some of the initiatives entail significant changes in one or more of the federal policies affecting new drug development. One such policy is federal taxation of firms that invest in this development. This report examines the impact of federal taxation on the incentive to invest in new drug development. More specifically, it looks at the provisions in current tax law that affect the performance of the drug industry, compares the industry's federal tax burden with that of other major industries, and assesses the effect of federal taxation on the incentive to invest in new drug development. This information may be useful to the 111th Congress as it considers the pros and cons of proposed changes in the U.S. health care system. The report will be updated as necessary. An industry's federal tax burden refers to the effects of federal taxation on its return on investment through statutory provisions that define taxable income, make adjustments to this income, and establish tax rates and credits against tax liability. Economists generally measure an industry's federal tax burden as its average effective tax rate, which is the ratio of its federal tax liability after all credits (except the foreign tax credit) to its taxable income, expressed as a percentage. This measure has some limitations, such as the inability of average effective rates to capture the effects of tax provisions that accelerate the timing of deductions or delay the recognition of income. A comparison of average effective federal tax rates for the drug industry and major U.S. industries indicates that the share of the drug industry's worldwide net income paid as federal taxes was similar to the average share for all industries from 2000 through 2006. This has not always been the case. For much of the 1990s, the drug industry's tax burden was significantly lower than the average tax burden for all industries. But starting in the late 1990s, the drug industry's federal tax burden began to rise as the U.S. possessions tax credit was phased out. Drug firms were major beneficiaries of this credit. They also appear to benefit substantially, if not disproportionately, from three tax preferences whose combined effect is not fully reflected in average tax rates: (1) the deferral of federal income tax on the retained earnings of foreign subsidiaries of U.S.-based corporations, (2) the expensing of research outlays, and (3) the expensing of advertising outlays. Available evidence suggests that current federal tax law bolsters the incentive to invest in new drug development for some firms but not for others. The most powerful drivers of this investment seem to be the quest by certain drug firms for sustained competitive advantage and profit growth and the available technological opportunities for developing new, safe, and effective medicines. Still, all other things being equal, a substantial increase in the industry's tax burden might slow growth in this investment by raising the industry's cost of capital and reducing its cash flow.

Introduction From the inception of the American federal government, Congress has required executive branch agencies to make certain information and records publicly available to make the actions and information of the government transparent to the public. Some scholars and statesmen, including James Madison, described information access as an essential cornerstone of democratic governance. In an August 4, 1822, letter to William T. Barry, Madison wrote, A popular Government without popular information, or the means of acquiring it, is but a Prologue to a Farce or a Tragedy; or perhaps both. Knowledge will forever govern ignorance: And a people who mean to be their own Governors, must arm themselves with the power which knowledge gives. At the same time, Congress has protected other information from public release. Access to government actions and information is often in tension with information protection. Certain government actions and records are protected from public release for, among other reasons, national security and personal privacy reasons. President George Washington, in a March 1796 speech in the House of Representatives, for example, refused to provide the House with a copy of the instructions to the Minister of the United States in the Treaty with the King of Great Britain, sending the chamber a message that read as follows: [t]he nature of foreign negotiations requires caution; and their success might often depend on secrecy; and even, when brought to a conclusion, a full disclosure of all the measures, demands, or eventual concessions which may have been proposed or contemplated would be extremely impolitic: for this might have a pernicious influence on future negotiations; or produce immediate inconveniences, perhaps danger and mischief, in relation to other Powers. Among the congressional powers available to enforce federal transparency and to protect certain other materials from public release are the powers to legislate, hold hearings, issue subpoenas, and control the federal budget. Congress has, from time to time, used its legislative powers to create and amend laws that affect the public's access to government operations and records. Among these laws are the Federal Register Act, the Administrative Procedure Act (APA), the Freedom of Information Act (FOIA), the Federal Advisory Committee Act (FACA), the Government In the Sunshine Act, and the Privacy Act. Although there are laws that affect access to government information, there is no single definition for what constitutes transparency—nor is there an agreed upon way to measure it. Social scientists and practitioners have offered a variety of definitions for transparency; among them are "active disclosure" and "the publicizing of incumbent policy choices." These two definitions convey that transparency is linked to the release of information to an interested public. Transparency , however, may be defined as not only the disclosure of government information, but the access, comprehension, and use of it by the public. Scholars and private organizations have attempted to measure transparency by surveying citizens and journalists on their perceptions of government openness as well as by examining executive branch implementation of FOIA. These measures have sometimes relied on public perceptions of transparency or journalists' accounts of information access. Each definition and measurement of transparency has strengths and weaknesses. Attempts to make the executive branch more transparent require Congress, the public, and the executive branch itself to ensure that appropriate information is released and that the information can be used and analyzed. Users of such released information, therefore, must have the time and the tools to interpret and understand the data in order to hold government accountable. Congress plays an active role in defining the balance between transparency and secrecy in American democratic society. While openness in government is considered essential to democratic operations and deliberations, secrecy can protect Americans from security threats, privacy invasion, and economic harm. As agencies increasingly use new technologies to collect, maintain, and release federal records and data, Congress may have an interest in ensuring that the public has the ability to find and use the data properly. Additionally, Congress may choose to determine whether agencies are inappropriately withholding documents or improperly releasing sensitive materials. Accordingly, this report assesses scholarly and practical definitions of transparency and provides an analysis of the concept of transparency, with a focus on transparency in the executive branch of the federal government. It also examines how the release of large amounts of public data may make the operations of government more or, counter-intuitively, less transparent. Releasing vast amounts of raw data, for example, could make it difficult for the public to find the information they seek or to understand how to analyze data they find. This report examines statutes, initiatives, and other items that seek to make information more available to the public as well as those that seek to protect certain information from release to the public. This report examines transparency and secrecy from the standpoint of how the public historically has and can currently access government information. It also explores the statutes and policies in place to ensure the protection of certain information from public release. The report then describes existing powers, authorities, and initiatives that promote transparency or protect federal records from public release. Finally, this report analyzes whether existing transparency initiatives are effective in reaching their stated goals. What Is Transparency? As already noted, there is no single definition of what constitutes transparency or method for measuring it. For the purposes of this report, transparency comprises not only the disclosure of government information, but also the access, comprehension, and use of this information by the public. Transparency, as such, requires a public that can acquire, understand, and use the information that it receives from the federal government. This concept of transparency, however, is not the only possible designation of the term. Definitions Richard W. Oliver, in his book What is Transparency? wrote that transparency has come to mean "active disclosure." Other scholars have defined government transparency as "the publicizing of incumbent policy choices," and "the availability and increased flow to the public of timely, comprehensive, relevant, high-quality and reliable information concerning government activities." In addition to scholarly definitions of transparency, private organizations that serve as government watchdog groups have put forth their own meanings. Transparency International, a global civil society organization that seeks to fight government corruption, defines transparency as "a principle that allows those affected by administrative decisions, business transactions or charitable work to know not only the basic facts and figures but also the mechanisms and processes." The organization goes on to state that "[i]t is the duty of civil servants, managers and trustees to act visibly, predictably and understandably." The Sunlight Foundation, a nonprofit organization "committed to improving access to government information by making it available online," does not offer a particular definition of transparency. Instead, the foundation delineates 10 principles of government openness that provide access to data. These principles are "completeness, primacy, timeliness, ease of physical and electronic access, machine readability, non-discrimination, use of commonly owned standards, licensing, permanence and usage costs." Measures A number of different approaches have been used to attempt to measure or quantify transparency or its effects. Some scholars and government practitioners may argue that defining transparency is difficult, but they understand it in practice. Transparency International, for example, surveys a variety of people and institutions on their perceptions of transparency in selected nations to create a "Corruption Perceptions Index." The index supposes that perceptions of corruption serve as a proxy for transparency in government. Though the two may be related, it is unclear whether corruption or perceptions of corruption provide a reliable measure of a particular government's efforts to be transparent. Global Integrity, an independent, non-profit organization that tracks "governance and corruption trends around the world," uses journalists' reports and structured surveys to create its Global Integrity report, which measures "governance and corruption." Like the Corruption Perceptions Index mentioned above, however, this measure might capture only perceptions of openness and perceptions of corruption, without capturing a nation's efforts to be transparent, or reach acceptable levels of transparency. Scholar Justin Fox, who studied levels of transparency within the United States, took the approach of examining the integration of FOIA's principles into the operations of executive branch agencies. He examined whether FOIA was incorporated into each agency's performance plan, how much agencies spent on implementing FOIA, and whether the agency established performance measures for implementation of FOIA. Mr. Fox's research captured how agencies respond to information requests, but did not address proactive transparency—a practice in which agencies release records, datasets, or other information without it having to be requested from someone outside the agency. Proactive, sometimes called pre-emptive, transparency would eliminate the need that information be requested because the information would already be publicly available. A person who submits a FOIA request, however, may need knowledge and skills unique to that request. For example, the requester must know that a document exists in order to request it. The requester must also know how to properly draft a FOIA request and to where they should address the request. Requesters also must understand limitations on certain information requests, including the possible denial of a request based on the government's claims that the release of a record or portion of a record could endanger national security, invade an individual's privacy, or cause harm to the economy. Mr. Fox's measure of transparency assumes FOIA requesters already know what records are available as well as how to use those records if they are released. His study, therefore, may not measure U.S. transparency, and instead may measure how effective the public is in using FOIA—a single tool of federal transparency. Scholar Archun Fung examines "transparency systems," or "government mandates that require corporations or other organizations to provide the public with factual information about their products and practices." The effectiveness of these systems, Mr. Fung argues, can be measured, in part, by how accessible and useful information is to the audience who receives it. No matter how accurate or relevant new information is, it cannot provide a foundation for a successful transparency system unless it is made available at a time, place, and in a format that fits in with the way consumers, investors, employees, and home buyers make choices as information users and the way corporations, government agencies, and other organizations make decisions as information disclosers. For Mr. Fung, therefore, transparency can only be effective "when transparency systems provide highly relevant and accessible information that users incorporate into the considerations that determine their actions." This is one of few considerations of transparency that require the public to both access and use information. In a January 2012 New York Times news analysis, journalist Elizabeth Rosenthal reinforced this idea, arguing that disclosure of information was not the same as transparency. One fundamental problem is that disclosure requirements merely get information onto the table, but themselves demand no further action. According to political theory, disclosure is both a citizen's right and a tool to ensure good government and consumer protection, because it provides information that leads to informed decisions. Instead, disclosure has often become an endpoint in the chain of responsibility, an act of compliance with the letter of the law rather than the spirit of transparency. Transparency and Secrecy An accessible and transparent government is one goal of a functioning democracy, but access to government information may not always be warranted or safe. Certain records may need to be kept secret by the federal government to protect national security, personal privacy, or economic security. Oftentimes, transparency and secrecy—both of which are inherent values of the American republic—are in tension with one another. For example, James Madison, one of the Founding Fathers and a primary contributor to the American Constitution, wrote in the Federalist Papers about the need for government that could be controlled by the people. If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary options. Madison argued that government needed to be controlled, and the people were the most powerful tool to do so. Control over the government would come in the form of an informed citizenry. Like Mr. Madison, Thomas Jefferson noted the importance of a vigilant citizenry in a January 16, 1787, letter to Edward Carrington. We have the greatest opportunity the world has ever seen, as long as we remain honest—which will be as long as we can keep the attention of our people alive. If they once become inattentive to public affairs, you and I, and Congress and Assemblies, judges and governors would all become wolves. Although access to executive branch information has been of interest to America's leaders from the Founding Fathers to the present day, certain records may require protection from public release. The meetings in Philadelphia at which the Founding Fathers drafted the Constitution, for example, were held in secret. In T he Federalist Papers , John Jay wrote of times when secrecy can convince participants in a negotiation to be more open and frank in their discussion. It seldom happens in the negotiation of treaties of whatever nature, but that perfect secrecy and immediate dispatch are sometimes requisite. There are cases where the most useful intelligence may be obtained, if the persons possessing it can be relieved from apprehensions of discovery. In 2007, then-U.S. Comptroller General David M. Walker, for example, called transparency a "key to our nation's governing processes." On January 21, 2009—his first full day in office—President Obama issued an executive order that said he would commit his Administration to "an unprecedented level of openness" and to the establishment of "a system of transparency, public participation, and collaboration." Private watchdog organizations have had mixed reviews of this initiative. The tension between access and secrecy was typified after the public release of diplomatic cables to the Wikileaks.org website. Diplomats who fear the information they write in such cables may be released to the public may be "more cautious" about the contents. Such caution could lead to less candid transfers of information between government officials. Secretary of State Hillary R. Clinton called the Wikileaks.org release "not just an attack on America's foreign policy interests. It is an attack on the international community—the alliances and partnerships, the conversations and negotiations, that safeguard global security and advance economic prosperity." The Wikileaks.org release may have made foreign diplomacy more visible in this case. The release of documents may or and may not affect how foreign officials communicate with American officials. In the future, however, diplomatic negotiations may be pushed further from public access because of the leak. Diplomats may also struggle to conduct more candid conversations with world leaders who are concerned that their conversations may be released to the public. Then-Secretary of Defense Robert M. Gates, however, reportedly said that the leak would not greatly affect American diplomacy. At a November 30, 2010, press conference, Mr. Gates is reported as saying the following: Now, I've heard the impact of these releases on our foreign policy described as a meltdown, as a game-changer, and so on. I think those descriptions are fairly significantly overwrought. The fact is, governments deal with the United States because it's in their interest, not because they like us, not because they trust us, and not because they believe we can keep secrets. Many governments—some governments deal with us because they fear us, some because they respect us, most because they need us. We are still essentially, as has been said before, the indispensable nation. The federal government may claim, for example, that the release of certain information will endanger national security, violate the privacy of an individual, or affect an ongoing criminal investigation. Mr. Madison, in Federalist 10 , had foreseen the need for certain records protections, writing that "[d]emocracies have been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their death." The American republic, therefore, has to balance access to government information with protection of personal and national security interests. Max Weber, a sociologist who studied bureaucracy in the late 1800s and early 1900s, wrote extensively on public administration—with some focus on the role of public employees' expertise. According to Weber, keeping employees' expertise within the bureaucracy (as opposed to sharing expertise with outside government officials or the public) gives an agency greater autonomy and control of its mission. Federal employees may withhold information to ensure that their agency maintains control and can avoid outside, sometimes political, influence. Mr. Weber, for example, wrote the following: Bureaucratic administration always tends to exclude the public, to hide its knowledge and action from criticism as well as it can.… In facing a parliament, the bureaucracy fights, out of a sure power instinct, every one of that institution's attempts to gain through its own means … expert knowledge from the interested parties. Bureaucracy naturally prefers a poorly informed, and hence powerless, parliament—at least insofar as this ignorance is compatible with the bureaucracy's own interests.… The absolute monarch too, is powerless in the face of the superior knowledge of the bureaucratic expert—in a certain sense more so than any other political head. Throughout American history, public access to information has ebbed and flowed. Sometimes that access has been based on the legal interpretations of individual presidential administrations. Other times, historical context modified how the federal government maintained, protected, and released records. For instance, one scholar argued that the importance of federal government transparency grew after World War II because of unprecedented growth in the size of the bureaucracy and the emergence of the Cold War, which created a "highly secretive national security complex." Today, technology affects how the public interacts with the federal government as well as what information people expect from it. Increasing ubiquity of the Internet and the rise of e-government have given the public 24-hour access to certain government information and changed some public perceptions and expectations about government operations. Some scholars have found that e-government has increased the public's trust in government by increasing access to and dissemination of records and information. Congressional and Other Powers and Authorities Related to Transparency The Constitution imbues Congress with an array of formal powers—for example, lawmaking and impeachment—to hold the President and the Administration accountable for their actions or inactions. Congress also has the power of the purse, which gives it the power to supply or withhold appropriations to initiatives that would affect access to government information. In addition to explicit constitutional powers, implicit congressional responsibilities and powers may be found in the Constitution. Oversight, for example, is an implicit constitutional power and obligation of Congress. According to historian Arthur Schlesinger Jr., "it was not considered necessary to make an explicit grant of such [oversight] authority. The power to make laws implied the power to see whether they were faithfully executed." Congress, therefore, can hold hearings at which representatives from executive branch agencies describe and defend their information access practices. Constitutional oversight and statutes are not the only mechanisms that have shaped executive branch transparency. Executive branch orders and initiatives as well as case law also have affected access to federal operations and records. Although not an exhaustive examination of the universe of authorities that affect access to government information, this report reviews and analyzes significant government actions—including statutes, executive branch memoranda and initiatives, and procurement policies—that scholars and practitioners commonly cite as providing a foundation for public access to executive branch operations and records. The statutes and initiatives are presented in three broad categories, and are not presented in chronological order. Each category builds on some of the ideas introduced in the one before it. The first category introduces statutes that provide the public presumed access to certain executive branch records and meetings. The second category includes authorities that provide the public access to and participation in certain parts of the regulatory process. The third category includes authorities or initiatives in which transparency may not be the primary focus, but a component or byproduct of is effects. Records, Meeting Access, and Transparency The Freedom of Information Act (1966) The Federal Advisory Committee Act (1972) The Privacy Act (1974) The Government In Sunshine Act (1976) Federal Rulemaking The Federal Register Act (1935) The Administrative Procedure Act (1946) The Regulatory Flexibility Act (1980) The Paperwork Reduction Acts (1980, 1986, and 1995) The National Environmental Policy Act (1969) Unfunded Mandates Reform Act (1995) The Negotiated Rulemaking Act (1990) The E-Government Act (2002) Executive Order 12866 (1993) and Executive Order 13563 (2011) Investigations and Oversight The Inspector General Act (1978) The Chief Financial Officers Act (1990) The Government Performance and Results Act (1993) The American Recovery and Reinvestment Act (2009) Records Access, Meeting Access, and Transparency The federal government maintains a multitude of records in a variety of formats. These records range from maps used to stage Revolutionary War battles to electronic health care records for military veterans. Members of the public can request access to certain records, while other records may be protected from public release because their publication could cause financial turmoil, violate an individual's privacy, or lead to a breach of national security. In addition to records access laws, Congress enacted the Federal Advisory Committee Act, which governs openness and participation of advisory bodies to the federal government as well as the Privacy Act to protect individual privacy. This section of the report examines these information protection laws and initiatives. The Freedom of Information Act (1966) Enacted in 1966 after 11 years of investigation and legislative development in the House—and nearly six years of such consideration in the Senate—the Freedom of Information Act (FOIA) replaced the public information section of the Administrative Procedure Act. FOIA was designed to enable any person to request, without explanation or justification, access to existing, identifiable, and unpublished executive branch agency records. FOIA exempts nine categories of records from the statute's rule of disclosure: 1. Information properly classified for national defense or foreign policy purposes as secret under criteria established by an executive order; 2. Information relating solely to agency internal personnel rules and practices; 3. Data specifically excepted from disclosure by a statute which either requires that matters be withheld in a non-discretionary manner or which establishes particular criteria for withholding or refers to particular types of matters to be withheld; 4. Trade secrets and commercial or financial information obtained from a person that is privileged or confidential; 5. Inter- or intra-agency memoranda or letters that would not be available by law except to an agency in litigation; 6. Personnel, medical, or similar files the disclosure of which would constitute an unwarranted invasion of personal privacy; 7. Certain kinds of investigatory records compiled for law enforcement purposes; 8. Certain information relating to the regulation of financial institutions; and 9. Geological and geophysical information and data. Some of these exemptions, such as the one concerning trade secrets and commercial or financial information, have been litigated and undergone considerable judicial interpretation. Pursuant to FOIA, disputes over the accessibility of requested records may be settled ultimately in court. FOIA is a widely used tool of inquiry and information gathering for various sectors of American society. Individuals or organizations must make a formal, written FOIA request for specific records from an agency. Agency information management professionals are then responsible for efficiently and economically responding to FOIA requests. Agencies may negotiate with a requester to narrow a request's scope, or the agency may explain and justify why certain records cannot be supplied. FOIA has been refined with direct amendments in 1974, 1976, 1986, 1996, 2007, and 2010. In addition to statutory modifications, each presidential administration has applied FOIA differently. As recent examples, the George W. Bush Administration supported "full and deliberate consideration of the institutional, commercial, and personal privacy interests" that surround any requests, while the Administration of Barack Obama encourages agencies "to adopt a presumption in favor of disclosure." On December 8, 2009, President Obama released his Open Government Directive—a memorandum describing how agencies were to implement the open government and transparency values he discussed in a January 2009 memorandum. The directive restated the Administration's commitment to the "principle that openness is the Federal Government's default position for FOIA issues." The directive also encouraged agencies to release data and information "online in an open format that can be retrieved, downloaded, indexed, and searched by commonly used applications." The information, according to the directive, should be placed online even prior to a FOIA request, to preempt the need for such requests. Finally, pursuant to the memorandum, agencies are required to put their annual FOIA report on their agency's Open Government website in an open format. Agencies with a backlog of FOIA requests are also required to reduce the number of outstanding requests by 10% per year. The directive does not state how the Administration will address agencies that do not comply with its requirements. Federal Advisory Committee Act55 (1972) Prompted by the belief of many citizens and Members of Congress that existing executive branch advisory bodies were duplicative, inefficient, and lacked adequate oversight, Congress enacted the Federal Advisory Committee Act in 1972 (FACA; 5 U.S.C. Appendix—Federal Advisory Committee Act; 86 Stat.770, as amended). FACA mandated certain structural and operational requirements for many federal advisory committees, including formal reporting and oversight procedures. Pursuant to statute, the General Services Administration (GSA) maintains and administers management guidelines for federal advisory committees. FACA requires that advice provided by these committees be objective and accessible to the public. All FACA committee meetings are presumptively open to the public, with certain specified exceptions. Adequate notice of meetings must be published in advance in the Federal Register . Subject to the exemptions set forth in FOIA, all papers, records, and minutes of meetings must be made available for public inspection. Advisory committee membership must be "fairly balanced in terms of the points of view represented and the functions to be performed," and committees should "not be inappropriately influenced by the appointing authority or by any special interest." Privacy Act (1974) The Privacy Act (5 U.S.C. §552a), enacted in 1974, is the principal law governing the federal government's information privacy program and the collection, use, and dissemination of a "record " about an "individual " maintained by federal agencies in a "system of records. " Records protected by the Privacy Act must be retrieved by either an individual's name or individual identifier. The Privacy Act also applies to systems of records created by government contractors. The Privacy Act does not apply to private databases. The Privacy Act prohibits the disclosure of any record maintained in a system of records without the written consent of the record subject, unless the disclosure falls within one of 12 statutory exceptions. The act allows most individuals to seek access to records about themselves, and requires that personal information in agency files be accurate, complete, relevant, and timely. The subject of a record may challenge the accuracy of information. The Privacy Act requires that when agencies establish or modify a system of records, they publish a "system-of-records notice" in the Federal Register . Each agency that maintains a system of records is required to "establish appropriate administrative, technical, and physical safeguards to insure the security and confidentiality of records and to protect against any anticipated threats or hazards to their security or integrity which could result in substantial harm, embarrassment, inconvenience, or unfairness to any individual." The Privacy Act provides legal remedies that permit an individual to seek enforcement of the rights granted under the act. The individual may bring a civil suit against the agency whenever an agency fails to comply with the act "in such a way as to have an adverse effect on an individual. " The court may order the agency to amend the individual's record, enjoin the agency from withholding the individual's records, and may award monetary damages of $1,000 or more to the individual for intentional or willful violations. Courts may also assess attorneys fees and costs. The act also contains criminal penalties; federal employees who fail to comply with the act's provisions may be subjected to criminal penalties. The Office of Management and Budget (OMB) is required to prescribe guidelines and regulations for the use by agencies in implementing the act, and provide assistance to and oversight of the implementation of the act. Government in the Sunshine Act (1976) Enacted in 1976, the Government in the Sunshine Act (5 U.S.C. §552b) presumptively opens the policymaking deliberations of collegially headed federal agencies—such as boards, commissions, or councils—to public scrutiny. Pursuant to the statute, agencies are required to publish advance notice of impending meetings and make those meetings publicly accessible. The act includes 10 conditions under which agency meetings would be exempted from the act. These exemptions allow agencies to close meetings when an agency properly determines that such a portion or portions of its meeting or the disclosure of such information is likely to 1. disclose matters that are specifically authorized by an executive order to be kept secret in the interests of national defense or foreign policy and are properly classified pursuant to such an executive order; 2. relate solely to the internal personnel rules and practices of an agency; 3. disclose matters specifically exempted from disclosure by statute (other than FOIA), provided that such statute leaves no discretion on the issue, establishes particular criteria for withholding, or refers to particular types of matters to be withheld; 4. disclose trade secrets and commercial or financial information obtained from a person; 5. involve accusing any person of a crime, or the formal censuring any person; 6. disclose information of a personal nature where disclosure would constitute a clearly unwarranted invasion of personal privacy; 7. disclose investigatory records compiled for law enforcement purposes, or information which, if written, would be contained in such records; 8. disclose information contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions; 9. disclose information which, if prematurely disclosed, would in the case of an agency which regulates currencies, securities, commodities, or financial institutions, be likely to lead to significant financial speculation in currencies, securities, or commodities, or significantly endanger the stability of any financial institution; or in the case of any agency, be likely to significantly frustrate implementation of a proposed agency action; or 10. specifically concern the agency's issuance of a subpoena, or the agency's participation in a civil action or proceeding, an action in a foreign court or international tribunal, or an arbitration, or the initiation, conduct, or disposition by the agency of a particular case of formal agency adjudication. Disputes over proper public notice of such meetings or the propriety of closing a deliberation may be pursued in federal court. Federal Rulemaking and Transparency71 Rulemaking is one of the ways in which the federal government implements public policy. When Congress passes a statute to accomplish a legislative goal, the statute may contain some delegation of authority to federal agencies that allows or requires them to issue regulations to implement the law. Congress delegates rulemaking authority to agencies for a variety of reasons. Rulemakers often have information or knowledge that adds to or complements that of Congress, and delegation of rulemaking authority to agencies may intentionally or unintentionally remove certain elements of legislation from congressional debate. Critics of the delegation of rulemaking authority have pointed to the fact that the individuals who write rules cannot be held accountable to the public in the same way as Members of Congress, who are electorally accountable. This concern has led to calls for greater transparency in the rulemaking process, as well as greater participation among interested or affected parties. Many developments in the rulemaking process, beginning with the passage of the Federal Register Act, have addressed this desire to increase the transparency of and public participation in the rulemaking process. The Federal Register Act73 (1935) The Federal Register Act was originally enacted in 1935 to establish accountability and publication arrangements for presidential proclamations, executive orders, and federal agency rules and regulations. Prior to the enactment of the Federal Register Act, the public was sometimes unaware of or misunderstood existing federal regulations. In one instance, a lawsuit against a regulation made it all the way to the Supreme Court before it was discovered that the regulation in dispute did not exist. In many respects, the Federal Register Act of 1935 was a response to the increasing number of regulations and related administrative actions of the New Deal era under President Franklin D. Roosevelt. The expansion of the federal government during World War I resulted in the presidential and agency issuance of a growing quantity of administrative requirements. Brief experience with a gazette— The Official Bulletin —had been beneficial, but was of temporary, wartime duration. Its disappearance led to one contemporary observer characterizing the situation in 1920 as one of "confusion," and another describing the deteriorating conditions in 1934 as "chaos." The congressional response was to mandate the Federal Register , "the official daily publication for rules, proposed rules, and notices of Federal agencies and organizations, as well as executive orders and other presidential documents." Produced in a magazine format, the Federal Register is now published each business day by the Office of the Federal Register of the National Archives and Records Administration (NARA). Two years after enacting the Federal Register Act, Congress amended it and inaugurated the Code of Federal Regulations, a supplement to the Federal Registe r . This aggregation of the instruments and authorities appearing in the gazette contains almost all operative agency regulations and is updated annually. Later, the general statutory authority underlying the Federal Register was relied upon for the creation of a series of other publications—the United States Government Manual, which has been available for public purchase since 1939; the Public Papers of the Presidents, which were first published in 1960; and the Weekly Compilation of Presidential Documents, which was first issued in the summer of 1965. In July 2010, NARA, in conjunction with the Government Printing Office (GPO), launched Federal Register 2.0, an online, interactive presentation of the Federal Register . The website divides the publication's content into subject areas—including science and technology, money, health, and public welfare. The most viewed Federal Register documents are available in a "What's Hot?" section of the site. The site also includes written blog posts and short videos from federal officials and President Obama that discuss the Federal Register itself, the Federal Register 2.0 website, and particular regulations. Federal Register 2.0 is not an "official legal edition" of the Federal Register , and instead uses graphic renditions of the official documents (published in hard copy or available electronically at http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=FR ). Administrative Procedure Act84 (1946) The Administrative Procedure Act (APA; 60 Stat. 237; 5 U.S.C. §551 et seq.), enacted in 1946, is considered the seminal federal administrative legislation of the modern era. The major contribution of the act was to establish—for the first time—minimum procedural requirements for certain types of agency decision making processes. Its general purposes were to 1. require agencies to keep the public informed of agency organization, procedures, and rules; 2. provide for public participation in the rulemaking process; 3. prescribe uniform standards for the conduct of formal rulemaking and adjudicatory proceedings (i.e., proceedings required by statute to be made on the record after opportunity for agency hearing); and 4. restate that the law provides for judicial review of agency action. In general, the term agency refers to any authority of the government of the United States, whether or not it is within, or subject to review by, another agency. Congress, the courts, and the governments of territories, possessions, and the District of Columbia are excluded. The act imposes on agencies certain requirements for rulemaking and adjudication, with different schemes of procedural requirements prescribed for each. Rulemaking is agency action that formulates the future conduct of persons, through the development and issuance of an agency statement designed to implement, interpret, or prescribe law or policy. It is essentially legislative in nature because of its future general applicability and its concern for policy considerations. Adjudication, on the other hand, is concerned with determination of past and present rights and liabilities. The result of an adjudicative proceeding is the issuance of an order. Pursuant to rulemaking requirements within the APA, an agency must publish a notice of proposed rulemaking in the Federal Register , afford interested persons an opportunity to participate in the proceeding through the submission of written comments—or, at the discretion of the agency, by oral presentation—and when consideration of the matter is completed, incorporate in the rules adopted "a concise general statement of their basis and purpose." A final rule must be published in the Federal Register "not less than 30 days before its effective date." Interested persons have a right to petition for the issuance, amendment, or repeal of a rule. Although the APA does not specify a minimum period for public comment, at least 30 days have been traditionally allotted. More recently, Executive Order 12866 suggested that covered agencies should allow at least 60 days. Agencies are free to grant additional procedural rights, and Congress has at times particularized requirements for certain agencies or programs. The APA retains its preeminence as the general management law governing agency decision making by means of rulemaking and adjudication. Essentially unamended by Congress since 1946, it has maintained its vitality in the face of vast and fundamental changes in the nature and scope of federal government responsibilities. Administrative lawmaking was "democratized" in a series of court decisions between 1965 and 1983 that expanded both the obligations of agencies and the role of reviewing courts. The Federal Register Act and the APA, together, gave the public and Congress access to the regulatory process. Such access, however, requires motivated publics that can understand and use the information provided in the Federal Register . The printed version of the Federal Register is organized by agency, and each regulation is required to include a title, a unique identifying number, and a brief description of the regulation and why it was proposed. The regulatory process includes a public comment period in which interested individuals can submit a comment, complaint, or concern about the proposed rule prior to its application. The process, therefore, includes an opportunity for public input, and agencies must acknowledge why or why not those comments were incorporated into the proposal. Members of the public who choose to participate in the regulatory process, however, must know where to find the Federal Register , how to search the Federal Register , and how to enter a public comment. Other Rulemaking Legislation with Transparency Elements93 After enacting the Federal Register Act and the APA, Congress passed a series of laws adding further requirements to the rulemaking process. Among those laws are: National Environmental Policy Act (NEPA); the Regulatory Flexibility Act (RFA) of 1980; the Unfunded Mandates Reform Act (UMRA); the Negotiated Rulemaking Act of 1990; and the E-Government Act of 2002. Many of these new laws placed requirements on agencies to conduct and make public various types of impact analyses, which compel agencies to consider a certain issue or set of issues while considering a regulatory action. The analyses also increase transparency because the agencies publish the findings from the impact analyses in the Federal Register. The first impact analysis requirement was a component of the National Environmental Policy Act (NEPA) of 1969. NEPA requires agencies to conduct an environmental assessment, considering whether a proposed rule would have a significant effect on the environment. If they determine that the rule will have a significant impact on the environment, the agency is further required to prepare an "environmental impact statement," which is to detail the direct, indirect, and cumulative effects of the proposed action. This information is published along with the rule in the Federal Register. The Regulatory Flexibility Act (RFA) of 1980, like NEPA, requires agencies to give consideration to the effect their rules may have—though the RFA's requirement is for the agency to consider the rule's effect on "small entities." These small entities include small businesses, small government units, and some non-profit organizations. The RFA requires an agency considering a rule to determine whether the proposed rule would have a "significant economic impact on a substantial number of small entities." If so, the agency is required to complete an "initial regulatory flexibility analysis" at the proposed rule stage and a "final regulatory flexibility analysis" at the final rule stage. These analyses require the agency to describe why the rule is being considered, how many and which small entities the rule would affect, what the estimated compliance costs with the regulation would be, and whether there are any alternatives to the rule that the agency might consider that could accomplish the same objectives while placing less of a burden on small entities. The regulatory flexibility analyses are published in the Federal Register along with the proposed and final rules. Like NEPA and the RFA, the Unfunded Mandates Reform Act (UMRA) requires agencies to perform analyses related to the cost of compliance when new requirements will be established without any federal funding to support their implementation. The law requires analyses of federal mandates that will result in the expenditure of $100 million or more in any year by state, local, or tribal governments, or the private sector. Agencies must demonstrate that they identified and considered a reasonable number of regulatory alternatives, with a justification of why the agency chose the option it did; they developed a plan to notify small governments that would be affected by an agency's action; and they developed a process to provide to local government entities input during the development of regulatory proposals. If applicable, this information is published in the Federal Register. Another legislative measure that called for increased public participation in the rulemaking process was the Negotiated Rulemaking Act of 1990, which encourages agencies to form a rulemaking committee before developing a proposed rule. The rulemaking committees consist of interested and affected parties, with a goal to generate proposed rules that are easier to implement and could lead to less subsequent litigation. Additionally, the E-Government Act of 2002 established an Office of Electronic Government. The office was created to oversee the implementation of an e-government program, requiring agencies to increase public access to agency regulatory activities through their websites. The act also requires agencies to accept public comments on proposed rules electronically. The Bush Administration launched Regulations.gov in 2003 in a related effort that shared many of the same transparency objectives as the E-Government Act. Regulations.gov provides a centralized, government-wide rulemaking portal for the public. The site allows users to search for rules and comment electronically on proposed rules. Visitors to the site can view other comments that have been submitted regarding rules they may be interested in, and they can also view other agency documents. Executive Orders 12866 and 13563102 Some presidents have also recognized the need for transparency in rulemaking, and have issued executive orders that make the process more accessible to the public. Executive Order 12866, issued by President Bill Clinton in 1993, is the primary executive order that governs the rulemaking process. President George W. Bush and President Obama have both followed the procedures in that executive order. In the preamble, President Clinton stated generally that he wanted "to make the [rulemaking] process more accessible and open to the public." Specific provisions in the executive order also call for openness and transparency of the process. For example, Section 6(a)(3)(E) calls for each agency to identify publicly the changes made from the draft rule to the final rule, and Section 6(b)(4)(C) requires the Office of Information and Regulatory Affairs (OIRA) to keep a publicly accessible log that provides the public with information about meetings, telephone conversations, and other communications between OIRA personnel, the regulating agency, and the public. On January 18, 2011, President Obama issued Executive Order 13563, which reaffirmed many of the principles contained in Executive Order 12866—including the transparency principles. The new executive order added that agencies should provide online access to the rulemaking docket on Regulations.gov , "in an open format that can be easily searched and downloaded. For proposed rules, such access shall include, to the extent feasible and permitted by law, an opportunity for public comment on all pertinent parts of the rulemaking docket, including relevant scientific and technical findings." Concurrent with Executive Order 13563, President Obama issued a memorandum for the heads of the executive departments and agencies that tied the regulatory process to his Open Government Initiative. The Unified Agenda109 In compliance with Executive Order 12866 and the Regulatory Flexibility Act, the federal government publishes the Unified Agenda of Federal Regulatory and Deregulatory Actions (Unified Agenda) twice each year (in the spring and fall). The Unified Agenda is published by the Regulatory Information Service Center, which is part of the General Services Administration, on behalf of OIRA. The Unified Agenda obtains information from each executive branch agency about its upcoming regulatory actions, which are classified into one of five stages of activity: prerules; proposed rules; final rules; long-term actions; and completed actions. With each item, the agency provides the title of the rule, an abstract of the anticipated action, and a projected date for each action. The Unified Agenda provides a way for the public and interested parties to stay aware of what regulatory actions are under consideration in the agencies and what actions the agencies are likely to take in the future. Office of Information and Regulatory Affairs (OIRA)113 OIRA is one of several statutory offices within the Office of Management and Budget (OMB), and can play a significant—if not determinative—role in the rulemaking process for most federal agencies. OIRA was created by Section 3503 of the Paperwork Reduction Act (PRA) of 1980 (44 U.S.C. Chapter 35). The PRA designated the OIRA Administrator as the "principal advisor to the OMB Director on Federal information policy." With regard to paperwork, the act generally prohibits agencies from conducting or sponsoring a collection of information from the public until they have submitted their proposed information collection requests to OIRA and the office had approved those requests. The number and nature of OIRA's reviews of these PRA requests can be viewed by the public on OIRA's website. Executive Order 12291, issued by President Ronald Reagan in 1981, greatly increased OIRA's responsibilities to include review of the substance of all agencies' proposed rules, not just their information collection requests. Executive Order 12866, issued by President Clinton in 1993, superseded the 1981 order, but reaffirmed the concept of OIRA regulatory review. Under Executive Order 12866, OIRA annually reviews between 500 and 700 "significant" proposed and final rules developed by Cabinet departments and independent agencies (but not independent regulatory agencies) before they are published in the Federal Register . OIRA can clear the rules with or without change, return them to the agencies for reconsideration, or encourage the agencies to withdraw the rules. Data on OIRA's current and past reviews of rules can be viewed by the public on OIRA's website. Investigations, Oversight, and Transparency Although inspectors general are not always thought of as enforcers of transparency, their work makes a variety of information and records available to the public. The research and investigations conducted by these civil servants can expose waste, fraud, abuse, or simply make the operations of federal agencies more accessible. Additionally, the executive branch is using the Internet to make federal spending information accessible to the public in more user-friendly formats than it has previously been offered. This section describes investigatory and oversight mechanisms that provide access to government operations and information. Inspector General Act of 1978120 Statutory offices of inspectors general (OIGs) consolidate responsibility for auditing and investigations within a federal department, agency, or other organization. Established by law as permanent, independent, nonpartisan, and objective units, the OIGs are designed to combat waste, fraud, and abuse (5 U.S.C. Appendix). The earliest establishments of these offices occurred in the wake of major financial and management scandals, first in 1976 in the Department of Health, Education and Welfare—now Health and Human Services (90 Stat. 2429)—and in 1978 in the General Services Administration (GSA). This later episode paved the way for OIGs in GSA along with 11 other departments and agencies (92 Stat. 1101). Such offices now exist in nearly 70 federal establishments and entities, including all Cabinet departments and the largest federal agencies, as well as many boards, commissions, government corporations, and foundations. The overwhelming majority of IGs are governed by the Inspector General Act of 1978, as amended (hereinafter referred to as the IG Act), which has been substantially modified twice as well as subject to agency-specific OIG amendments. The IG Act provided the blueprint regarding IG appointments and removals, powers and authorities, and responsibilities and duties, and created OIGs in 12 federal "establishments." The Inspector General Act Amendments of 1988 created a new set of IGs in "designated federal entities" (DFEs), the usually smaller federal agencies, and added to the reporting obligations of all IGs and agency heads, among other things. The Inspector General Reform Act of 2008 established a new Council of the Inspectors General for Integrity and Efficiency (CIGIE); amended reporting obligations, salary and bonus provisions, and removal requirements; and added certain budget protections for offices of inspector general. Three principal purposes or missions guide the OIGs: conduct and supervise audits and investigations relating to the programs and operations of the establishment; provide leadership and coordination and recommend policies for activities designed to (1) promote economy, efficiency, and effectiveness in the administration of such programs and operations; and (2) prevent and detect fraud and abuse in such programs and operations; and provide a means for keeping the head of the establishment and Congress fully and currently informed about problems and deficiencies relating to the administration of such programs and operations, as well as the necessity for and progress of corrective action. IGs have various reporting obligations—to the Attorney General, agency head, Congress, and the public—with regard to their findings, conclusions, and recommendations for corrective action. One such requirement is to report suspected violations of federal criminal law directly and expeditiously to the Attorney General. IGs are also required to report semiannually about their activities, findings, and recommendations to the agency head, who must submit the IG report (unaltered but with his or her comments) to Congress within 30 days. These semiannual reports, which contain a substantial amount of required information and data, are to be made available to the public in another 60 days. IGs are also to report "particularly serious or flagrant problems" immediately to the agency head, who must submit the IG report (unaltered but with his or her comments) to Congress within seven days. By means of the required reports and "otherwise," IGs are to keep the agency head and Congress "fully and currently informed." Besides the prescribed reports, other means of communication with Congress include OIG officials testifying at hearings, meeting with members and staff, and responding to requests for information and reviews. As a separate matter, the CIGIE is authorized (but not required) to "make such reports to Congress as the Chairperson determines are necessary and appropriate." By comparison to this discretionary authority, the Chairperson is required to "prepare and transmit a report annually on behalf of the Council to the President on the activities of the Council." Each agency website, moreover, is to provide a direct link to the IG website, which, in turn, is to make its reports on audits, investigations, and evaluations or inspections available to the public (unless they are classified). The Federal Funding Accountability and Transparency Act and USASpending.gov134 The federal government awards nearly $1.3 trillion a year in grants, contracts, and direct loans, a sum which has grown significantly in recent years and which now represents more than a third of the government's budget. Given the scale of funds provided through federal assistance, transparency advocates—including some Members of Congress—have long argued that award data should be easily accessible by the public. Federal agencies would be less likely to make "questionable" spending decisions, Senator Tom Coburn said, if agencies knew that the public could monitor who received awards, and for what purpose. Similarly, Senator Thomas Carper argued that providing the public with federal award data would "hold the government accountable for its performance." Moreover, transparency advocates have argued that, as a matter of principle, the public "deserves to know where their money is being spent." Data on federal awards have been available to the public for decades, but not in a user-friendly environment. Grant and loan award data were made available through the U.S. Census Bureau's Federal Assistance Awards Database (FAADS) in 1981, while contract information has been provided through the Federal Procurement Data System (FPDS)—which has been maintained by the General Service Administration, since 1977. Both FAADS and FPDS—which are still operational—are considered difficult to use because they require familiarity with grant, loan, or contracting terminology, and because searching their data demanded a level of skill exceeding that of many potential users. To address some of these limitations on public access to federal award data, Congress enacted the Federal Funding Accountability and Transparency Act (FFATA; P.L. 109-282 ). The FFATA required OMB to ensure a new searchable website was established that provided the public with a single, online source of federal grant, loan, and contract data. The act also required that the new website provide specific information about each award in excess of $25,000, including the name and location of the recipient, the amount awarded, and the purpose of the award. The FFATA also required that the website allow users to perform simple searches for award data, such as by the name of the recipient or the name of a federal agency. Other FFATA provisions required agencies to update their award data every 30 days, and to verify the accuracy of their data. The searchable website required by the FFATA, USASpending.gov , became operational in December 2007. USASpending.gov is one of several websites that offer data directly to the public—before such information is requested by the public. Other websites that offer access to raw, unanalyzed datasets include Data.gov , a component of the President's Open Government Initiative that serves as a centralized clearinghouse where the public can access machine-readable datasets created or used by executive branch agencies, and ITDashboard , a component of USASpending.gov that aggregates data on the executive branch's information technology investments and provides tools that allow the public to manipulate and analyze the data. Government Procurement and Transparency142 Generally, procurement involves agencies using appropriated funds to buy the goods and services they need to carry out their missions. With the exception of procurements that entail the use of a government credit card, most procurements involve the awarding of a contract. Initial tasks undertaken by an agency include deciding what goods and/or services to buy, choosing a suitable source selection method (e.g., sealed bidding or negotiated contracting), and drafting a solicitation which it then posts on the federal government's Federal Business Opportunities website. Using this website, a business or other interested party identifies possible contracting opportunities. Following the instructions provided in the solicitation and other related documents or publications, companies prepare and submit proposals to the appropriate agency. Agency personnel evaluate the proposals, using the evaluation factors and method described in the solicitation, and make a source selection decision. Contract negotiations and the awarding of a contract follow. Scholar Steven L. Schooner identifies transparency as one of nine objectives frequently associated with government procurement, and suggests that system transparency is one of the three "pillars" that underlies the federal government's procurement system. System transparency exists when "a system employs procedures by which offerors and contractors (and even the public at large) ensure that government business is conducted in an impartial and open manner." Examples of ways in which the federal government's procurement system maintains transparency include the following: statutes, regulations, and policies are publicized; an agency makes its requirements publicly available so that anyone may view them; every solicitation describes how offers will be evaluated; unsuccessful offerors receive contract award information (e.g., the name of the successful offeror and the amount of the award) and may receive an agency debriefing; bid protest procedures are in place and publicized; and offices of inspector general provide oversight. Additional resources—notably websites and databases available on the Internet—that foster transparency include the System for Award Management (SAM), where current and potential government contractors register and which also contains the names of companies, individuals, and other entities that have been suspended or debarred by a federal agency; the Federal Procurement Data System (FPDS), which includes information on contract actions; and USASpending.gov , which is described in detail in the above section. New data collection efforts include the Federal Awardee Performance and Integrity Information System (FAPIIS) and agencies' inventories of their service contracts. FAPIIS contains information expected "to enhance the Government's ability to evaluate the business ethics and quality of prospective contractors competing for Federal contracts." Pursuant to the Supplemental Appropriations Act of 2010 ( P.L. 111-112 ) FAPIIS was made publicly available April 15, 2011. Separate statutory provisions require the Department of Defense (DOD) and civilian agencies to compile inventories of their service contracts. A link to DOD's service contracts inventory is available at the Defense Procurement and Acquisition Policy website. Civilian agencies' inventories are available on their respective websites. Although, as described above, transparency in federal government procurement is maintained through many different mechanisms and procedures, at the same time it is tempered by other objectives and considerations. Notably, exemption 4 of FOIA permits "trade secrets and commercial or financial information obtained from a person and privileged or confidential" to be exempt from disclosure. Government contractors rely on this exemption to protect proprietary and confidential information—such as their cost and price data—from public disclosure. Releasing this information might compromise a government contractor's competitive position, particularly if competitors obtained the information. Concerns on the part of the private sector extend to the FAPIIS database, which could contain information that is inaccurate or misleading, or that is "easily misinterpreted by people not familiar with the intricacies of government contracting or who view a contractor's involvement in a routine business dispute as a negative reflection on its integrity, attorneys said." Turning to the government, the possibility that agencies might be required, at some future date, to post contracts online provides insight into agencies' concerns. An agency's ability to negotiate contracts effectively possibly could be hampered by this proposal, unless the agency is permitted to redact certain information. An agency's negotiating position on the terms and conditions of a particular contract—such as the size of an award fee or the details of the delivery schedule—could be undermined if the contractor has information showing that the agency gave more favorable terms to other companies. In short, some would argue that shielding certain information from public disclosure before, during, or after the procurement process serves valid purposes and objectives. Obama Administration's Open Government Initiative On his first full day in office (January 21, 2009), President Barack Obama issued a memorandum for the Heads of Executive Departments and Agencies stating that the new Administration was "committed to creating an unprecedented level of openness in government." The memorandum required the chief technology officer and the Director of OMB to issue, within 120 days, recommendations for the Open Government Directive "that instructs executive departments and agencies to take specific actions implementing the principles set forth in this memorandum." On December 8, 2009, Peter R. Orszag, the Director of OMB, released the "Open Government Directive" memorandum, that included more detailed instructions for departments and agencies on how to "implement the principles of transparency, participation, and collaboration." Among the initiatives in the memorandum was a requirement to give the public access to "high-value" datasets that were previously unpublished. As noted earlier, agencies were instructed to reduce their FOIA backlogs by 10% per year, until any backlog is eliminated. In addition, the memorandum required each agency to designate a "high-level senior official to be accountable for the quality and objectivity of, and internal controls over, the Federal spending information" that agencies currently provide to government websites like USAspending.gov and Recovery.gov . Each agency was also required to create an "open government plan … that will describe how it will improve transparency and integrate public participation and collaboration into its activities." The memorandum set a series of staggered deadlines for each department and agency to comply with the new requirements. The directive aims to implement the initiative's core values through four strategies: 1. Publish government information online. 2. Improve the quality of government information. 3. Create and institutionalize a culture of open government. 4. Create an enabling policy framework for open government. The Open Government Directive states that "[t]ransparency promotes accountability by providing the public with information about what the government is doing." In another examination of transparency, the Administration added that "putting data online" is an essential component of transparency. In its Open Government progress report, the Administration said "[d]emocratizing data reduces cost and eliminates waste, fraud, and abuse; creates new jobs and businesses, and improves people's daily lives." According to OMB, nearly every agency met each directive requirement. Private sector reviews of the open government initiative, however, argue that agencies met the requirements with varying levels of diligence. Some agencies released thousands of datasets and created user-friendly websites, while others released minor datasets and appeared to make little attempt to create websites that offered easy access to information. The Administration and Smart Disclosure On September 8, 2011, the Office of Management and Budget (OMB) released a memorandum to agency and department heads entitled "Informing Consumers through Smart Disclosure." In the memorandum, smart disclosure was defined as "the timely release of complex information and data in standardized, machine readable formats … that enable consumers to make informed decisions." The memorandum continued that smart disclosure requires that data are accessible, machine readable, standardized, timely, adaptive to markets and innovation, interoperable, and protective of individuals' privacy. The Evolution of Transparency in the Federal Government and Its Potential Effects on Access and Participation Public access to government information and operations has changed over time. Information access is only a part of what may be referred to as transparency. As federal statutes and initiatives have been implemented over time—from the Federal Register Act of 1935 to the Obama Administration's Open Government Initiative of 2009—the tools and skills needed for the public to not only access , but also understand and use federal information and data have evolved. Access to and use of government information may permit the public to make more informed decisions about factors that could affect their lives. For example, parents may make more informed decisions on which child safety seat to purchase using data from the National Traffic Highway Safety Administration. In another example, residents may learn more about the air and water quality in their neighborhoods using the Environmental Protection Agency's My Environment website. This acquired knowledge can further be used to help shape and form policy debates, such as through participation in civic organizations or voting. Although access can contribute to a more informed citizenry, the constitutionally-established structure of the U.S. government authorizes federal officials, not the public, to determine and execute federal policy. America's federal government is a representative democracy, which means that the people elect officials who are then authorized (by virtue of being elected) to enact laws and make policy choices. James Madison, in Federalist 10 , describes the differences between a republic , or representative democracy, and a "direct democracy": The two great points of difference between a democracy and a republic are: first, the delegation of the government, in the latter, to a small number of citizens elected by the rest; secondly, the greater number of citizens, and greater sphere of country, over which the latter may be extended. The effect of the first difference is, on the one hand, to refine and enlarge the public views, by passing them through the medium of a chosen body of citizens, whose wisdom may best discern the true interest of their country, and whose patriotism and love of justice will be least likely to sacrifice it to temporary or partial considerations. Under such a regulation, it may well happen that the public voice, pronounced by the representatives of the people, will be more consonant to the public good than if pronounced by the people themselves, convened for the purpose. In a representative democracy, elected officials are to collect the preferences of their constituents as a basis for lawmaking, oversight, and policymaking. These preferences may contribute to or determine the decisions of a federal official. Transparency laws may allow the public to access and better understand the decisions made by elected officials and federal employees. Certain other transparency-related laws formalize methods for the public to participate in the policymaking process. But in a representative democracy, federal officials must perform the functions of government. Transparency allows the public to better determine whether elected officials are properly and appropriately performing their elected or appointed tasks. Transparency does not replace the duties and functions of federal officials or federal employees. Instead, transparency, if operationalized effectively, may aid interested publics to hold the federal government more accountable for its actions or inactions. The Federal Register and Administrative Procedure Act Formalize Access The Federal Register Act (FRA) and the Administrative Procedure Act (APA), for example, give the public an opportunity to follow and participate in the regulatory process. The APA formalized the public's authority to comment on and legally challenge federal regulations. The FRA and the APA each provide formal mechanisms for the public to access the daily operations of federal government, to participate in certain policymaking procedures, and to challenge any policy choices in court. To become a participant, however, one needs to know how and where to access the Federal Register , the Code of Federal Regulations , FederalRegister.gov , or Regulations.gov. Although these acts provide the public greater access to government information and operations, the federal government retains considerable control over what information becomes publicly available, when information becomes available, and at what point the public can participate in the policymaking process. The public, for example, generally may be unable to formally participate in the policymaking process prior to an agency first publishing a proposed rule in the Federal Register . The Freedom of Information Act and Post Hoc Access to Information Like the FRA and the APA, FOIA provides access to information only after a record of activity is created. FOIA does not allow the public to participate—in real time—in the policymaking process. Instead, it provides individuals with post-hoc access to information by allowing the public to retrace policymaking histories. For FOIA to be an effective tool of transparency, FOIA requesters must know how to properly write and direct a FOIA request to the appropriate agency. Requesters who do not receive their requested materials may choose to challenge an agency's withholding administratively or in court. If so, the requester may need additional knowledge about FOIA's exemptions and case law that may support or oppose the withholding. The Federal Advisory Committee Act and Direct Participation FACA offers the public a direct avenue for participation in the formulation of public policy. Private citizens and representatives of particular interests can serve on advisory committees, provided the committee is required to adhere to FACA's requirements. The public is provided access to FACA committee meetings and records. FACA prohibits committees from performing any function outside of advising—FACA committees may not implement any of their recommendations and they cannot require the federal government to implement the recommendations. In all cases, a federal officer must determine whether to implement FACA recommendations. Although FACA allows public participation in the policymaking process, it still requires the public to attend meetings, which may be difficult or impossible for those who do not live in the area where a committee meeting is held. FACA also provides post-hoc access to government information, because a member of the public who is unable to attend the meeting can access meeting records after it takes place. In some cases, federal agencies may be using new technology to make meetings and records more accessible. For example, some agencies place committee records online and make audio or video recordings of the meetings available online. Additionally some departments or agencies, including Health and Human Services, webcast meetings and permit online audience members to submit questions to committees in real time. The Open Government Directive and Attempts at Proactive Transparency More recent government actions have adopted a more proactive form of transparency. As noted above, the Open Government Directive requires agencies to release a variety of new datasets to the public before they are requested. With a multitude of new datasets and other information available to the public, the Obama Administration has stated it will be the duty of the public to keep agency performance in check. This "crowdsourcing," or using the collective opinions of a mass, online audience, may improve the quality of data that are released to the public by allowing more people to search through datasets. On Data.gov , for example, users can rate datasets using a five-star scale. Moreover, users can click a link to "Contact Dataset Owner" and send the administrator of the data an e-mail with thoughts or comments on the data. The public can also "flag" the dataset for one of five reasons: copyright violation, offensive content, spam or junk, personal information, or other. Individuals who contact agencies are asked to provide their e-mail so they may receive a response from the contact point. It is unclear whether agencies are required to respond to comments. Crowdsourcing may improve data and operations, but only for agencies that read and respond to comments and suggestions. Additionally, agencies need to make clear whether the data that are made available are complete and list their limitations. The federal datasets may also provide opportunity for nonpartisan scholars to access and analyze datasets and create new tools to help the public better understand how government operates and provide oversight of federal data creation. Crowdsourcing, however, may give those members of the public with more time and resources more opportunity to review and analyze federal data. Releasing these datasets to the public also assumes that the public will have the knowledge, capacity, and resources to evaluate the data, offer valid insights, and reach replicable results and verifiable conclusions. Inadvertent or purposeful manipulation of the datasets may allow certain groups or individuals to present unclear or skewed interpretations of government datasets, or reach questionable conclusions. As agencies release hundreds or thousands of datasets, users may need specialized knowledge to identify appropriate datasets to meet their needs. Counterintuitively, this releasing of datasets may decrease executive branch transparency. For example, users may have to sift through thousands of datasets to determine which ones include the information they seek. It may be difficult for a researcher to pinpoint the dataset he or she needs in a collection of similarly titled datasets. Other data may be made available in a format with which a researcher is unfamiliar. Making the data public without explicit user guidance does not necessarily make the data more accessible. The Administration's focus on so-called "smart disclosure" may allow a greater proportion of the public to both access and use federal data and information. The guidance does not require agencies to employ smart disclosure strategies, but may encourage agencies to identify and consider methods of releasing data and records in ways that are timely and comprehensible. Congress may consider whether agencies should be required to implement certain smart disclosure strategies. Oversight of the implementation of smart disclosure strategies, however, could be difficult. Members of Congress may not be familiar with each of the vast amount of datasets held by each agency, nor may they be aware of unique sensitivities of these data. Additionally, there may be significant costs associated with adapting certain datasets and vernacular to more standardized and accessible formats. Policymaking, Outside Influence, and Public Participation Congress or the public may also have concerns about both the abilities and the affiliations of those who access government data, comment on federal regulations, or participate in federal government meetings. Most public participation may come from special interest groups that have the time, resources, and knowledge to engage with federal agencies. Using websites and other technology to solicit public opinion may, therefore, strengthen relationships between certain individuals or organizations and federal agencies—granting certain participants greater and faster access to policymakers. Congress may believe that executive branch policymakers should be more insulated from organized, sometimes partisan interests. Scholars have found that lawmakers play a significant role in creating or limiting the opportunities that private organizations have in accessing administrative agencies. Yet other scholars have found that attempts to insulate policymakers may result in restricted access for less-organized, smaller private organizations, while the wealthier, larger groups maintain access. Collaboration with the public may generate new ideas that could promote cost savings, assist in the distribution of benefits, or make the federal government more effective. Scholars have noted that public access to federal records and meetings may also provide oversight of the administrative process and increase "bureaucratic accountability." Congress may decide that the federal government already provides the proper amount of formalized access to administrative agencies, and that private organizations are provided the proper amount of access to policymakers. As noted throughout this report, the public has opportunities to participate in the regulatory process, to access certain federal records, and to attend certain public meetings. Many times, however, these opportunities come only after the federal government makes a formal proposal or takes formal action. Additionally, these opportunities require the public to have the time and resources to ask for records or attend meetings. Limiting public access to public records or agency meetings during the policymaking process could increase the influence of groups that have the greatest resources while alienating groups that may have interesting policy ideas but few resources. Conversely, limiting access could provide policymakers the opportunity to work more efficiently and without as much partisan influence. As noted above, however, limiting access would not provide all opinions equal access to the policymaking process and could curtail public oversight of the administrative processes of the federal government. Increasing access to various aspects of the policymaking process could lengthen certain administrative processes, like the regulatory process, the operations of advisory committees, or federal contracting. Increasing access could also distort the design of a representative democracy by diminishing the role of the elected official "to refine and enlarge the public views."

From the beginnings of the American federal government, Congress has required executive branch agencies to release or otherwise make available government information and records. Some scholars and statesmen, including James Madison, thought access to information—commonly referred to in contemporary vernacular as "transparency"—was an essential cornerstone of democratic governance. Today, the federal government attempts to balance access to information with the need to protect certain information (including national security information and trade secrets) in order to achieve transparency. As a consequence, access and protection are often in tension with one another. Congress has the authority to determine what information can and should be publicly available as well as what should be protected. Congressional powers that may be used to address federal transparency include the powers to legislate, hold hearings, issue subpoenas, and control the federal budget. Statutes that grant access to government information include the Federal Register Act, the Administrative Procedure Act (APA), and the Freedom of Information Act (FOIA). Among the laws enacted to protect information are the Privacy Act and FOIA. Agencies also use security classifications, which are governed largely by executive orders, to protect certain records from public release. Records may be protected for national security purposes, personal privacy concerns, or other reasons. The Obama Administration has undertaken its own transparency initiative, known as the Open Government Initiative, to make executive branch agencies more transparent, publicly accessible, and collaborative than they have historically been. Watchdog organizations have offered mixed reviews of the initiative's ability to promote and institute government transparency. Transparency may be defined as the disclosure of government information and its use by the public. Transparency, under this definition, requires a public that can access, understand, and use the information it receives from the federal government. This report first assesses the meaning of transparency and discusses its scholarly and practical definitions. It also provides an analysis of the concept of transparency, with a focus on federal government transparency in the executive branch. This report subsequently examines the statutes, initiatives, requirements, and other actions that make information more available to the public or protect it from public release. It also examines transparency and secrecy from the standpoint of how the public accesses government information, and whether the release of government data and information may make operation of the federal government more or, counter-intuitively, less transparent. Finally, this report analyzes whether existing transparency initiatives are effective in reaching their stated goals.

Introduction The Dietary Guidelines for Americans (DGA) provides federally developed food-based recommendations for Americans two years of age and older, designed to promote health and prevent disease. As mandated by the 1990 National Nutrition Monitoring and Related Research Act ( P.L. 101-445 ), the guidelines are to be reviewed and updated at least every five years by the Secretaries of the Department of Health and Human Services (HHS) and Agriculture (USDA). The statute requires that the DGA be based on a preponderance of scientific and medical knowledge. This report provides responses to frequently asked questions about the DGA, including the DGA development process, as well as specific recommendations contained in the 2015-2020 DGA. Why Is the DGA Important? In accord with its statute ( P.L. 101-445 ), the DGA is based on "the preponderance of the scientific and medical knowledge which is current at the time the report is prepared." It is an evidence-based and authoritative policy document that serves as the basis for nutrition policies and programs in the United States, including the National School Lunch Program, the Supplemental Nutrition Assistance Program (SNAP), and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). All federal dietary guidance must be consistent with the DGA. One example of how the DGA has affected public policy is through nutrition labeling. In March 2014, FDA issued two proposed rules to update the Nutrition Facts label based on recommendations contained in the 2010 DGA. More specifically, a key recommendation of the 2010 DGA was to reduce the intake of calories from added sugars, although no quantitative limit was established. In accord with the DGA recommendation, FDA issued a proposed rule that if finalized would, among other things, mandate an "added sugars" line on the Nutrition Facts label, requiring manufacturers to distinguish between added sugars and naturally occurring sugars in food. In July 2015, FDA issued a supplemental proposed rule that would require, in addition to mandatory added sugars labeling, a percent daily value (%DV) declaration for added sugars. In the initial iteration of the proposed rule, FDA proposed mandatory declaration of the amount of added sugars in a food item but not a percent daily value, citing lack of scientific evidence to substantiate such a recommendation. However, the Scientific Report of the 2015 DGAC (2015 DGAC's report) provided new evidence to support establishing a reference amount for added sugar intake. In light of this new evidence, FDA determined that establishing a percent daily value for added sugars was warranted. FDA thereby proposed that the percent daily value should be based on the recommendation that the daily intake of calories from added sugars not exceed 10% of total calories. How Has the DGA Process Changed Over Time? Over the years, the DGA has evolved from an educational brochure for consumers to a policy document for policy officials, nutritionists, and nutrition educators (see Table 1 ). The eight editions of the DGA have generally contained similar recommendations regarding what constitutes a healthy diet; however, the recommendations have evolved over time to reflect the latest scientific evidence. Although the earlier editions of the DGA contained just seven guidelines, by 2005, that number had increased to 41 (23 for the general public and 18 for specific populations); despite the increase in the number of guidelines, the overarching recommendations have remained largely the same. Beginning in 2020, the DGA is expected to add recommendations for another age cohort (birth to 24 months of age), as directed by a provision in the Agricultural Act of 2014 ( P.L. 113-79 , the "Farm Bill"). The methods used for reviewing evidence to inform the DGA have also changed. In 1980, scientists from HHS (then called the Department of Health, Education, and Welfare) and USDA, along with expertise from the scientific community, were responsible for reviewing the scientific evidence and drafting the DGA. However, following the 1980 DGA's publication, various industry and scientific groups expressed concern regarding the science used to develop the recommendations. To help the departments develop the DGA policy document, a Senate Committee on Appropriations report directed that an external committee be established to review scientific evidence and recommend revisions to the 1980 DGA. In 1983, an external federal advisory committee of nine nutrition scientists was convened to review and make recommendations in a report to the Secretaries of USDA and HHS about the 1980 DGA. Following those recommendations, USDA and HHS released the 1985 DGA (the second edition), which contained almost the same recommendations as the first edition, but was more widely accepted. In 1987, a House Committee on Appropriations conference report directed HHS and USDA to "reestablish a Dietary Guidelines Advisory Group on a periodic basis. This Advisory Group will review the scientific data relevant to nutritional guidance and make recommendations on appropriate changes to the Secretaries of the Departments of Agriculture and Health and Human Services." A Dietary Guidelines Advisory Committee (DGAC) was used in developing the DGA thereafter. The 1995 DGA was the first statutorily mandated ( P.L. 101-445 ) edition of the DGA; the 1980, 1985, and 1990 editions were issued voluntarily by HHS and USDA. Another major change occurred following the 2005 DGA, when the USDA Center for Nutrition Policy and Promotion (CNPP) developed the Nutrition Evidence Library (NEL), which was then used by the 2010 DGAC to systematically review the scientific evidence to inform the development of the 2010 DGA (the NEL is discussed in greater detail in the section " What Is the Nutrition Evidence Library's Role in DGA Development? "). How Is the DGA Developed? In the first stage of DGA development (see Figure 1 ), a DGAC is chartered following Federal Advisory Committee Act (FACA) guidelines. Within those guidelines, FACA requires that all advisory committees be strictly advisory and prohibits them from creating policy or issuing regulations. The committee is generally composed of nationally recognized experts in the fields of human nutrition, food science, and chronic disease prevention. The experts' work is solely advisory and time-limited. The DGAC provides an advisory scientific report to the Secretaries of HHS and USDA, who consider the report when writing the final DGA policy document. The 2015 DGAC was charged with examining the 2010 DGA, determining topics for which there was new scientific evidence and developing food-based recommendations that are of public health importance for Americans two years of age and older. Through the development process, the DGAC held seven public meetings to review and discuss the scientific evidence supporting the recommendations. To inform the revision of existing recommendations and suggest new guidance, the 2015 DGAC used systematic reviews, data analyses, and/or food pattern modeling analyses, as well as scientific evidence-based reports, input from guest speakers, and public comments. In addition, DGAC relied on the NEL to objectively review, evaluate, and synthesize research to answer nutrition and health questions. What Is the Nutrition Evidence Library's Role in DGA Development? In 2008, CNPP established the NEL within its Evidence Analysis Library division to conduct food- and nutrition-related systematic reviews. The "state-of-the-art" systematic review (SR) methodology was developed in consultation with the Agency for Healthcare Research and Quality (AHRQ)—an agency within HHS, and the Academy of Nutrition and Dietetics (AND), and informed by the U.S. Cochrane Collaboration. NEL uses a six-step process to conduct specialized systematic reviews that inform federal nutrition policy and programs. The DGAC uses the NEL process to evaluate the evidence, which the DGAC then uses to inform the development of its Advisory Report. Where needed, NEL staff helped the DGAC carry out some steps of the NEL process. The NEL was created to ensure compliance with the Consolidated Appropriations Act of 2001 ( P.L. 106-554 , the Data Quality Act), which directed the Office of Management of Budget (OMB) to issue government-wide guidelines that "provide policy and procedural guidance to Federal agencies for ensuring and maximizing the quality, objectivity, utility, and integrity of information (including statistical information) disseminated by Federal agencies." In accordance with the first step of the NEL process (see text box), the DGAC identified research questions to be addressed through systematic reviews and developed analytic frameworks to help answer those questions. The DGAC worked with NEL staff to conduct multiple systematic reviews. Once the literature search was completed, two CNPP professionals screened the resulting articles for inclusion criteria to determine whether those articles should be included for review by the DGAC. Throughout this process, the DGAC provided oversight to ensure that studies were being appropriately included or excluded from the review and that the final list of included articles was complete and captured all research available to answer the SR questions. Key information from each study was extracted, and a risk of bias assessment (an assessment of objectivity) was performed by an NEL abstractor. NEL staff reviewed the work of abstractors, resolved inconsistencies, and generated a summary draft of the body of evidence. The DGAC reviewed this work and used it to inform its synthesis of the evidence. Although NEL staff provided oversight and assistance throughout the NEL process, the DGAC made the substantive decisions. One of the final steps in the DGAC's systematic review process was writing and grading a conclusion statement for each question, based on the body of scientific evidence evaluated. The strength of the evidence supporting each conclusion statement was graded using predetermined criteria, which assessed the quality and quantity of studies, the consistency of findings across studies, the generalizability to the population of interest, and the magnitude of the effect or public health impact. On February 15, 2015, the 2015 DGAC submitted its recommendations, as well as the scientific rationale for those recommendations, in a 571-page advisory report to the Secretaries of HHS and USDA. The Secretaries used that report, along with input from other federal agencies and public comments, to develop the final policy document, which was released on January 7, 2016. The Scientific Report of the 2015 DGAC What Recommendations Did the 2015 DGAC Make in Its Report? In developing its recommendations, the 2015 DGAC was guided by "two fundamental realities": (1) the high prevalence of preventable chronic disease among U.S. adults, and (2) the assumption that individuals' nutrition, physical activity, and other lifestyle-related behaviors are strongly influenced by their personal, social, organizational, and environmental contexts. As a result of these "realities," the DGAC framed its evidence review in the context of a socioecological model, examining how individual nutrition, physical activity, and other health-related lifestyle behaviors are influenced by personal, social, organizational, and environmental factors and systems. Many recommendations contained in the 2015 DGAC's report were consistent with those of the 2010 DGA. For example, the 2015 DGAC's report concluded that a healthy dietary pattern is higher in vegetables, fruits, whole grains, low- or non-fat dairy, seafood, legumes, and nuts; moderate in alcohol (among adults); and low in sugar-sweetened foods and beverages and refined grains. These recommendations are consistent with the 2010 DGA recommendations to increase fruit and vegetable intake; consume at least half of all grains as whole grains; increase intake of fat-free or low-fat milk and milk products; and choose a variety of protein foods including seafood, lean meat and poultry, eggs, beans and peas, soy products, and unsalted nuts and seeds. The 2015 DGAC's report and the 2010 DGA both advised using oils to replace saturated fats and consuming seafood in place of some meat and poultry. In addition, the 2015 DGAC determined that coffee consumption within the moderate range (three to five cups, or 400 mg, per day) is not associated with increased risk of major chronic diseases; dietary cholesterol does not appear to be associated with serum cholesterol (thus the committee did not bring forward the previous recommendation to limit cholesterol to 300 mg per day); added sugar intake should be limited to less than 10% of total daily calories; and healthy dietary patterns are lower in red and processed meat. The DGAC report also contained various recommendations related to establishing healthy food environments (e.g., school meals, front-of-package nutrition labeling, and industry product reformulation), sustainability (i.e., concluding that a plant-based diet is not only more health promoting but also better for the environment), and tax policy (e.g., taxing sugar-sweetened beverages). Which Key Issues Were Raised by Stakeholders with the 2015 DGAC's Report? The DGAC's report addressed many issues of concern to public health, nutrition, and agricultural stakeholders. HHS and USDA received over 29,000 written comments during the 75-day comment period, as well as 73 oral comments at a March 2015 public meeting. Stakeholders flagged several issues with the 2015 DGAC's report, particularly with the scope of the DGAC's recommendations, the process by which the DGAC made its conclusions and recommendations, and concerns over several specific recommendations. Scope One concern noted by stakeholders with the DGAC's report was its scope, with some maintaining that the committee exceeded the scope of its charter by making certain policy recommendations. For example, although the 2015 DGAC's report noted that no food groups need to be entirely eliminated to improve food sustainability outcomes, the DGAC concluded that individuals should eat less red and processed meat in favor of a plant-based diet, as "a diet higher in plant-based foods, such as vegetables, fruits, whole grains, legumes, nuts, and seeds, and lower in calories and animal-based foods is more health promoting and is associated with less environmental impact than is the current U.S. diet." The DGAC added that due to high consumption of animal-based foods (e.g., meat, eggs, and dairy products) and low intake of plant-based foods, the average U.S. diet may have a large impact on the environment in terms of increased Greenhouse Gas (GHG) emissions, land use, water use, and energy use. In addition, the DGAC made several policy recommendations that raised concern among some stakeholders, including FDA revision of the Nutrition Facts label to include a mandatory declaration for added sugars, in both grams and teaspoons per serving, as well as a % daily value (DV); alignment of federal nutrition assistance programs (e.g., SNAP and WIC) with the DGA; and use of economic and tax policies to encourage the production and consumption of healthy foods and to reduce consumption of unhealthy foods (e.g., by taxing sugar-sweetened beverages, snack foods, and desserts, and by restricting marketing of certain foods to children and teens). Some Members of Congress have said that the DGAC "had neither the expertise, evidence, nor charter" to make recommendations about matters of sustainability and tax policy, and this concern has been reiterated by some meat industry groups. Meanwhile, others have supported the discussion surrounding sustainability, saying that it is important to have an understanding of how food production affects the environment. In response to these concerns, the HHS and USDA Secretaries determined that issues of sustainability and tax policy would not be part of the final policy document and that the DGA would "remain within the scope of our mandate in the 1990 National Nutrition Monitoring and Related Research Act ( P.L. 101-445 , NNMRRA), which is to provide 'nutritional and dietary information and guidelines' ... 'based on the preponderance of the scientific and medical knowledge.'" Process Another stakeholder concern with the 2015 DGAC's report was the process used to evaluate the evidence. After the 2005 edition of the DGA, HHS and USDA committed to using an evidence-based, systematic review methodology (i.e., the NEL) to support the development of the 2010 DGAC report, and the same process was expected to be used in the development of the 2015 DGAC report. The 2015 DGAC used the NEL to answer approximately 27% of its questions, relying on existing sources of evidence (e.g., existing reports and systematic reviews) to answer another 45%, and data analyses and food pattern modeling analyses to answer an additional 30%. This approach is in contrast to the 2010 DGAC, which used the NEL to answer the majority of its research questions. According to the 2015 DGAC, the majority of the scientific community now regularly uses systematic reviews, so unlike the 2010 DGAC, the 2015 DGAC was able to rely more heavily on existing sources of evidence (e.g., existing systematic reviews, meta-analyses, and reports) and to avoid duplicative efforts. Some criticized this use of existing reviews, questioning the scientific rigor and objectivity of the advisory report. For example, some argued that the 2015 DGAC bypassed the NEL process for certain issues (e.g., added sugars) and "almost solely used pre-existing and hand-picked systematic reviews." Others voiced concern that the 2015 DGAC relied heavily on weaker forms of science, such as observational evidence rather than the whole body of evidence. Particular Recommendations In addition to the scope of the 2015 DGAC report and the committee's process, certain recommendations were criticized by various stakeholders and interest groups. For example, the 2015 DGAC concluded that diets lower in red and processed meat are more healthful and better for the environment. The recommendation to reduce consumption of red and processed meat was met with concern from some meat industry groups, who cited that meat is a nutrient-dense source of protein, including nutrients such as iron and B vitamins. The 2015 DGAC also concluded that intake of added sugars from sugar-sweetened beverages and foods is associated with excess body weight in children and adults. Although a daily value for added sugar had not been established, strong and consistent evidence demonstrates that a reduction of added sugars is associated with a reduction in body mass index (BMI) in both children and adults. Thus, the 2015 DGAC recommended that intake of added sugars remain below 10% of total calorie intake. This recommendation was consistent with the 2010 DGA recommendation to reduce the intake of calories from solid fats and added sugars. In regard to the added sugars recommendation, some food industry groups argued that there is a lack of evidence to justify a label that distinguishes between naturally occurring and added sugars because all sugars are equivalent in a nutritional sense, and because there is not enough evidence to establish a quantitative limit on added sugars. The 2015-2020 DGA What Were the Recommendations in the 2015-2020 DGA? The 2015-2020 DGA consists of five overarching guidelines, which are accompanied by "Key Recommendations" that provide further guidance on how individuals can follow the guidelines. Per the 2015-2020 DGA, the eating pattern described is not meant to be a "rigid prescription" but rather an "adaptable framework in which individuals can enjoy foods that meet their personal, cultural, and traditional preferences and fit within their budget." Guidelines43 1. Follow a healthy eating pattern across the lifespan . All food and beverage choices matter. Choose a healthy eating pattern at an appropriate calorie level to help achieve and maintain a healthy body weight, support nutrient adequacy, and reduce the risk of chronic disease. 2. Focus on variety, nutrient density, and amount. To meet nutrient needs within calorie limits, choose a variety of nutrient-dense foods across and within all food groups in recommended amounts. 3. Limit calories from added sugars and saturated fats and reduce sodium intake. Consume an eating pattern low in added sugars, saturated fats, and sodium. Cut back on foods and beverages higher in these components to amounts that fit within healthy eating patterns. 4. Shift to healthier food and beverage choices. Choose nutrient-dense foods and beverages across and within all food groups in place of less healthy choices. Consider cultural and personal preferences to make these shifts easier to accomplish and maintain. 5. Support healthy eating patterns for all . Everyone has a role in helping to create and support healthy eating patterns in multiple settings nationwide, from home to school to work to communities. Key Recommendations The 2015-2020 DGA includes the recommendation to "consume a healthy eating pattern that accounts for all foods and beverages within an appropriate calorie level." A healthy eating pattern is described as one that includes a variety of vegetables from all the subgroups—dark green, red and orange, legumes (beans and peas), starchy, other; fruit, especially whole fruits; grains, at least half of which are whole grains; fat-free or low-fat dairy, including milk, yogurt, cheese, and/or fortified soy beverages; a variety of protein foods, including seafood, lean meats and poultry, eggs, legumes (beans and peas), and nuts, seeds, and soy products; and oils. A healthy eating pattern limits saturated fats and trans fats, added sugars, and sodium. This eating pattern includes consuming less than 10% of calories per day from added sugars, less than 10% of calories per day from saturated fats, and less than 2,300 milligrams (mg) per day of sodium. If alcohol is consumed, it should be in moderation (one drink for women, two drinks for men) and only by those of legal drinking age. In addition, the 2015-2020 DGA includes the recommendation to meet the Physical Activity Guidelines for Americans (PGA). The PGA states that adults need at least 150 minutes of moderate intensity physical activity per week and should perform muscle-strengthening exercises on two or more days each week. Children and adolescents 6 to 17 years of age need at least 60 minutes of physical activity per day, including aerobic, muscle-strengthening, and bone-strengthening activities. What Were the 2015-2020 DGA Recommendations on Intake of Red and Processed Meat, Caffeine, and Dietary Cholesterol? The 2015-2020 DGA does not include a key recommendation to reduce consumption of red and processed meat as advised by the 2015 DGAC report. Chapter 1 of the 2015-2020 DGA states that strong evidence has shown that eating patterns with lower meat intake, including processed meat and lean process poultry, are associated with reduced risk of cardiovascular disease in adults. However, food pattern modeling analyses have shown that lean meats and lean poultry contribute important nutrients to a diet, and healthy eating patterns may include processed meats and poultry, within the daily limits for sodium, calories from saturated fats and added sugars, and calories. The text of the 2015-2020 DGA states that coffee consumption in the moderate range (e.g., up to 400 mg of caffeine per day, or approximately 3 to 5 cups of coffee) may be incorporated into healthy eating patterns. The DGA adds that although coffee has minimal calories, coffee beverages often contain added sweeteners and creams, which should be limited to avoid adding extra calories; these same considerations apply to tea and other similar beverages. The 2015-2020 DGA does not differentiate between different sources of caffeine (e.g., coffee, tea, soda), but much of the available evidence on caffeine focuses on coffee intake; limited and mixed evidence is available regarding the relationship between high caffeine energy drinks and cardiovascular risk factors and other health outcomes. The 2015-2020 DGA also states that mixing caffeine with alcohol is not generally recognized as safe by FDA, and increases the risk of alcohol-related adverse events. The 2015-2020 DGA does not contain the 2010 DGA recommendation to limit daily dietary cholesterol (a nutrient found in animal products; examples include shrimp, eggs, and meat) consumption to less than 300 mg per day, stating a lack of adequate evidence for a quantitative limit for dietary cholesterol specific to the DGA. How Do the 2015-2020 DGA Recommendations Compare with the 2010 DGA and 2015 DGAC Reports? The 2015-2020 DGA retains many of the recommendations made by the 2010 DGA, as well as those suggested by the 2015 DGAC's report. For example, the 2015-2020 DGA's definition of a healthy eating pattern is largely consistent with the patterns described in the 2010 DGA and the 2015 DGAC report. Similarly, recommendations about which nutrients to limit have remained consistent across the three documents, with some exceptions: the 2010 DGA recommended a quantitative daily limit on cholesterol, but the 2015-2020 DGA and 2015 DGAC's report did not; the 2015-2020 DGA and 2015 DGAC's report recommended a quantitative daily limit on added sugars, but the 2010 DGA did not (see Table 2 ). Further, the 2015-2020 DGA does not include references to sustainability or tax policy, as suggested in the 2015 DGAC's report. What Has Been Congress's Role in the 2015-2020 DGA Development Process? In response to stakeholder concern surrounding the scope of the 2015 DGAC's report and the process used to develop the 2015-2020 DGA, Congress included several DGA-related policy riders in the FY2016 Omnibus Appropriations Act ( P.L. 114-113 ). Section 734 limited the scope of the 2015-2020 DGA to "nutritional and dietary information only." Section 735(a) required the Secretary of USDA, within 30 days of the enactment of the law, to engage the National Academy of Medicine (NAM, formerly the Institute of Medicine [IOM]) to conduct a comprehensive study of the process used to establish the 2015 DGAC and the subsequent development of the 2015 DGA. Section 735(b) further required that the NAM panel selected to conduct this study include a "balanced representation of individuals with broad experiences and viewpoints regarding nutrition and dietary information," and that this comprehensive study include an analysis of how the DGA can better prevent chronic disease, ensure nutritional adequacy for all Americans, and accommodate a range of individual factors, including age, gender, and metabolic health; the DGAC selection process "can be improved to provide more transparency, eliminate bias, and include committee members with a range of viewpoints"; the NEL is compiled and used, including whether NEL and other systematic reviews, as well as data analyses, are conducted following "rigorous and objective scientific standards"; and systematic reviews are conducted on "longstanding" DGA recommendations, including "whether scientific studies are included from scientists with a range of viewpoints." Section 735(b) also requires the NAM study to include recommendations on how to improve the DGA development process and to ensure the DGA "reflect balanced and sound science." Congress appropriated $1 million for this study. What's Next for the DGA? It remains to be seen how, if at all, the DGA development process will change pursuant to the findings of the congressionally mandated NAM study. In addition to any recommendations following NAM's mandated study, the 2020-2025 DGA will expand to include infants and toddlers from birth to age two, as well as additional guidance for women who are pregnant, as required by the 2014 Agricultural Appropriations Act ( P.L. 113-79 ).

The Dietary Guidelines for Americans (DGA) is a policy document that provides federally developed, nutrition-based recommendations for Americans two years of age and older. The guidelines are statutorily mandated under the 1990 National Nutrition Monitoring and Related Research Act (P.L. 101-445), which requires the Departments of Health and Human Services (HHS) and Agriculture (USDA) to jointly publish the DGA policy document at least once every five years. The DGA forms the basis for all federal nutrition policies, including the National School Lunch Program and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). The guidelines also influence food and nutrition labeling; guide local, state, and national health promotion and disease prevention initiatives; and inform various organizations and industries (e.g., products developed and marketed by the food and beverage industry). To facilitate publication of the DGA policy document, a conference report from the House Committee on Appropriations directed HHS and USDA to establish a Dietary Guidelines Advisory Committee (DGAC) on a periodic basis. The DGAC is an independent group of experts from outside the federal sector, generally in the fields of nutrition and medicine, whose work is solely advisory and time-limited. The DGAC is tasked with reviewing the scientific data relevant to nutritional guidance and making recommendations to the Secretaries of HHS and USDA regarding changes to the DGA policy document. The 571-page Scientific Report of the 2015 DGAC (2015 DGAC's report) was made public on February 19, 2015, and was used by the departments, along with public comments and input from other federal agencies, to inform the drafting of the 2015-2020 DGA policy document. Because the DGA influences nutrition policy, the guidelines are of interest to public health, nutrition, agriculture, and food industry stakeholders. Following the release of the 2015 DGAC's report, HHS and USDA received 29,000 written comments during the 75-day comment period, as well as 73 oral comments at a March 2015 public meeting. Stakeholders flagged several concerns with the report, particularly with the scope of the DGAC's recommendations and the process by which the DGAC made its conclusions and recommendations, along with concerns regarding several specific recommendations. In response to concerns surrounding the scope of the 2015 DGAC's report and the process used to develop the 2015-2020 DGA, several DGA-related policy riders were included in the FY2016 omnibus appropriations law (P.L. 114-113), prior to the release of the 2015-2020 DGA. As mandated by Congress, the National Academies of Medicine (NAM) are, for the first time, required to review the DGA and its development process due to concerns with the "quality of scientific evidence and extraneous factors" that were included in the 2015 DGAC's report. HHS and USDA issued the 2015-2020 DGA on January 7, 2016. This most recent DGA provides five overarching guidelines for the general population, accompanied by several "Key Recommendations" that provide further guidance on how individuals can follow the five guidelines.

Most Recent Developments Appropriations for EPA's clean water and other programs for FY2007 were considered but not finalized in 2006. The President's budget requested $687.6 million for grants to capitalize clean water state revolving funds (SRFs) which fund local wastewater treatment projects, 22% less than FY2006 funding. On May 18 the House passed H.R. 5386 , providing EPA appropriations, and agreed to the clean water SRF funding level requested by the President. The Senate Appropriations Committee approved the same amount for the SRF program when it approved H.R. 5386 in June. Final action on H.R. 5386 and most other FY2007 appropriations bills for domestic agencies and departments did not occur before Congress adjourned sine die in December, thus delaying this legislative activity to the beginning of the 110 th Congress. In 2003, EPA promulgated revised rules that govern waste discharges from large animal feeding operations to the nation's waters. Those revised rules were challenged by multiple parties, and in 2005, a federal court issued a ruling that upheld major parts of the rules, vacated other parts, and remanded still other parts to EPA for clarification. In June 2006, EPA proposed revisions to the rules in response to the court's decision and expects to promulgate revised regulations by June 2007. In 2005, Congress enacted comprehensive energy policy legislation, H.R. 6 ( P.L. 109-58 ); one provision (Section 323) provides a permanent exemption from stormwater runoff rules for the construction of exploration and production facilities by oil and gas companies or the roads that service those sites. EPA promulgated a rule to implement this provision of P.L. 109-58 in June 2006. The Act and Most Recent Amendments The Federal Water Pollution Control Act, or Clean Water Act, is the principal law concerned with polluting activity in the nation's streams, lakes, and estuaries. Originally enacted in 1948, it was totally revised by amendments in 1972 (P.L. 92-500) that gave the act its current form and spelled out ambitious programs for water quality improvements that are now being put in place by industries and cities. Congress made certain fine-tuning amendments in 1977 ( P.L. 95-217 ) and 1981 ( P.L. 97-117 ) and enacted comprehensive amendments in 1987 ( P.L. 100-4 ). The act consists of two major parts: regulatory provisions that impose progressively more stringent requirements on industries and cities in order to meet the statutory goal of zero discharge of pollutants, and provisions that authorize federal financial assistance for municipal wastewater treatment construction. Industries were to meet pollution control limits first by use of Best Practicable Technology and later by improved Best Available Technology. Cities were to achieve secondary treatment of municipal wastewater (roughly 85% removal of conventional wastes), or better if needed to meet water quality standards. Both major parts are supported by research activities authorized in the law, plus permit and penalty provisions for enforcement. Programs are administered by the Environmental Protection Agency (EPA), while state and local governments have the principal day-to-day responsibility for implementing the law. The last major amendments to the law were contained in the Water Quality Act of 1987 ( P.L. 100-4 ). These amendments culminated six years of congressional efforts to extend and revise the act and were the most comprehensive amendments to it since 1972. They recognized that, despite much progress, significant water quality problems persisted. Among its many provisions, the 1987 legislation (1) established a comprehensive program for controlling toxic pollutant discharges, beyond that already provided in the act, to respond to so-called "toxic hot spots"; (2) added a program requiring states to develop and implement programs to control nonpoint sources of pollution, or rainfall runoff from farm and urban areas, plus construction, forestry, and mining sites; (3) authorized a total of $18 billion for wastewater treatment assistance under a combination of the act's traditional construction grants program and a new program of grants to capitalize state revolving funds; (4) authorized or modified a number of programs to address water pollution problems in diverse geographic areas such as coastal estuaries, the Great Lakes, and the Chesapeake Bay; and (5) revised many of the act's regulatory, permit, and enforcement programs. Congressional Activity after P.L. 100-4 Congressional oversight of water quality issues was limited immediately after enactment of P.L. 100-4 . Subcommittees held general oversight hearings, as well as several hearings on individual issues (wetlands protection, Chesapeake Bay programs, and toxics contamination of Great Lakes waters), but reserved extensive review and oversight until implementation had been underway for some time. EPA, states, industry, and other citizens continue to implement the 1987 legislation, including meeting the numerous requirements and deadlines in it. Three sets of issues have been the focus of attention regarding the pace and effectiveness of implementation: the toxic pollutant control provisions, nonpoint pollution management provisions, and the state revolving fund provisions to transfer wastewater treatment funding responsibility to the states after 1994. Attention has also focused on the cost-effectiveness of clean water requirements and flexibility of implementation. Implementation issues discussed below were the basis for legislation to reauthorize the Clean Water Act during the 103 rd Congress. Committees held hearings in 1993, and the Senate Environment and Public Works Committee reported a comprehensive reauthorization bill, S. 2093 , in May 1994. Legislation also was introduced in the House, but no further action occurred because of controversies specific to the act and the pending bills, as well as controversies over regulatory relief issues that became barriers to a number of bills in 1994. In the 104 th Congress, the House moved quickly on Clean Water Act legislation, approving a comprehensive reauthorization bill in May 1995. H.R. 961 would have amended many of the regulatory and standards provisions of the law, required EPA to use extensive new risk assessment and cost-benefit analysis procedures, and increased flexibility with regulatory relief from current clean water programs. However, the Senate did not take up the Clean Water Act during the 104 th Congress; thus, no legislation was enacted. 1997 marked the 25-year anniversary of the 1972 Clean Water Act amendments, which established the goals, objectives, and structure that continue to guide the law today. In the 105 th Congress, no major committee activity over the act occurred either in the House or the Senate. Since the 104 th Congress, attention has focused on individual program areas of the law; no comprehensive reauthorization legislation has been introduced. However, activity on bills dealing with specific water quality issues has occurred. Congress passed a bill to strengthen protection of coastal recreation waters through upgraded water quality standards and coastal waters monitoring programs ( P.L. 106-284 ) and also passed a bill reauthorizing several existing CWA programs (i.e., Chesapeake Bay, clean lakes, and the National Estuary Program; P.L. 106-457 ). Further, Congress passed a bill to authorize CWA grant funding for wet weather sewerage projects (included as a provision of P.L. 106-554 , FY2001 Consolidated Appropriations). The 107 th Congress approved the Great Lakes Legacy Act ( P.L. 107-303 ), which authorized $200 million for EPA to carry out projects to remediate sediment contamination in the Great Lakes. The 108 th Congress enacted legislation amending the act to extend the National Estuary Program through FY2010 ( P.L. 108-399 ). More generally, following the September 11, 2001 terrorist attacks on the World Trade Center and the Pentagon, congressional attention has focused on security, preparedness, and emergency response issues. Among the many topics of interest is protection of the nation's water infrastructure facilities (both wastewater and drinking water) from possible physical damage, biological/chemical attacks, and cyber disruption. Policymakers are considering a number of legislative options in this area, including enhanced physical security, communication and coordination, and research. Physical security of wastewater treatment plant operations is one issue under consideration. In the 108 th Congress, the House passed legislation to provide $200 million in grants for security activities at wastewater treatment plants ( H.R. 866 ). A similar Senate bill was approved by the Senate Environment and Public Works Committee ( S. 1039 ). No further action occurred, due in part to concerns expressed by some that the legislation would not require that vulnerability assessments be mandatory and be submitted to EPA, as is the case with assessments of drinking water utilities required by the 2002 Bioterrorism Preparedness Act ( P.L. 107-288 ). The issue again received attention in the 109 th Congress. Although much progress has been made in achieving the ambitious goals established in the law 30-plus years ago to restore the maintain the chemical, physical, and biological integrity of rivers, lakes, and coastal waters, problems persist. Based on the limited water quality monitoring that is done by states, EPA reported in the 2000 National Water Quality Inventory Report that 39% of assessed river and stream miles and 45% of assessed lake acres do not meet applicable water quality standards and were found to be impaired for one or more desired uses. The types of remaining water quality problems are diverse, ranging from runoff from farms and ranches, city streets, and other diffuse sources, to metals (especially mercury), organic and inorganic toxic substances discharged from factories, sewage treatment plants, and nonpoint sources. The Bush Administration has been reviewing a number of current clean water programs and rules but has proposed few new initiatives. In January 2003, the agency announced a Water Quality Trading Policy intended as an innovative approach to assist industry and municipalities in meeting Clean Water Act obligations. Trading allows one source to meet regulatory requirements by using pollutant reductions created by another source that has lower pollution control costs. The policy revised a May 2002 proposal which reflected lessons learned from a similar policy issued by the Clinton Administration in 1996. Water quality or effluent trading projects have occurred in the United States since the early 1980s. Congressional oversight of the act's implementation during this time has been wide-ranging, extending from review of the state and needs of the nation's wastewater infrastructure, to CWA enforcement, implementation of wetlands protection and regulatory efforts, and examination of various EPA policies and programs. As a result of the 2006 mid-term elections and changed leadership in the House and Senate, many observers anticipate that the 110 th Congress will pursue vigorous oversight of clean water and other environmental programs. The direction and agenda for such activities is uncertain. State Revolving Fund Program Meeting the nation's needs to build, upgrade, rebuild, and repair wastewater infrastructure is a significant element in achieving the Clean Water Act's water quality objectives. The act's program of financial aid for municipal wastewater treatment plant construction is a key contributor to that effort. Since 1972 Congress has provided more than $76 billion to assist wastewater treatment construction, but funding needs remain very high: an additional $181 billion nationwide for all types of projects eligible for funding under the act, according to the most recent Needs Survey estimate by EPA and the states, published in August 2003. In September 2002, EPA released a study called the Gap Analysis that assesses the difference between current spending for wastewater infrastructure and total funding needs (both capital and operation and maintenance). In that report, EPA estimated that, over the next two decades, the United States needs to spend nearly $390 billion to replace existing wastewater infrastructure systems and to build new ones. Funding needs for operation and maintenance (not eligible for Clean Water Act funding) are an additional $148 billion, the agency estimated. According to the Gap Analysis, if there is no increase in investment, there will be about a $6 billion gap between current annual capital expenditures for wastewater treatment ($13 billion annually) and projected spending needs. The study also estimated that, if wastewater spending increases by 3% annually, the gap would shrink by nearly 90% (to about $1 billion annually). At issue has been what should be the federal role in assisting states and cities, especially in view of such high projected funding needs. Debate over the nature of the nation's efforts regarding wastewater infrastructure was a central and controversial part of the 1987 amendments to the act. The amendments extended through FY1990 the traditional Title II program of grants for sewage treatment project construction, under which the federal share was 55% of project costs. The 1987 law initiated a program of grants to capitalize State Water Pollution Control Revolving Funds (SRFs), or loan programs, in a new Title VI. States are required to deposit an amount equal to at least 20% of the federal capitalization grant in the Fund established under Title VI. Under the revolving fund concept, monies used for wastewater treatment construction would be repaid by loan recipients to the states (repayment was not required for grants under the Title II program), to be recycled for future construction in other communities, thus providing an ongoing source of financing. The expectation in 1987 was that the federal contributions to SRFs would assist in making a transition to full state and local financing by FY1995. Although most states believe that the SRF is working well, early funding and administrative problems have delayed the anticipated shift to full state responsibility. Thus, SRF issues have been prominent on the Clean Water Act reauthorization agenda in recent Congresses. SRF monies may be used for certain types of financial activity, including loans for as much as 100% of project costs (at or below market interest rates, including interest-free loans), to buy or refinance cities' debt obligation, or as a source of revenue or security for payment of principal and interest on a state-issued bond. SRF monies also may be used to provide loan guarantees or credit enhancement for localities. Loans made by a state from its SRF are to be used first to assure progress towards the goals of the act and, in particular, on projects to meet the standards and enforceable requirements of the act. After states achieve those requirements of the act, SRF monies also may be used to implement nonpoint pollution management and national estuary programs. Table 1 summarizes wastewater treatment funding under Title II (traditional grants program) and Title VI (capitalization grants for revolving loan programs). One issue of continuing interest is impacts on small communities. These entities in particular have found it difficult to participate in the SRF loan program, since many are characterized by narrow or weak tax bases, limited or no access to capital markets, lower relative household incomes, and higher per capita needs. They often find it harder to borrow to meet their capital needs and pay relatively high premiums to do so. Meeting the special needs of small towns, through a reestablished grant program, other funding source, or loan program with special rules, has been an issue of interest to Congress. Congressional oversight of wastewater/SRF issues has focused on several points, including the fact that many small communities have found it difficult to participate in the SRF loan program, and the lack of funds for high-cost categories of projects such as correcting combined sewer overflows. Although there has been some criticism of the SRF program, and debate continues over specific concerns (such as small community impacts), the basic approach is well supported in Congress and elsewhere. Congress used the clean water SRF as the model when it established a drinking water SRF in 1996 ( P.L. 104-182 ). Nonpoint Pollution Management The 1987 amendments added a new Section 319 to the act. It required states to develop and implement programs to control nonpoint sources of pollution, or rainfall runoff from farm and urban areas, as well as construction, forestry, and mining sites. Previously, they had largely focused on controlling point sources, while helping states and localities to plan for management of diverse nonpoint sources. Yet, as industrial and municipal sources have abated pollution, uncontrolled nonpoint sources have become a relatively larger portion of remaining water quality problems—perhaps contributing as much as 50% of the nation's water pollution. Thus, the addition of Section 319 to the act was intended to strengthen the law regarding this major contributor to water pollution, which previously had received limited attention. At issue today is what progress is being made to manage nonpoint source pollution and what additional efforts may be needed involving Section 319 or other public and private activities. Some observers are critical of the largely voluntary nature of the Section 319 program, consisting of "all carrot but no stick," while others argue that the types of individual land management decisions that are needed to manage nonpoint source pollution cannot be regulated in the same ways that industrial sources are controlled. States were required to identify waters not expected to meet water quality standards because of nonpoint source pollution and to implement plans for managing pollution from runoff. Federal grants totaling $400 million were authorized to cover as much as 60% of the costs of implementing a state's management plan. The funding issue has become more urgent as states moved from assessment and plan development to management, since Congress intended that Section 319 funds be used primarily to implement nonpoint pollution controls on the ground. EPA has urged states to use a portion of monies that they receive under Section 106 of the act (water quality program assistance grants) for nonpoint source activities. But, doing so utilizes money otherwise needed for core state efforts, such as permit issuance, monitoring, enforcement, etc. Several concerns have been raised about the Section 319 program. Adequacy of Plans Whether state plans have comprehensively addressed nonpoint pollution problems is a lingering question. Some environmental groups criticize EPA for providing inadequate guidance on methods, or management practices, to advance control of nonpoint sources beyond known problems and existing implementation steps, such as voluntary compliance and public education. Moreover, some believe that states should be required to repeat the nonpoint source assessments, which were one-time-only activities under the 1987 law, in order to reflect improvements in technical and scientific information. Funding Precise estimates of the cost to manage nonpoint source pollution are not available, because so much depends on the site-specific nature of problems and solutions. However, in 1994 EPA estimated that current and planned spending by private sources, states, and cities under provisions of current law is between $750 million and $1.1 billion per year. Without adequate funding to implement state management plans, it is doubtful that much will be achieved under Section 319 to control nonpoint source pollution. Because agricultural activities are known to be a significant source of nonpoint pollution nationwide, the adequacy of efforts to address these sources has received much attention. Questions have been raised about the EPA state grant program's efficacy and overlap with farm bill conservation funding, leading to proposed reductions in FY2004 and FY2005 appropriations for Section 319 funds. In particular, the White House Office of Management and Budget (OMB) found that EPA had not demonstrated results under the program and has urged the agency to shift its focus away from implementing projects in agricultural areas and toward implementing plans in impaired waters. State officials have been concerned that OMB is not fully aware of the extent to which Section 319 funds address a range of nonpoint pollution control needs beyond the agricultural sector. Program Changes In the mid-1990s, EPA and states negotiated changes intended to give the 319 program a new framework by giving states more flexibility. As a result, in 1996, EPA issued revised guidance concerning state management of nonpoint source programs that is intended to recognize that federal and state processes need to be streamlined to increase program effectiveness and to speed progress towards solving nonpoint pollution problems. The revised guidance outlines nine key elements to be reflected in state programs (e.g., strong partnerships with stakeholders, explicit short- and long-term goals for protecting surface and ground waters). States that meet the nine criteria can be designated as leadership states, making them eligible for incentives such as multi-year grants, reduced amount and frequency of reporting, and self-assessment by states themselves. These incentives contrast with the previous program approach, in which states competed for grants and those that did not meet particular requirements received less grant money. Significance for TMDLs Attention has focused on nonpoint source management efforts as a result of recent emphasis by EPA and states on meeting TMDL requirements (see "TMDL Requirements," next). Scrutiny of nonpoint pollution problems and how they are being addressed has intensified as policymakers and program officials assess additional steps to continue progress towards the act's water quality goals. For several years, EPA has been explicitly linking implementation of Section 319 with TMDL activities. For example, in 2001, EPA published guidance saying that grants awarded under Section 319 should have a concentrated focus on the development and implementation of TMDLs for nonpoint sources of pollution, although funds will still be awarded to activities other than TMDLs. However, states and agricultural interests criticized the guidance as being too restrictive, and in August 2002, EPA modified the guidance which continues to encourage development of nonpoint source TMDLs but gives states more flexibility to do so, especially in areas that lack formally established TMDLs. Since FY2001, $100 million of Section 319 grant funds (which totaled $204 million in FY2006, for example) is being devoted annually to developing and implementing nonpoint source TMDLs. Total Maximum Daily Load (TMDL) Requirements In the 1972 Clean Water Act, Congress recognized that, in many cases, pollutant controls implemented by industry and municipalities would be insufficient to attain water quality standards, due in part to pollutant contributions from unregulated sources. Thus, Section 303(d) of the Clean Water Act requires states to identify water segments that remain impaired even after application of pollution control technology and develop "total maximum daily loads" (TMDLs) that set the maximum amount of pollution that a water body can receive without violating water quality standards. If a state fails to do so, EPA is required to develop a priority list for the state and make its own TMDL determination. Most states have lacked the resources to do TMDL analyses, which involve complex assessment of point and nonpoint sources and mathematical modeling, and EPA has both been reluctant to override states and has also lacked resources to do the analyses. Thus, for many years there was little implementation of the provision that Congress enacted in 1972. At issue today is continuing controversy over implementation of this program which is intended to address uncontrolled sources of water quality impairment and efforts to revise the rules and requirements for it. In recent years, national and local environmental groups have filed lawsuits in 38 states against EPA and states for failure to fulfill requirements of the act. Of the suits tried or settled to date, 22 have resulted in court orders requiring EPA to develop TMDLs expeditiously. EPA and state officials have been concerned about diverting resources from other high-priority water quality activities in order to meet the courts' orders. In 1996, EPA created an advisory committee to solicit advice on the TMDL problem. Recommendations from the advisory committee formed the basis of program changes that EPA proposed in August 1999. This proposal set forth criteria for states, territories, and authorized Indian tribes to identify impaired waters and establish all TMDLs within 15 years. It proposed more comprehensive assessments of waterways, detailed cleanup plans, and timetables for implementation. The 1999 proposal was highly controversial because of issues such as burdens on states to implement a revised TMDL program and potential impacts on some agriculture and forestry sources which are not now subject to CWA regulations. The controversies also drew congressional attention, and 13 congressional hearings were held during the 106 th Congress by four separate House and Senate committees. Public and congressional pressure on EPA to revise or withdraw the TMDL proposal entirely was great. Several bills to modify EPA's TMDL proposals or delay implementation of final rules were introduced, but none was enacted. TMDL issues also were addressed in FY2001 appropriations bills. In July 2000, Congress approved an FY2001 Military Construction and emergency supplemental appropriations bill that included a provision to prevent EPA from spending any funds in FY2000 or FY2001 to finalize or implement new TMDL rules. President Clinton signed the bill, in spite of the TMDL restriction, which the Administration opposed ( P.L. 106-246 ). However, the EPA Administrator signed the new rules two days before the President signed the bill but delayed the effective date until October 2001, when the limitation in P.L. 106-246 would expire. EPA's signing of the rule before the rider took effect led to more criticism. The FY2001 appropriations act providing funds for EPA, P.L. 106-377 , included report language mandating studies by the National Academy of Sciences (NAS) and EPA on the scientific basis of the TMDL program and on the potential costs to states and businesses of implementing the revised TMDL rules. The NAS report, examining the role of science in the TMDL program, was issued in June 2001. It did not specifically analyze the July 2000 revised regulations. The NAS panel concluded that scientific knowledge exists to move forward with the TMDL program and recommended that EPA and states use adaptive implementation for TMDL development. In many cases, the report said, water quality problems and solutions are obvious and should proceed without complex analysis. In other cases, solutions are more complex and require a different level of understanding and something like phased implementation. A House Transportation subcommittee held a hearing on the NAS report in June 2001. In August 2001, EPA issued a draft report on costs of the 2000 TMDL program. It estimated that average annual costs to states and EPA of developing TMDLs could be $63-$69 million, while implementation costs for pollutant sources could be between $900 million and $4.3 billion per year, depending on states' actions. The General Accounting Office (now the Government Accountability Office) reported in 2002 that inconsistent monitoring, data collection, and listing procedures used by states to identify impaired waters have hindered efforts to develop effective TMDL programs. The Bush Administration announced in October 2001 that it would delay the effective date of the 2000 rule until April 30, 2003, to allow for further review. That announcement came after a federal court granted the Administration's request for a similar 18-month suspension of litigation which challenged the regulation (nearly a dozen interest groups sued EPA over various parts of the TMDL rule). A House Transportation and Infrastructure subcommittee held an oversight hearing in November 2001 concerning EPA's plans to revise the rule. Most recently, on March 19, 2003, EPA withdrew the July 2000 TMDL rule (68 Federal Register 13607). EPA officials said that additional time beyond May 2003 was needed to decide whether and how to revise the current program and that allowing the rule to take effect would have disrupted ongoing review efforts. In the interim and continuing for the present time, current program requirements under existing regulations issued in 1992 and court-sanctioned TMDL schedules remain in place. Having withdrawn the 2000 rule, EPA has reportedly been considering other options, including initiating an entirely new rule, but no specific plans have been announced. In mid-2002, EPA developed a draft revised rule that it informally circulated among interest groups and federal agencies for many months, but no formal proposal has occurred. One EPA view, widely reported, is that a new rule is not essential, because EPA believes that states are and will continue to improve the pace at which TMDLs are established, even under existing rules. Most environmentalists say that, short of retaining the 2000 rule, the best action would be to leave the 1992 rules in place, because, despite flaws, those rules are preferable to a new rule that might significantly weaken the program. States, cities, and industry groups have urged EPA to develop a new rule with more flexibility than either the 1992 regulations or the 2000 revisions. Other Issues A number of other issues affecting efforts to achieve the goals and objectives of the Clean Water Act continue to receive attention, as well. Stormwater Discharges EPA has struggled since the 1970s to regulate industrial and municipal stormwater discharges in a workable yet comprehensive manner. In P.L. 100-4 , Congress established firm deadlines and priorities for EPA to require permits for discharges of stormwater that are not mixed or contaminated with household or industrial waste. EPA issued rules in November 1990 (21 months after the statutory deadline) that addressed Phase I of the program, detailing the process of applying for stormwater permits for industries, medium and large municipalities, and construction sites larger than 5 acres. The agency worked with an advisory committee of stakeholders beginning in 1994 to develop rules for regulating smaller stormwater dischargers, which were not covered by the 1990 rules. Rules for smaller dischargers (unregulated industries, small construction sites, and small cities), Phase II of the program, were issued in October 1999. The burden of complying with the rules continues to be an issue with many affected industries and municipalities, especially small cities, which faced compliance deadlines beginning in March 2003. Stormwater issues were addressed in one provision of omnibus energy legislation in the 109 th Congress. As the March 2003 compliance deadline approached for Phase II small construction sites to comply with existing stormwater permit rules, EPA proposed a two-year extension of those rules for small oil and gas construction sites, to allow the agency to assess the economic impact on that particular industry. In March 2005, EPA again extended the deadline, until June 2006. During this time, Congress considered a legislative solution, which it enacted in Section 323 of H.R. 6 , the Energy Policy Act of 2005. It provides a permanent exemption from stormwater runoff rules for the construction of exploration and production facilities by oil and gas companies or the roads that service those sites. Industry officials said that EPA's original stormwater rule created costly permitting requirements, even though the short construction period for drilling sites carries little potential for stormwater runoff pollution. The provision in H.R. 6 makes EPA's temporary delay permanent and makes it applicable to construction activities at all oil and gas development and production sites, regardless of size, including those covered by an earlier Phase I of the stormwater program. Opponents argued that the provision did not belong in the energy legislation and that there was no evidence that construction at oil and gas sites causes less pollution than other construction activities. Congress passed the conference report on H.R. 6 , with the oil and gas stormwater provision, in July 2005. President Bush signed it into law on August 8 ( P.L. 109-58 ). In June 2006, EPA promulgated a rule to conform the CWA to these provisions of P.L. 109-58 . Combined and Separate Sewer Overflows A total of 772 municipalities have combined sewers where domestic sanitary sewage, industrial wastes, infiltration from groundwater, and stormwater runoff are collected. These systems serve approximately 40 million persons, mainly in older urban and coastal cities. Normally (under dry-weather conditions), the combined wastes are conveyed to a municipal sewage treatment plant. Properly designed, sized, and maintained combined sewers can be an acceptable part of a city's water pollution control infrastructure. However, combined sewer overflow (CSO) occurs when the capacity of the collection and treatment system is exceeded due to high volumes of rainwater or snowmelt, and the excess volume is diverted and discharged directly into receiving waters, bypassing the sewage treatment plants. Often the excess flow that contains raw sewage, industrial wastes, and stormwater is discharged untreated. Many combined sewer systems are found in coastal areas where recreational areas, fish habitat and shellfish beds may be contaminated by the discharges. In 1994, following negotiations with key stakeholder groups, EPA issued a CSO permitting strategy. Cities were to implement nine minimum controls by January 1, 1997 (e.g., proper operation and maintenance programs for sewer systems and pollution prevention programs). The EPA strategy did not contain a deadline for issuance of permits or for controlling CSOs. Deadlines will be contained in plans developed by permitting authorities, which primarily are states. Controls are available and generally are based on combinations of management techniques (such as temporary retention of excess flow during storm events) and structural measures (ranging from screens that capture solids to construction of separate sewer systems). EPA officials stated in 1998 that only about one-half of the cities with combined sewers implemented the minimum measures called for in the 1994 strategy. EPA is now working with states to remind cities of their obligations to address CSO problems. However, a formal enforcement strategy is not contemplated. A more recent issue concerning some cities is the problem of overflows from municipal separate sanitary sewers (SSOs) that are not CSOs because they transport only sanitary wastes. Discharges of untreated sewage from these sewers occur from manholes, broken pipes and deteriorated infrastructure, and undersized pipes, and can occur in wet or dry weather. EPA estimates that there are about 18,000 municipalities with separate sanitary sewers, all of which can, under certain circumstances, experience overflows. No explicit EPA or statutory control policy currently exists. In 1995, EPA convened a stakeholders' group to discuss how to address those overflows that pose the highest environmental and public health risk first. On January 5, 2001, the Clinton Administration finalized regulations to improve the operation of municipal sanitary sewer collection systems, reduce the frequency and occurrence of overflows, clarify the existing CWA prohibition on SSO discharges, and clarify circumstances appropriate for enforcement action. The Clinton proposal was not finalized and remains under review by the Bush Administration. Funding for CSO and SSO projects is a major concern of states and cities. The most recent clean water needs survey estimating the cost of projects to meet objectives of the CWA found that the largest needs category, totaling $51 billion, is to address CSOs. EPA estimates that costs to restrict SSOs are $88.5 billion. In December 2000, Congress passed legislation, the Wet Weather Water Quality Act, authorizing a two-year $1.5 billion grant program to reduce wet weather flows from municipal sewer systems, both CSOs and SSOs. This bill was included in the FY2001 consolidated appropriations bill (Section 112 of Division B, P.L. 106-554 ), which codified EPA's CSO policy on sewer overflows (discussed above). Congress provided no appropriations for these wet weather grants during the two years of authorization (FY2002-FY2003). Wetlands Public debate over the nation's wetlands has come to focus on questions of the effectiveness and costs of wetland resource protection efforts, rather than on whether such resources should be preserved. The permit program authorized by Section 404 of the Clean Water Act is one of the major federal programs that protects wetlands. However, environmentalists and others have criticized Section 404 as being inadequate to prevent the continuing loss of wetlands, due to statutory exemption of certain types of actions on farmlands and weak enforcement. Those wishing to develop wetlands maintain that existing laws are already an intrusion on private land-use decisions and that further federal involvement is unwarranted. How best to protect remaining wetlands and regulate activities taking place in wetlands has become one of the most contentious environmental policy issues facing Congress and was a prominent element of clean water debate during the 103 rd and 104 th Congresses. Although there has been no recent legislative activity on Section 404, committee hearings were held on several issues arising from judicial decisions, administrative actions of interest, and implementation of current law. Particular attention has focused on issues related to a 2001 Supreme Court case which narrowed the government's regulatory jurisdiction over isolated waters, Solid Waste Agency of Northern Cook County (SWANCC) v. U.S. Army Corps of Engineers (531 U.S. 159 (2001)). Since that ruling, some federal courts have interpreted SWANCC narrowly, thus limiting its effect on current permit rules, while a few have read the decision more broadly. On February 21, 2006, the Supreme Court heard arguments in two more cases brought by landowners ( Rapanos v. United States ; Carabell v. U.S. Army Corps of Engineers ) seeking to narrow the scope of the Section 404 permit program. The Court's ruling was issued on June 19 ( Rapanos , v. United States , 126 S.Ct. 2208 (2006)). In a 5-4 decision, a plurality of the Court, led by Justice Scalia, held that the lower court had applied an incorrect standard to determine whether the wetlands at issue are covered by the CWA. Justice Kennedy joined this plurality to vacate the lower court decisions and remand the cases for further consideration, but he took different positions on most of the substantive issues raised by the cases, as did four other dissenting justices. Early judgments by legal observers suggest that the implications of the ruling (both short-term and long-term) are far from clear. Because the several opinions written by the justices did not draw a clear line regarding what wetlands and other waters are subject to federal jurisdiction, one likely result is more case-by-case determinations and continuing litigation. There also could be renewed pressure on the Corps and EPA to clarify the issues through an administrative rulemaking. The Senate Environment and Public Works Committee held a hearing on issues raised by the Court's ruling on August 1, 2006. Members and a number of witnesses urged EPA and the Corps to issue new guidance to clarify the scope of the ruling. Federal officials testifying before the committee said that they hope to do so, but they did not indicate when new guidance would be released. On January 15, 2003, EPA and the Corps issued guidance to their staffs in the field for regulating in light of SWANCC and related cases. At the same time, the agencies issued an advanced notice of proposed rulemaking (ANPRM), seeking public comment on possible rule changes not yet proposed but which may be needed in response to the legal decisions. The agencies received more than 130,000 public comments on the ANPRM, most of them negative, according to EPA and the Corps. Since the 2001 ruling, House and Senate committees have held several hearings to examine issues and frustrations arising from government and judicial interpretations of the decision. In December 2003, EPA and the Corps announced that the Administration would not pursue development of rule changes concerning federal regulatory jurisdiction over isolated wetlands. The EPA Administrator said that the Administration wanted to avoid a contentious and lengthy rulemaking debate over the issue. Environmentalists and state representatives expressed relief at the announcement. Interest groups on all sides have been critical of confusion in implementing the 2003 guidance, which constitutes the main tool for interpreting the reach of the SWANCC decision. However, environmentalists remain concerned about diminished protection resulting from the 2003 guidance, while developers said that without a new rule, confusing and contradictory interpretations of wetland rules likely will continue. Strategy Concerning Animal Feeding Operations As noted previously, EPA's water quality reports identify agricultural activities as the leading contributor to water quality impairments nationwide. Animal feeding operations (AFOs) are only a subset of the agriculture category, but because more than half of the states specifically identify AFOs as contributing to impairments, public and policy attention has increased on how to minimize public health and environmental impacts of runoff from them. AFOs are agricultural facilities that confine livestock feeding activities, thus concentrating animal populations and waste. Animal waste is frequently applied to land for disposal and to utilize the nutrient value of manure to benefit crops. If not managed properly, however, it can pose risks to water quality and public health, contributing pollutants such as nutrients, sediment, pathogens, and ammonia to the environment. In 1999, EPA and the U.S. Department of Agriculture initiated a national AFO strategy to improve compliance and strengthen regulations that are intended to control adverse environmental impacts of these agricultural activities. Clean water regulations, issued in the 1970s, required discharge permits for the largest AFOs, termed confined animal feeding operations (CAFOs). However, EPA acknowledged that compliance and enforcement of these permit rules was poor (less than one-third of covered facilities actually have permits) and that the regulations themselves were outdated. In December 2000, EPA proposed a rule to increase the number of AFOs required to obtain CWA permits and to restrict land application of animal wastes. In May 2001, a House Transportation and Infrastructure subcommittee held an oversight hearing on the proposal. Issues that Congress has addressed include impacts and costs imposed on the agricultural sector, especially small farmers, and how the proposed combination of regulatory and incentive-based measures in the 1999 National AFO Strategy would achieve control of agricultural runoff that adversely affects water quality. On December 15, 2002, the EPA Administrator signed a final revised rule to regulate waste discharges from CAFOs. The final rule, which the agency was under court order to issue by December 2002, modified the Clinton Administration's 2000 proposal in a number of areas. The final rule retains much of the structure of the existing rule, such as regulatory thresholds and definitions, but includes requirements for development of nutrient management plans to better manage land application of manure. EPA estimated that 15,500 CAFOs will be regulated by the rule (compared with 26,000-39,000 under the proposal), at an annual compliance cost of $335 million (versus $850-$980 million under the proposal). Farm groups said that the regulations are generally workable and consistent with environmental initiatives in the 2002 farm bill ( P.L. 107-171 ), but environmental groups criticized the rule for inadequately addressing animal waste runoff problems. A January 2003 GAO report concluded that the rule will be ineffective unless EPA increases its oversight of state regulatory programs, which have primary responsibility for ensuring compliance by feedlot operators. In February 2005, a federal court issued a ruling in a set of challenges to the CAFO rule ( Waterkeeper Alliance, American Farm Bureau, et al. v. EPA , 399 F.3d 486 (2d Cir. 2005)). The litigation involved challenges to the permitting scheme of the rule, the type of discharges subject to regulation, and the effluent limitations established in the rules. The court upheld major parts of the EPA rule, held in favor of some of industry's challenges, held in favor of several of environmentalists' challenges, and in some cases directed EPA to explain more fully why it did or did not do certain things with regard to specific provisions of the rule. It remanded the rule to EPA in light of the court's ruling. The court overturned the "duty to apply" part of the rule, which industry had challenged, that would require all CAFOs to apply for a permit. It also rejected parts of the rule that had been challenged by environmentalists as inadequate, regarding regulatory review of permits, inclusion of nutrient management plans in CAFO permits, and public participation requirements. The court also directed EPA to clarify its rationale for several technical parts of the 2003 regulations. In June 2006, EPA proposed revisions to the CAFO rules in response to the court's decision and expects to promulgate revised regulations by June 2007. Continuing Issue: Appropriations and the Federal Budget Although the 1987 Clean Water Act amendments dealt extensively with financial aid issues, funding questions have continued to arise and be addressed in the context of appropriations. FY2007 The President's FY2007 budget requested $687.6 million for clean water SRF capitalization grants, 22% less than was appropriated in FY2006 (see following section) and 37% below the FY2005 funding level. As in recent budgets, the Administration proposed no funding for congressionally designated water infrastructure grants, but it did seek a total of $40.6 million for Administration priority projects in Puerto Rico, Alaska Native villages, and at the U.S.-Mexico border. Advocates of the SRF program (especially state and local government officials) contended that the cuts would impair their ability to carry out needed municipal wastewater treatment plant improvement projects. Administration officials said that cuts for the SRF in FY2007 were necessary because Congress boosted funds above the requested level in FY2005 and FY2006. A group of state environmental officials contended that the budget unfairly targeted state and local environmental grants. On May 18 the House passed H.R. 5386 ( H.Rept. 109-465 ), providing the requested level of $687.6 million for clean water SRF grants. The Senate Appropriations Committee approved the same funding level for clean water SRF grants when it reported H.R. 5386 on June 29 ( S.Rept. 109-275 ). However, the Senate did not act on this bill before the 109 th Congress adjourned in December 2006, thus delaying final action until early 2007. The amount included in both bills for these clean water grants is significant because, if enacted at that level in a final FY2007 measure, it would be first time since FY1997 that Congress has not appropriated more than was requested in the President's budget. Both bills included funds for congressionally earmarked water infrastructure project grants ($200 million in the House bill, $210 million in the Senate bill), which the Administration did not request. The House-passed bill included $29.6 million for cleanup of contaminated sediments in the Great Lakes ($20 million less than requested), $204 million for Section 319 grants ($10 million more than requested), and $221.7 million for Section 106 state program administration grants (as requested). The Senate-reported bill included slightly different amounts for these programs: $30.6 million for cleanup of contaminated sediments in the Great Lakes, $200 million for Section 319 grants, and $218.7 million for Section 106 grants. During debate on H.R. 5386 , the House approved an amendment (by a 222-198 vote) to block EPA from spending funds to implement controversial 2003 policy guidance that limited Clean Water Act jurisdiction over isolated streams, wetlands, ponds, and other non-navigable intrastate waters. The guidance, issued jointly by EPA and the Army Corps of Engineers, was intended to interpret the scope of the act's jurisdiction following the 2001 Supreme Court SWANCC case (discussed above, see " Wetlands "). Supporters of the amendment said that the guidance goes beyond what the Supreme Court required in SWANCC , has allowed many streams and wetlands to be unprotected from development, and has been more confusing than helpful. Opponents predicted that the amendment would make EPA's and the Corps' job of regulating activities that affect wetlands more difficult than it already is. When the 109 th Congress adjourned in December 2006, it had not completed action on appropriations legislation to fund EPA (or on nine other appropriations bills covering the majority of domestic discretionary agencies and departments), thus carrying over this legislative activity into the 110 th Congress. Congress enacted a continuing resolution, P.L. 109-383 (the third such continuing resolution since the start of the fiscal year on October 1), providing funds for EPA and the other affected agencies and departments until February 15, 2007. FY2006 In July 2005, the House and Senate approved legislation providing FY2006 appropriations for EPA ( H.R. 2361 , H.Rept. 109-188 ). President Bush signed the bill into law on August 2 ( P.L. 109-54 ). One of the most controversial issues in the bill concerned funding for clean water SRF grants. The final measure included $900 million for these grants—$170 million more than requested by the President for 2006. In its budget submission for FY2006, the Administration had requested $730 million for SRF grants, 17.5% less than the FY2005 appropriation and 45.6% below the FY2004 funding level, and said that cuts for the SRF in FY2006 were because Congress boosted funds above their requested level in FY2005. The White House said that it plans to invest a total of $6.8 billion in the clean water SRF program between FY2004 and FY2011, after which federal funding would end and the state SRFs would have an annual revolving level of $3.4 billion. If Congress were to appropriate more than EPA requests in any given year, the Administration said, that target will be met sooner, leading to reduced requests for the SRF in subsequent years until a planned phaseout in FY2011. State and local officials contended that the SRF reductions will impede their ability to meet clean water goals. The President's budget also requested no funds for congressionally earmarked water infrastructure projects, but did seek $70 million in funding for Administration priorities—U.S.-Mexico border projects and Alaska Native Villages projects. The final measure as passed by Congress exceeded the Administration's request by providing $900 million for clean water SRF grants and $285 million for a total of 259 earmarked special projects. However, these totals were reduced slightly as a result of a provision in P.L. 109-54 requiring a 0.476% across-the-board rescission for all accounts in that bill, and were reduced further by another across-the-board rescission of 1.0% affecting all domestic programs except those for veterans that Congress included in a subsequent appropriations bill, P.L. 109-148 . As a result of the two required rescissions, the final FY2006 appropriations for clean water SRF grants is $886.8 million, and the total amount provided for earmarked water infrastructure project grants is $280.8 million. The President's FY2006 budget included increases for some water quality programs (in particular, requesting $50 million for cleanup of Great Lakes contaminated sediment, up from $22 million in FY2005). The budget also included increases for some categorical clean water grant programs (Section 106 state grants for program administration, $23.6 million more than in FY2005; and Section 319 nonpoint source pollution management grants, $1.8 million more than in FY2005) and decreases elsewhere in order to fund other Administration priorities (such as elimination of Water Quality Cooperative Agreement grants, which support a variety of innovative permitting, management, and research projects and were funded at $17 million in FY2005). As enacted, P.L. 109-54 provided $30 million for cleanup of Great Lakes contaminated sediment. It included nonpoint source pollution grants at the FY2005 level and Section 106 grants slightly higher than in FY2005, but less than requested. The bill endorsed the Administration's request for no funding of Water Quality Cooperative Agreement grants. The final bill also included a House-passed provision to prohibit EPA from using funds to finalize or implement a draft policy proposed in November 2003 concerning sewage blending by municipal wastewater treatment plants. For Additional Reading Goplerud, C. Peter. "Water Pollution Law: Milestones from the Past and Anticipation of the Future." Natural Resources & Environment. v. 10, no. 2, fall 1995. pp. 7-12. Loeb, Penny. "Very Troubled Waters." U.S. News & World Report , v. 125, no. 12, September 28, 1998: 39, 41-42. U.S. Congressional Budget Office. Future Investment in Drinking Water and Wastewater Infrastructure. Washington, November 2002. 58 p. U.S. Environmental Protection Agency. The National Water Quality Inventory: 2000 Report . Washington, September 2002. "EPA-841-R-2-001." U.S. Government Accountability Office. Key EPA and State Decisions Limited by Inconsistent and Incomplete Data. (GAO/RCED-00-54) March 2000. 73 p. —— Water Infrastructure: Information on Financing, Capital Planning, and Privatization . (GAO-02-764) August 2002. 79 p. —— Improved EPA Guidance and Support Can Help States Develop Standards That Better Target Cleanup Efforts . (GAO-03-308) January 2003. 74 p.

Congress enacted the last major amendments to the Clean Water Act in 1987 (P.L. 100-4). Since then, the Environmental Protection Agency (EPA), states, and others have been working to implement the many program changes and additions mandated in the law. At issue today—more than 30 years after enactment of the core law—is what progress is being made to achieve its goals. In general, states and environmental groups fault EPA for delays in issuing guidance and providing assistance to carry out the law. EPA and others are critical of states, in turn, for not reaching beyond conventional knowledge and approaches to address their water quality problems. Environmental advocates have been criticized for insufficient recognition of EPA's and states' need for flexibility to implement the act. Finally, Congress has been criticized for not providing adequate resources to meet EPA and state needs. Appropriations for clean water programs, especially water infrastructure, are a continuing issue. Three issues have predominated recently in connection with implementation of the law. The first involves funding to construct municipal wastewater treatment plants under the state revolving fund (SRF) provisions of the 1987 amendments. Budgetary constraints on federal aid for wastewater treatment and large remaining funding needs are long-standing concerns. The President's FY2007 budget requested $688 million for these SRF grants, 22% less than FY2006 funding, and in May 2006 the House passed legislation providing the level requested by the President (H.R. 5386). The Senate Appropriations Committee approved the same level in June. Final action did not occur before the 109th Congress adjourned in December, thus carrying over this legislative activity to the beginning of the 110th Congress. The second issue involves progress in implementing the nonpoint pollution management provisions added in 1987. States have developed management programs describing methods that will be used to reduce nonpoint pollution, which may be responsible for as much as 50% of the nation's remaining water quality problems. Most observers agree that implementation of nonpoint source control measures is significantly hindered by limited resources. EPA has adopted program guidance intended to give states more flexibility and to speed up progress in nonpoint source control. The third issue is impacts of requirements under current law for states to develop total maximum daily loads (TMDLs) in order to address uncontrolled sources of impairment in waters that have not yet achieved water quality standards. In addition, other issues exist that are important to implementation and attaining the goals and objectives of the act. They include efforts to manage overflows of untreated wastewater from municipal sewer systems, and questions about the effectiveness and costs of the nation's wetlands protection efforts, particularly in relation to the wetlands permit program in Section 404 of the act. Congressional oversight of these issues in the 110th Congress is anticipated.

Introduction The Individuals with Disabilities Education Act (IDEA—20 U.S.C. §1400 et seq.) is both a grants statute and a civil rights statute. It provides federal funding for the education of children with disabilities and requires, as a condition for the receipt of such funds, the provision of a free appropriate public education (FAPE). The statute also contains detailed due process provisions to ensure the provision of FAPE. Originally enacted in 1975, the act responded to increased awareness of the need to educate children with disabilities, and to judicial decisions requiring that states provide an education for children with disabilities if they provided an education for children without disabilities. IDEA has been amended several times, most comprehensively (prior to the 108 th Congress) by the 1997 IDEA reauthorization, P.L. 105-17 , the Individuals with Disabilities Education Act Amendments of 1997. The 108 th Congress completed another wide-ranging reauthorization of IDEA. The following is a brief legislative history: On April 30, 2003, House passed H.R. 1350 by a vote of 251 to 171. On May 13, 2004, the Senate incorporated its bill ( S. 1248 ) in H.R. 1350 and passed H.R. 1350 in lieu of S. 1248 by a vote of 95 to 3. The conference committee filed its report on the bill ( H.Rept. 108-779 ) on November 17, 2004. The House agreed to the conference report on November 19, 2004, by a vote of 397 to 3. The Senate approved the conference report on November 19, 2004, by unanimous consent. President Bush signed the bill on December 3, 2004 ( P.L. 108-446 —The Individuals with Disabilities Education Improvement Act of 2004). Most provisions of P.L. 108-446 went into effect on July 1, 2005 . (See the discussion of Title III at the end of the report for certain exceptions.) Additional legislative action could result in connection with consideration of the Elementary and Secondary Education Act (ESEA). It is generally assumed that the 110 th Congress will actively consider legislation to amend and extend the ESEA. (The ESEA is authorized through FY2008.) Such legislation could affect IDEA—for example, regarding how adequate yearly progress (AYP) is assessed for children with disabilities and how special education teachers are determined to be highly qualified. This report details the changes made by P.L. 108-446 covering all parts of IDEA but concentrates on Part B, which authorizes grants for children with disabilities ages 3 to 21 and contains key provisions regarding the structure of special education and related services and the procedural safeguards that guarantee the provision of FAPE to children with disabilities. Section references, unless specified otherwise, refer to sections of P.L. 108-446 . The prior version of IDEA is referenced with respect to P.L. 105-17 (the 1997 reauthorization of IDEA). The report follows the organization of P.L. 108-446 : Title I , which amends IDEA, contains amendments to Part A (general provisions), Part B (which authorizes two state grants programs: the grants-to-states program serving mainly school-aged children with disabilities and the preschool state grants program, authorized in §619), Part C (which authorizes the state grants program of infants and toddlers with disabilities), and Part D (which authorizes various national programs and grants); Title II , which creates the National Center for Special Education Research within the National Institute of Education Sciences; and Title III , which contains miscellaneous provisions, such as the effective dates of the legislation. Title I—Amendments to the Individuals with Disabilities Education Act Part A—General Provisions Part A of IDEA contains findings, purposes, definitions, and certain administrative and general provisions, such as the establishment of the Office of Special Education Programs (OSEP) within the U.S. Department of Education (ED) (§603). The findings and purposes of the 2004 reauthorization largely track the provisions of the 1997 reauthorization. However, there are some changes, particularly in the findings section, which emphasize the need to reduce irrelevant and unnecessary paperwork and to expand opportunities to resolve disagreements between parents and schools in "positive and constructive ways" (§601). Definitions2 P.L. 108-446 retains most of the IDEA definitions (§602); however, the act adds some important definitions and modifies others. Highly Qualified Teachers Arguably one of the most significant new definitions is that of "highly qualified" teachers (§602(10)). P.L. 108-446 links its definition to the definition of "highly qualified" in Section 9101(23) of the Elementary and Secondary Education Act (ESEA) but modifies that definition as it applies to special education teachers. Most notably, it addresses concerns that have been raised about certain groups of special education teachers, such as those who teach more than one "core academic subject." The ESEA definition of "highly qualified" applies only to teachers of core academic subjects and differentiates between new and veteran teachers and between those teaching at the elementary level and above the elementary level. Thus, under ESEA, the "highly qualified" definition applies only to those special education teachers who teach core subjects (although this is probably most special education teachers). P.L. 108-446 provides additional requirements and options to the definition with respect to special education teachers. (See Table 1 below for a summary of these requirements.) First of all, to be highly qualified under IDEA, all special education teachers (whether they teach core subjects or not) must hold at least a bachelor's degree and must obtain full state special education certification or equivalent licensure (§602(10)(B)). Special education teachers who have emergency, temporary, or provisional certification do not meet the IDEA definition. In addition, P.L. 108-446 modifies the ESEA requirements with respect to two groups of special education teachers: those who teach only the most severely disabled children and those who teach more than one core subject . (If the teachers in these two groups meet the IDEA criteria, they are considered to have met the ESEA requirements.) Both new and veteran special education teachers who teach core subjects exclusively to children with disabilities who are assessed against alternative achievement standards under ESEA can, of course, meet the definition of highly qualified by meeting their applicable ESEA standards. Alternatively, new and veteran teachers of these severely cognitive disabled students at the elementary level may meet the "highly qualified" definition by demonstrating "competence in all the academic subjects in which the teacher teaches based on a high objective uniform State standard of evaluation" (often referred to as HOUSSE). Teachers of these students at levels above elementary school can meet the definition by demonstrating "subject matter knowledge appropriate to the level of instruction ... as determined by the State, needed to effectively teach to those standards [i.e., alternative achievement standards]" (§602(10)(C)(ii)). New and veteran special education teachers who teach two or more core subjects exclusively to children with disabilities may qualify as highly qualified by meeting the requirements in each core subject taught under applicable ESEA provisions. Alternatively veteran special education teachers teaching two or more core subjects may also qualify as highly qualified based on the ESEA HOUSSE option (§602(10)(D)(ii)), which may include a single evaluation covering multiple subjects. Finally, newly hired special education teachers teaching two or more core subjects who are already highly qualified in mathematics, language arts, or science are given two years from the date of employment to meet the highly qualified definition with respect to the other core subjects taught through the HOUSSE option (§602(10)(D)(iii)). This two-year window is the only exception to the deadline, explicitly applied to special education teachers, for meeting the "highly qualified" definition under either IDEA or ESEA, which is the end of school year 2005-2006 (ESEA, Section 1119(a)(2)). Regarding other classifications of special education teachers, one can infer that those who do not teach core subjects would meet the IDEA definition if they meet the IDEA criteria for all special education teachers (full certification and at least a bachelor's degree). With respect to special education teachers who provide only consultative services to other teachers, the Conference Report observes that: a special education teacher who provides only consultative services to a highly qualified teacher ... should be considered a highly qualified special education teacher if such teacher meets the requirements of Section 602(10)(A).... Such consultative services do not include instruction in core academic subjects, but may include adjustments to the learning environment, modifications of instructional methods, adaptation of curricula, the use of positive behavioral supports and interventions, or the use of appropriate accommodations to meet the needs of individuals children. The apparent intent is that consultative teachers who do not provide direct instruction in a core subject need only meet the requirements of having obtained at least a baccalaureate degree and be fully state certified as a special education teacher. Other special education teachers who teach only one core subject would appear to have to meet the relevant criteria under the ESEA definition (in addition to the overarching IDEA certification and degree criteria) and would then also be considered highly qualified under IDEA. Finally, §602(10)(E) provides that the definition does not create a right of action based on an employee's failure to meet the "highly qualified" requirements of the act. Other Definitions in §602 Other general definitions added by P.L. 108-446 include: "Core academic subjects" (§602(4)), which cross-references the definition in the ESEA; "Homeless children" (§602(11)), which cross-references the McKinney-Vento Homeless Assistance Act; "Limited English proficient" (§602(18)), also an ESEA cross-reference; "Universal design" (§602(35)), which cross-references the Assistive Technology Act of 1998; "Ward of the state" (§602((36)), which includes a foster child (unless the child has a foster parent, who would meet the definition of "parent"), a ward of the state, or a "child in the custody of a public child welfare agency." Modified definitions include: Adding an exception to the definition of "assistive technology device" (§602(1)) to exclude surgically implanted medical devices; Expanding the definition of "parent" (§602(23)) to include, in addition to the natural parent, an adoptive or foster parent, a guardian, an individual with whom the child lives (such as a grandparent), or an individual legally responsible for the child; Adding specific services to the definition of "related services" (§602(26)), including interpreting services and certain school nursing services and excluding surgically implanted medical devices. General Administrative Provisions P.L. 108-446 continues certain general administrative provisions with respect to the Office of Special Education Services in the U.S. Department of Education (ED) (§603): the abrogation of state sovereign immunity (§604), acquisition of equipment and facilities construction or alteration (§605); and employment of individuals with disabilities (§606). P.L. 108-446 modifies §607 dealing with the Secretary of Education's authority to prescribe IDEA regulations. For example, the Secretary is directed to regulate only as "necessary to ensure that there is compliance with the specific requirements of [IDEA]." This provision was previously found in section 617(b). P.L. 108-446 reduces the public comment period on regulations from 90 days to 75 days. P.L. 108-446 adds a section dealing with state regulations, which, among other requirements, requires states to identify in writing any "State-imposed requirement that is not required by [IDEA] and Federal regulations." (§608(a)(2)) P.L. 108-446 also adds a paperwork reduction pilot program (§609), which permits the Secretary to waive for up to four years for up to 15 states statutory or regulatory requirements (except civil rights requirements) that applying states link to excessive paperwork or other noninstructional burdens. Finally, P.L. 108-446 adds a section continuing eligibility for competitive IDEA grants for the freely associated states "to the extent that such grants continue to be available to States and local educational agencies under [IDEA]" (§610). Part B—Assistance for Children with Disabilities Ages 3 to 21 Allotment and Authorization (§611) Section 611 of IDEA deals with allocations of Part B grants-to-states funds, including set-asides and state and substate formulas. P.L. 108-446 makes only technical changes to some §611 provisions (most notably the state and substate formulas are not substantively changed (§611(d) and §611(f)). At the same time, some changes to §611 are significant. Maximum Grant Calculation and Authorizations (§611(a)(2)) Prior to the enactment of P.L. 108-446 , the maximum amount states could receive under the Part B grants-to-states program was based on 40% of the national average per pupil expenditure (APPE) times the number of children with disabilities the state serves. The sum of these maximum grants is often referred to as IDEA "full funding." P.L. 108-446 maintains this maximum-grant calculation through FY2006. Thereafter, the maximum grant will be 40% of APPE times the number of children with disabilities the state served in school year 2004-2005 adjusted by the annual rates of change in the state's population in the age range comparable to ages for which the state provides FAPE for children with disabilities (85% of the adjustment) and in the state's children living in poverty in the same age range (15% of the adjustment). The prior law authorized "such sums as may be necessary" to carry out the provisions of the grants-to-states program, and this authorization was permanent. P.L. 108-446 provides specific authorization levels for FY2005-FY2011 and authorizes "such sums" for succeeding fiscal years (preserving the permanent authorization (§611(i)). Table 2 lists the authorization amounts. Set-Asides P.L. 108-446 continues to require certain set-asides from the amount appropriated for the grants-to-states program but changes some of these provisions. The Secretary is authorized to reserve up to 1% of the grants-to-states appropriation for outlying areas and the freely associated states; however, the allocation of these funds has been changed (§611(b)(1)). The freely associated states receive the amounts they received for FY2003; the remainder is allocated to the outlying areas according to their population ages 3 to 21. P.L. 108-446 eliminates the competitive allocation of a portion of the set-aside funds through the Pacific Regional Educational Laboratory. P.L. 108-446 maintains the set-aside for assistance for children with disabilities in Bureau of Indian Affairs (BIA) schools provided through the Secretary of the Interior (§611(b)(2)). P.L. 108-446 creates a maximum reserve of 0.5% (or $25 million, whichever is less) for technical assistance provided by the Secretary (required under §616(i)) to improve state data collection (§611(c)). This provision replaces a set-aside from Part B and Part C funds for studies and evaluations. Funds for State Administration and Other State-Level Activities (§611(e)) IDEA permits states to reserve funds for state administration and for other state-level activities. P.L. 108-446 makes only a minor substantive change in the state administration set-aside (§611(e)(1)): namely, it raises the minimum amount that may be reserved to $800,000 (annually adjusted by the rate of inflation). A state may reserve the maximum amount it could reserve for FY2004 (also adjusted by the rate of inflation), unless the minimum amount is greater. P.L. 108-446 permits states to use amounts resulting from these inflationary increases for certain other state-level activities (§611(e)(6)). P.L. 108-446 changes the amount states may reserve for other state-level activities and expands those activities (§611(e)(2)). For FY2005 and FY2006, states may reserve 10% of their grant (or 10.5% if the maximum amount for state administration is $850,000 or less (§611(e)(2)A)(ii)). For subsequent fiscal years, the maximum amount is adjusted by the rate of inflation. In addition to the changed maximum amount of this set-aside, P.L. 108-446 adds to the list of state-level activities. P.L. 108-446 makes two activities mandatory, which were permitted under the prior Act: (1) monitoring, enforcement, and complaint investigation and (2) establishing and maintaining a parental mediation process (§611(e)(2)(B)). Other activities are permitted (§611(e)(2(C)), including some that were available under the prior Act (such as direct services and assisting LEAs to meet personnel shortages) and others that have been added (such as paperwork reduction activities, assistance for local development of positive behavior interventions, support for local capacity building to improve services, and alternative programming for expelled children with disabilities). Risk Pools for High-Need Children with Disabilities (§611(e)(3)) The core requirement of IDEA is providing all children with disabilities with a free appropriate public education (FAPE), which the act defines as meaning special education and related services. Related services are defined to include certain medical services. Provision of medical or other expensive services to ensure FAPE has resulted in very high costs for some school districts. P.L. 108-446 aims to address these high costs by permitting states to reserve 10% of the funds reserved for other state activities (or 1 to 1.05% of the overall state grant) to establish and maintain a risk pool to assist local education agencies (LEAs) serving high-need children with disabilities. States taking advantage of this option must develop and annually review a state plan in which the state determines which children with disabilities are high need, sets out the procedures by which LEAs participate in the risk pool, and determines how funds are distributed. Funds distributed from the risk pool must only pay for "direct special education and related services" for high-need children with disabilities and may not be used for legal fees or related costs. If some funds are not distributed for services for high-need children, they are to be distributed to LEAs according to the substate formula (§611(e)(3)(I)). State Eligibility (§612) Section 612 spells out requirements that states must meet to be eligible for Part B funding. These requirements provide for state guarantees of some of the central provisions of IDEA. In many important respects, P.L. 108-446 retains these guarantees. For example, state eligibility still hinges on its providing FAPE to all children with disabilities in the state, including those who have been suspended or expelled (§612(a)(1)(A)), basing that education on an individualized education program (IEP) (§612(a)(4), and providing that education be provided in the least restrictive environment (§612(a(5)). At the same time, P.L. 108-446 makes significant changes to some state eligibility requirements: most notably those regarding children enrolled by their parents in private schools, personnel qualifications, performance goals and indicators, and participation in assessments. Children with Disabilities in Private Schools A child with a disability may be placed in a private school by the LEA or SEA as a means of fulfilling the FAPE requirement for the child in which case the cost is paid for by the LEA. A child with a disability may also be unilaterally placed in a private school by his or her parents. In the latter situation, the cost of the private school placement is not paid by the LEA unless a hearing officer or a court makes certain findings. However, IDEA does require some services for children in private schools, even if they are unilaterally placed there by their parents. Exactly what these services are or should be has been a contentious subject for many years. The 1997 reauthorization of IDEA expanded on the private school provisions, and the 2004 reauthorization includes several changes to the provisions relating to children who are placed in private school by their parents. The provisions relating to children placed in private schools by public agencies were not changed. Generally, children with disabilities enrolled by their parents in private schools are to be provided special education and related services to the extent consistent with the number and location of such children in the school district served by a LEA pursuant to several requirements (§612(a)(10)(A)(i)). This provision was changed from previous law by the addition of the requirement that the children be located in the school district served by the LEA. The Senate report described this change as protecting "LEAs from having to work with private schools located in multiple jurisdictions when students attend private schools across district lines." There are five requirements regarding this provision of special education. The first is that the funds expended by the LEA, including direct services to parentally placed private school children, shall be equal to a proportionate amount of federal funds made available under part B of IDEA. The 2004 reauthorization added the phrase regarding direct services. The Senate report stated that "it is the committee's intent that school districts place a greater emphasis on services provided directly to such children—like specifically designed instructional activities and related services—rather than devoting funds solely to indirect services such as professional development for private school personnel." Second, a new provision relating to the calculation of the proportionate amount is added. In calculating this amount, the LEA, after timely and meaningful consultation with representatives of private schools, shall conduct a thorough and complete child find process to determine the number of children with disabilities who are parentally placed in private schools. Third, the new law keeps the previous requirement that the services may be provided to children on the premises of private schools, including religious schools, to the extent consistent with law. The 2004 reauthorization added the term "religious" while deleting the term "parochial." Fourth, a specific provision regarding supplementing funds, not supplanting them, is added. State and local funds may supplement and not supplant the proportionate amount of federal funds required to be expended. Fifth, each LEA must maintain records and provide to the SEA the number of children evaluated, the number of children determined to have disabilities, and the number of children served under the private school provisions. The Senate report stated that this requirement was "to help to ensure that these funds are serving their intended purpose." The general requirement regarding child find is essentially the same as previous law. The requirement for finding children with disabilities is the same as that delineated in §612(a)(3) for children who are not parentally placed in private schools, including religious schools. As was done in the previous section, the former use of the term "parochial" is replaced by the term "religious" in the new law. New provisions are added concerning equitable participation, activities, cost and the completion period. Child find is to be designed to ensure the equitable participation of parentally placed private school children with disabilities and their accurate count. The cost of child find activities may not be considered in meeting the LEA's proportional spending obligation. Finally, the child find for parentally placed private school children with disabilities is to be completed in a time period comparable to that for students attending public schools (§612(a)(10)(A)(ii)). P.L. 108-446 adds requirements that the LEA consult with private school officials and representatives of the parents of parentally placed private school children with disabilities. This consultation is to include the child find process and how parentally placed private school children with disabilities can participate equitably; the determination of the proportionate amount of federal funds available to serve parentally placed private school children with disabilities, including how that amount was calculated; the consultation process among the LEA, private school officials and representatives of parents of parentally placed private school children with disabilities, including how the process will operate; how, where, and by whom special education and related services will be provided for parentally placed private school children with disabilities, including a discussion of the types of services, including direct services and alternate service delivery mechanisms, how the services will be apportioned if there are insufficient funds to serve all children and how and when these decisions will be made; and how the LEA shall provide a written explanation to private school officials of the reasons why the LEA chose not to provide services if the LEA and private school officials disagree (§612(a)(10)(A)(iii)). The Senate report described the consultation procedure as similar to that in the No Child Left Behind Act and "therefore, the committee does not believe including these provisions places an undue burden on LEAs." The new law also requires a written affirmation of the consultation signed by the representatives of the participating private schools. If the private school representatives do not sign within a reasonable period of time, the LEA shall forward the documentation to the SEA (§612(a)(10)(A)(iv)). Compliance procedures are added by P.L. 108-446 . Generally, a private school official has the right to submit a complaint to the SEA alleging that the LEA did not engage in meaningful and timely consultation or did not give due consideration to the views of the private school official. If a private school official submits a complaint, he or she must provide the basis of the noncompliance to the SEA, and the LEA must forward the appropriate documentation. If the private school official is dissatisfied with the SEA's determination, he or she may submit a complaint to the Secretary of Education, and the SEA shall forward the appropriate documentation to the Secretary (§612(a)(10)(A)(v)). The 2004 reauthorization contains a specific subsection regarding the provision of equitable services. Services are to be provided by employees of a public agency or through contract by the public agency. In addition, the services provided are to be "secular, neutral, and nonideological" (§612(a)(10)(A)(vi)). The new law further states that the funds that are available to serve pupils attending private schools shall be controlled and administered by a public agency (§612(a)(10)(A)(vii)). As noted above, when a child with a disability is unilaterally placed in a private school by his or her parents, the cost of the private school placement is not paid by the LEA unless a hearing officer or a court makes certain findings. As in previous law, this reimbursement may be reduced or denied if the child's parents did not give certain notice (§612(a)(10)(C)(iii)). Both the 1997 and 2004 reauthorizations contain an exception to this limitation, but this exception is changed somewhat in the new law. Under the new law, the cost of reimbursement is not to be reduced or denied for the failure to provide notice if: the school prevented the parent from providing such notice; the parents had not received notice of the notice requirement; or compliance would likely result in physical harm to the child. Previous law had included a provision that reimbursement not be reduced or denied if a parent is illiterate and had included "serious emotional harm." P.L. 108-446 also contains a new provision allowing, at the discretion of a court or hearing officer, the reimbursement not to be reduced or denied if: the parent is illiterate or cannot write in English; or compliance with the notice requirement would likely result in serious emotional harm to the child (§612(a)(10)(C)(iv)). Personnel Qualifications P.L. 108-446 repeals the requirement that states have comprehensive personnel development systems and makes substantial changes to state requirements with respect to personnel qualifications (§612(a)(14)). P.L. 108-446 continues to mandate that states require qualifications "to ensure that personnel necessary to carry out this part are appropriately and adequately prepared and trained" and adds that personnel serving children with disabilities have "content knowledge and skills to serve" those children (§612(a)(14)(A)). These qualification requirements "shall ensure that [all special education teachers in the state are] highly qualified by the deadline established in section 1119(a)(2) of the Elementary and Secondary Education Act of 1965" (§612(a)(14)(C)). P.L. 108-446 adds a subparagraph dealing with paraprofessionals and providers of related services, which is similar to provisions in the 1997 IDEA except that the current law removes language related to standards that "are not based on the highest requirements in the State." P.L. 108-446 strengthens the state requirement regarding its policy with respect to LEAs' personnel qualifications. Under the prior law, states could have adopted a policy that LEAs "make an ongoing good-faith effort" to "hire appropriately and adequately trained personnel." P.L. 108-446 now requires states to have a policy that LEAs "take measurable steps to recruit, hire, train, and retain highly qualified personnel" (§612(a)(14)(D). Despite this strengthened requirement, P.L. 108-446 adds language noting that these requirements for personnel qualification do not create an individual right of action (i.e., the right to sue a state) based on the failure of a "State educational agency or local educational agency staff person to be highly qualified" (§612(a)(14)(E). Performance Goals and Indicators P.L. 108-446 revises state requirements for performance goals and indicators mainly by linking these to requirements under the Elementary and Secondary Education Act (ESEA). In the prior version of IDEA, states were required to have performance goals for children with disabilities that were "consistent, to the maximum extent appropriate, with other goals and standards for children established by the state" and to establish indicators to measure performance. P.L. 108-446 changes this provision to require that states' performance goals "are the same as the State's definition of adequate yearly progress (AYP), including the State's objectives for progress by children with disabilities" under ESEA (§612(a)(15)(A)(ii). P.L. 108-446 also links performance indicators to ESEA requirements: a state's indicators for measuring progress must include "measurable annual objectives for progress by children with disabilities" under ESEA (§612(a)(15)(B)). Finally, P.L. 108-446 changes states' reporting requirements on progress made toward performance goals from every two years (under the previous law) to every year (under current law) (§612(a)(15)C)). Participation in Assessments Under the previous version of IDEA, states were required to include children with disabilities "in general State and district-wide assessment programs, with appropriate accommodations, where necessary." For children who could not participate in these assessments, states had until July 1, 2000, to develop and implement alternative assessments and guidelines for participation in these alternative assessments. P.L. 108-446 amends assessment participation requirements to align them with ESEA requirements. IDEA now requires that all children with disabilities be included in all state and district-wide assessments, including assessments required under ESEA, with accommodations or alternative assessments if necessary and as included in the child's individualized education program (IEP) (§612(a)(16)(A)). P.L. 108-446 now assumes that states have developed guidelines for accommodations (§612(a)(16)(B)), and that states have implemented guidelines for alternative assessments (§612(a)(16)(C)). Such alternative assessments must follow ESEA requirements—most notably they must be "aligned with the State's challenging academic content standards and challenging student academic achievement standards" (§612(a)(16)(C)(ii)(I)). P.L. 108-446 also provides states with the option of adopting alternative academic standards as permitted by ESEA regulations. If the number of those tested is sufficient to ensure statistical reliability and confidentiality, the achievement of children with disabilities is to be compared with the achievement of all children and such comparisons are to be publically reported. Finally, P.L. 108-466 requires the state and districtwide tests adhere to "universal design principles" to the extent feasible. New State Requirements P.L. 108-446 adds several new requirements to state eligibility determination: In complying with the state non-supplanting and maintenance of effort requirements (§612(a)(17) and (18)), "a State may not use funds paid to it under this part to satisfy State-law mandated funding obligations to local educational agencies, including funding based on student attendance or enrollment, or inflation" ((§612(a)(20)). After the publication in the Federal Register of the National Instructional Materials Accessibility Standard for instructional material for blind persons and others with print disabilities by the National Instructional Materials Access Center, states are to adopt the standard and either coordinate with the center (authorized in §674(e)) or assure the Secretary of Education that instructional materials will be provided in a timely fashion (§612(a)(23)). States must have policies and procedures in effect to prevent over-identification and mis-identification of children with disabilities (§612(a)(24)). SEAs and LEAs are prohibited from requiring that "a child obtain a prescription for a substance covered by the Controlled Substances Act (21 U.S.C. §801 et seq.) as a condition of attending school, receiving an evaluation [under IDEA], or receiving services under [IDEA]" (§612(a)(25)). Local Educational Agency Eligibility (§613) Section 613 of IDEA provides requirements that LEAs must meet to qualify for assistance under Part B. P.L. 108-446 maintains the general requirement that local "policies, procedures, and programs" are consistent with state policies and procedures laid out in §612 (§613(a)(1)). At the same time, P.L. 108-446 makes several important changes to the section, including changes to local maintenance of effort requirements and addition of permitted early intervention services. Exceptions to Local Maintenance of Effort Like many other federal education programs, IDEA requires states and LEAs to follow certain financial principles to ensure that federal funds add to, rather than substitute for, state and local educational funding. One of these principles is the maintenance of effort (MOE) requirement, which, generally in IDEA, requires that state and local spending on special education not be reduced from one year to the next (i.e., a 100% MOE). Prior law allowed certain exceptions to local MOE, one of which allowed LEAs to "treat as local funds" for the purpose of meeting the MOE requirement up to 20% of any annual increase in their IDEA grant. ED regulations interpreted this provision to be non-cumulative, that is, the provision would be applied on a year-to-year basis. For example, if an LEA's grant increased by $10,000 from year 1 to year 2, it could have treated $2,000 (20%) of that increase as local funds to meet the MOE requirement. If the LEA's grant again rose by $10,000 from year 2 to year 3, it could again treat $2,000 as local funds—not $4,000. P.L. 108-446 makes major changes to this exception. First of all, LEAs may use up to 50% of the increase in their IDEA grant to "reduce the level of expenditure" for special education (§613(a)(2)(C)(i)). The intent of this language appears to be that the reductions would be cumulative , that is the reduction for the current year would be taken from the reduced amount of local spending resulting from the reduction allowed for that year. The prior law gave no indication of how the freed-up local funds could be used. P.L. 108-446 requires LEAs exercising this option to use the funds for "activities authorized under the Elementary and Secondary Education Act of 1965" (§613(a)(2)(C)(ii)) and for early intervention services discussed below. P.L. 108-446 continues to provide state authority to prohibit LEAs from using this authority, except that it modifies the criteria for exercising the prohibition and requires states (prior law permitted states) to exercise the prohibition if warranted. Under the prior law, this exception applied only to LEAs, not to states. P.L. 108-446 extends this MOE exception to a state that "pays or reimburses all local educational agencies within the State from State revenue 100 percent of the non-Federal share of the costs of special education and related services" (§613(j)). The Secretary of Education would have similar obligations to deny this option to a state that the state has for LEAs. In addition, a state could not take advantage of this exception "if any local educational agency in the State would, as a result of such reduction, receive less than 100 percent of the amount necessary to ensure that all children with disabilities served by the local educational agency receive a free appropriate public education" based on the combined federal IDEA and state funds (§613(j)(5)). Early Intervening Services P.L. 108-446 permits LEAs to use up to 15% of their IDEA Part B funding for early intervening services for children who have not been identified as children with disabilities "but who need additional academic and behavioral support to succeed in a general education environment" (§613(f)). These services may be provided for students in kindergarten through 12 th grade but should be concentrated on those in kindergarten through 3 rd grade. Funds may be used for professional development for those serving this population as well as educational and behavioral services and support. These funds may be used to supplement early intervening services carried out under the ESEA (§613(f)(5)). If a LEA chooses to use funds for these purposes and takes advantage of the exception to the MOE requirement discussed above, those local funds that would have been used to maintain spending on special education must be used for early intervening services. Other Changes and Additions to §613 P.L. 108-446 makes additional changes and adds new provisions to local eligibility requirements, including: LEAs are permitted to use IDEA funds to implement funding mechanisms (such as cost- or risk-sharing funds) to help pay for high cost education and related services and for administrative case management technology. While P.L. 105-17 made special provisions for public charter schools serving children with disabilities, P.L. 108-446 modifies these provisions, including the requirement that supplementary and related services be provided at the charter school to the same extent that such services are provided at other public schools served by the LEA and that IDEA funds be provided to these schools in proportion to their enrollment of children with disabilities, if this is the basis for distributing funds to other public schools in the LEA (§613(a)(5)); P.L. 108-446 provides similar provisions to those for states for printed instructional material for blind persons and others with print disabilities (§613(a)(6)) (see the discussion above of the state provisions); P.L. 108-446 requires LEA cooperation with efforts to improve electronic transfer of health and educational records of migratory children with disabilities (§613(a)(9)). Evaluations, Eligibility, and Individual Education Programs (§614) Section 614 of IDEA contains many of the key provisions that undergird the special education and related services that are provided for children with disabilities. These include the processes of evaluation and reevaluation, which determine whether a child is eligible for special education, and inform the planning and provision of that child's services; the process of creating the individualized education program (IEP) and the requirements for the IEP; and the composition of the IEP team that creates and revises the IEP. P.L. 108-446 maintains the general structure of the evaluation, eligibility determination, and IEP but makes significant changes to these provisions—many of which aim to reduce paperwork and non-instructional activities. Evaluation and Reevaluation Subsections (a) through (c) of Section 614 of IDEA contain requirements for the initial evaluation, parental consent, reevaluation, and eligibility determination. Initial Evaluation and Reevaluations LEAs are required to "conduct a full and individual initial evaluation" of a child before special education and related services are provided, and to conduct reevaluations as warranted to determine if the education and services provided require revisions or if the child no longer needs special education and related services. P.L. 108-446 adds language that clarifies that either the parent or the LEA may request an initial evaluation. If the LEA makes the request, the parent generally must provide consent for the evaluation to take place (§614(a)(1)(D)). P.L. 108-446 also establishes a timeframe after a parental request for an initial evaluation has been received by the LEA. Such evaluation must take place either within 60 days or within an alternative timeframe established by the state (§614(a)(1)(C)). Reevaluations are required if the child's teacher or parent makes a request or if the LEA determines that the child's educational and service needs, academic achievement, or functional performance warrants a reevaluation. (§614(a)(2)). For example, a reevaluation might be warranted if the child's performance in school significantly improves, suggesting that he or she no longer requires special education and related services, or if the child is not making progress toward the goals set out in his or her IEP, indicating that changes are needed in the education or related services the LEA is providing. The prior version of IDEA required that reevaluations take place at least every three years. P.L. 108-446 permits the parent and the LEA to override this requirement if they agree that a reevaluation is not necessary. In addition, P.L. 108-446 prohibits reevaluations more frequently than once a year, unless the parent and the LEA agree. Parental Consent If the LEA proposes to conduct an initial evaluation of a child to determine a child's eligibility for IDEA services, it must generally obtain consent from the parent of the child. Provision of parental consent for the evaluation does not commit the parent to consenting to special education and related services for the child (§614(a)(1)(i)(I)). Rather the LEA must seek "informed consent" from the parent before initiating IDEA services (§614(a)(1)(i)(II)). P.L. 108-446 provides extensive new language to deal with situations in which the parent fails to provide consent or does not respond to the LEA's request for the initial evaluation. Under those circumstances, the LEA may use procedures described in §615 (dealing with procedural safeguards) to initiate the evaluation (§614(a)(1)(ii)(I)). If the parent refuses the provision of special education and related services for the child based on the initial evaluation, P.L. 108-446 directs the LEA not to "provide special education and related services to the child by utilizing the procedures described in section 615" (§614(a)(1)(ii)(II)). Under such circumstances, the LEA would not be considered to be violating its obligation to provide FAPE, nor would it be obligated to develop an IEP for the child (§614(a)(1)(ii)(III)). P.L. 108-446 provides specific procedures dealing with parental consent for children who are wards of the state (§614(a)(1)(iii)). The LEA is to make "reasonable efforts" to obtain parental consent for the initial evaluation. However, parental consent is unnecessary if the LEA, after reasonable efforts, cannot locate the parent, the parent's rights have been terminated by state law, or a judge has subrogated the parent's right to make educational decisions for the child (§614(a)(1)(iii)(II)). Evaluation Procedures and Eligibility Determination64 P.L. 108-446 continues many of the evaluation requirements of the prior version of IDEA: for example, multiple measures or assessments must be used to determine eligibility for IDEA services, and these measures or assessments must be technically sound. One notable change to these requirements deals with the language or mode of communication used to administer assessments. Prior law required that "tests and other evaluation materials" be "provided and administered in the child's native language or other mode of communication, unless it is clearly not feasible [emphasis added] to do so.... " P.L. 108-446 rephrases this requirement as follows: "assessments and other evaluation materials" must be "provided and administered in the language and form most likely to yield accurate information on what the child knows and can do academically, developmentally, and functionally, unless it is not feasible [emphasis added] to so provide or administer.... " (§614(b)(3)(A)(ii)). P.L. 108-446 also addresses concerns about children with disabilities who transfer from one LEA to another during the school year by requiring coordination between "such children's prior and subsequent schools, as necessary and as expeditiously as possible, to ensure prompt completion of full evaluations" (§614(b)(3)(D)). P.L. 108-446 continues to require that the eligibility for special education and related services be determined by "a team of qualified professionals" and the child's parent (§614(b)(4)(A)) and that eligibility not be predominantly based on the lack of appropriate reading or mathematics instruction or on limited English proficiency. P.L. 108-446 adds specific requirements regarding the determination of specific learning disabilities. In determining whether a child has a specific learning disability, an LEA "shall not be required to take into consideration whether a child has a severe discrepancy between achievement and intellectual ability ..." (§614(b)(6)(A)). P.L. 108-446 continues to require an evaluation before determining that a child no longer requires special education and related services. The act adds new exceptions to this requirement making the change-in-eligibility evaluation unnecessary if the child graduates from high school with a regular diploma or reaches the age at which state law no longer provides for FAPE (§614(c)(5)(B)(i)). For children whose eligibility for IDEA services ends as a result of graduation or age termination, the LEA is required to provide a summary of his or her academic and functional performance, including "recommendations on how to assist the child in meeting the child's postsecondary goals" (§614(c)(5)(B)(ii)). The Individualized Education Program (IEP) The IEP is the blueprint for the education and related services that the LEA provides for a child with a disability, together with the goals, academic assessment procedures, and placement of the child (§614(d)). P.L. 108-446 maintains the general requirements for the IEP but changes or deletes some requirements and adds some new requirements. P.L. 108-446 continues to require an articulation of the child's current academic and functional performance levels and a discussion of measurable annual goals. A notable change is the elimination of the requirement for "benchmarks and short-term objectives" for all children with disabilities except those who are the most severely cognitively disabled (§614(d)(1)(A)(i)(I)(cc)). The IEP is to detail any accommodations that the IEP team determines are necessary for measuring the child's achievement and functional performance on state and districtwide assessments (§614(d)(1)(A)(i)(VI)(aa)). If the IEP determines that the child is to take an alternative assessment rather than the regular state or districtwide assessments, the IEP must explain why an alternative assessment is necessary and why that assessment is appropriate (§614(d)(1)(A)(i)(VI)(bb)). Prior law required that the IEP contain a statement of "transition service needs" beginning at age 14 and annually updated to ease and support the transition from the IDEA program in public school to education, employment, and (when necessary) independent living after public schooling ended. P.L. 108-446 changes the timing of this requirement to "not later than the first IEP to be in effect when the child is 16" and continues the requirement for annual updates (§614(d)(1)(A)(i)(VIII). P.L. 108-446 adds a transition-services requirement for postsecondary goals for appropriate education, training, employment, and independent living skills (§614(d)(1)(A)(i)(VIII)(aa)). Finally, P.L. 108-446 adds a rule of construction that no additional information is required for the IEP beyond that explicitly required in §614 and that information in one part of the IEP need not be contained in another part (§614(d)(1)(A)(ii)). The IEP Team and the IEP Process P.L. 108-446 maintains the general composition of the IEP team, including the parent, one or more special education teachers, one or more regular education teachers (if appropriate), and other LEA representatives (§614(d)(1)(B)). P.L. 108-446 does make additions and alterations to the IEP team requirements aimed at reducing paperwork and other burdens of the IEP process and providing procedures for the IEPs of children with disabilities who change LEAs during the school year. P.L. 108-446 permits members of the IEP team to be excused from IEP meetings if the parent and the LEA agree (§614(d)(1)(C)). If the meeting topic does not deal with the member's areas of concern, there are no further requirements. If the meeting deals with the excused member's areas, he or she must provide written input to the parent and to the team. In all cases, the parent's agreement or consent must be obtained in writing. P.L. 108-446 continues to require that each LEA have an IEP for each child with a disability in place at the beginning of the school year (§614(d)(2)(A)). The act adds requirements for children who transfer from one school district to another during the school year (§614(d)(2)(C)). For those children changing districts within a state, the new LEA must provide "services comparable to those described in the previous IEP" until it adopts the previous IEP or develops and implements a new IEP. For children transferring between states, the new LEA must also continue comparable services until it conducts an evaluation of the child (if the LEA determines it to be necessary) and "develops a new IEP, if appropriate, that is consistent with Federal and State law." (§614(d)(2)(C)(i)). Both the old and new schools are required to "take reasonable steps" to ensure that the child's IEP, supporting documentation, and other records are promptly transferred (§614(d)(2)(C)(ii)). P.L. 108-446 makes certain revisions to expedite changes to the IEP. If the parent and the LEA agree, changes to the IEP after the annual IEP meeting may be made via a written document without holding an IEP meeting (§614(d)(3)(D)). In addition, LEAs are encouraged to consolidate reevaluation meetings with IEP meetings for other purposes if possible (§614(d)(3)(E)). Finally, changes to the IEP may be made by amending it, rather than completely redrafting it (§614(d)(3)(F)). P.L. 108-446 authorizes a multi-year demonstration (§614(d)(5)). The Secretary of Education is authorized to approve demonstration proposals from up to 15 states. These demonstrations would allow parents and LEAs to adopt IEPs covering up to three years that coincide with the child's "natural transition points." The multi-year IEPs must be optional for parents and based on their informed consent. They must contain measurable annual goals linked to natural transition points. The IEP team must review the IEP at each transition point and annually to determine if progress is being made toward annual goals. More frequent reviews are required if sufficient progress is not being made. Beginning in 2006 and annually thereafter, the Secretary must report on the effectiveness of the demonstration programs. Finally, P.L. 108-446 permits alternatives to physical meetings, such as video conferencing and conference telephone calls. These alternatives can take the place of physical IEP meetings and administrative meetings related to procedural safeguards under §615 (such as scheduling and exchange of witness lists) (§614(f)). Procedural Safeguards (Section 615) Section 615 provides procedural safeguards for children with disabilities and their parents. This section has been a continual source of controversy, especially the provisions relating to the discipline of children with disabilities. The House and Senate bills differed dramatically in their §615 language. The enacted version contains some provisions from both the House and Senate versions but most closely tracks the Senate version. The following is a brief discussion of the major changes made in §615 by the new law. Homeless Children The requirement, found in §615(a), that state educational agencies establish and maintain procedures to ensure procedural safeguards regarding a free appropriate public education (FAPE) is the same as previous law. Many of the types of procedures are also the same but several changes have been made; notably, more detailed procedures have been added regarding the appointment of an individual to act as a surrogate for parents in situations where the child is a ward of the state or is an unaccompanied homeless youth. The state is required to make reasonable efforts to ensure the assignment of a surrogate not more than thirty days after there is a determination by the agency that the child needs a surrogate (§615(b)). Statute of Limitations Regarding Complaints The types of procedural safeguards required by §615(b) include an opportunity for any party to present a complaint but provides that such complaint may only be presented concerning violations that occurred not more than two years before the date the parent or public agency knew or should have known about the alleged action. There are several exceptions to this statute of limitations. First, if state law has an explicit time limitation for presenting a complaint, that provision shall control. In addition, the time requirement does not apply to a parent if the parent was prevented from presenting the complaint due to specific misrepresentations by the LEA that it had resolved the problem or the local educational agency withheld information from the parent that was required to be provided under Part B (§615(b)(6)). Due Process Complaint Notice The due process procedures must require that either party or the attorney representing a party provide a due process complaint notice to the other party and forward a copy to the state educational agency (SEA). This notice, found at §615(b)(7), must include the name, home address, and school the child is attending as well as a description of the nature of the problem and a proposed resolution. New provisions are added allowing available contact information to be used for a homeless child. Another new provision requires that a party may not have a due process hearing until the notice is filed. There are further requirements for the due process complaint notice contained in §615(c)(2). Generally, the due process complaint notice shall be deemed sufficient unless the party receiving the notice notifies in writing both the hearing officer and the other party that the receiving party believes the notice does not meet the requirements of §615(b)(7). This notice must be provided within fifteen days of receiving the complaint (§615(c)(2)(C)), and within five days of the receipt of this notification, the hearing officer shall make a determination of whether the notice meets the requirements of §615(b)(7) and immediately notify the parties in writing. There are detailed requirements concerning the response to the complaint at §615(c)(2)(B). The due process complaint may be amended only if the other party consents in writing and is given the opportunity to resolve the complaint through the resolution session or if the hearing officer grants permission not later than five days before a due process hearing occurs. Procedural Safeguards Notice The procedural safeguards notice requirements are amended to reduce the paperwork burden on schools. The new law requires that a copy of the procedural safeguards available to the parents of a child with a disability shall be given to the parents only one time a year except that a copy shall also be given upon initial referral or parental request for evaluation, upon the first occurrence of the filing of a complaint, and upon the request of a parent (§615(d)(1)). The description of the contents of the procedural safeguards notice generally tracks previous law except that there are additions relating to the opportunity to resolve complaints, including the time period in which to make a complaint, the opportunity for the agency to resolve the complaint, the availability of mediation, and the time period in which to file civil actions (§615(d)(2)). Mediation The 1997 reauthorization of IDEA added provisions relating to the mediation of disputes. The 2004 reauthorization kept much of the 1997 language while adding subheadings. Two more significant changes are made, however. Under the 1997 law, SEAs or LEAs could establish procedures to require a parent who chose not to use mediation to meet with a disinterested party who could explain and encourage the use of mediation. The new law does not allow the SEAs or LEAs to "require" such meetings; rather, the SEAs or LEAs may establish procedures "to offer" such meetings (§615(e)(2)(B)). Second, the 2004 law provides for a written, legally binding, agreement if resolution is reached during mediation. This document is (1) to state that all discussions are confidential and may not be used as evidence in any subsequent due process or civil proceeding, (2) to be signed by both the parent and agency representative, and (3) to be enforceable in a state court of competent jurisdiction or in U.S. district court (§615(e)(2)(F)). Impartial Due Process Hearing The cornerstone of the procedural safeguards under IDEA is the impartial due process hearing which is available after a complaint has been filed. The new law adds several provisions to the requirement. For example, the opportunity for a due process hearing is extended not only to the parents of a child with a disability but also to the local educational agency (§615(f)(1)(A)). Resolution Session A new provision for a "resolution session" is added as a requirement prior to a due process hearing. This preliminary meeting involves the parents, the relevant members of the IEP team, and a representative of the local educational agency who has decision-making authority. The session must be convened within 15 days of receiving notice of the parent's complaint. During the resolution session, the parents of the child with a disability discuss their complaint and the LEA is provided the opportunity to resolve the complaint. The LEA may not include its attorney unless the parent is accompanied by an attorney. The resolution session may be waived by the LEA and the parents in writing or if they agree to use the mediation process. If the LEA has not resolved the problem within thirty days from the receipt of the parents' complaint, the due process hearing may occur and the applicable time lines shall commence. If an agreement is reached at the resolution session, the parties must execute a legally binding agreement signed by both parties and which is legally enforceable in any state court or U.S. district court. A party may void the agreement within three business days (§615(f)(1)(B)). Hearing Officer Requirements An IDEA hearing officer plays a key role in the protection of procedural rights and the new law adds to the requirements for this position. In addition to the previous requirement that the hearing officer not be an employee of the SEA or LEA involved in the education or care of the child, the new law adds that the hearing officer may not be a person who has a personal or professional interest that conflicts with the person's objectivity. The Senate report notes that the committee does not intend this provision to exclude members of professional associations or exclude special educators from other school districts from serving as hearing officers if they meet the other qualifications. In addition, the new law provides that the hearing officer must possess knowledge of the IDEA statute, regulations and federal and state case law; possess the knowledge and ability to conduct hearings in accordance with appropriate, standard legal practice; and possess the knowledge and ability to render and write decisions in accordance with appropriate, standard legal practice (§615(f)(3)(A)). Subject Matter of Hearing The new law specifically states that the party requesting the due process hearing is not allowed to raise issues at the due process hearing that were not raised in the due process complaint notice (§615(f)(3)(B)). In addition, the decision of the hearing officer must be made on substantive grounds based on a determination of whether the child with a disability received a free appropriate public education (FAPE). However, there is an exception to this requirement. A hearing officer may find that a child with a disability did not receive a free appropriate public education only if the procedural inadequacies impeded the child's right to FAPE, significantly impeded the parents' opportunity to participate in the decision-making process regarding the provision of FAPE, or caused a deprivation of educational benefits. In addition, a hearing officer may order a LEA to comply with the procedural safeguards of section 615 and, in addition, the limitations regarding procedural inadequacies do not prevent a parent from filing a complaint with the SEA. The Senate report discussed this provision noting that there have been cases "in which a hearing officer has found that a school denied FAPE to a child with a disability based upon a mere procedural technicality, rather than an actual showing that the child's education was harmed by the procedural flaw.... The ramifications of this are great when considering that such a finding can subject a school district to the payment of attorneys' fees." However, the Senate report also observed that there are procedural violations which can deny a child FAPE. "For example, a school's failure to give a parent access to initial evaluation information to make an informed and timely decision about their child's education can amount to a FAPE violation." The 2004 reauthorization added exceptions to the requirement that decisions be made on substantive grounds to address these concerns. Statute of Limitations Regarding Requests for a Hearing The 2004 reauthorization includes statutes of limitations in various sections. As previously discussed Section 615(b) provides for a two-year statute of limitations regarding the filing of a complaint. There is also a two-year statute of limitations regarding requests for a hearing. The two years is from the date the parent or agency knew or should have known about the alleged action. In addition, if the state has an explicit time limitation for requesting a hearing, the state law on the subject shall prevail (§615(f)(3)(C)). However, the statute of limitations provisions in §615(f)(3)(C) shall not apply to a parent if the parent was prevented from requesting a hearing because of specific misrepresentations by the LEA that it had resolved the problem, or the LEA's withholding of information that was required to be provided to the parent (§615(f)(3)(D)). Appeals The 1997 reauthorization provided that if the due process hearing was conducted by an LEA, it could be appealed to the SEA. The 2004 reauthorization keeps this provision, adding subheadings (§615(g)). Safeguards Previous law contained a provision on safeguards that were available to parties to a hearing, including the right to be accompanied and advised by counsel, to present evidence and confront witnesses, and to a written or electronic record. This section was substantively unchanged by the 2004 reauthorization (§615(h)). Administrative Procedures The 1997 reauthorization contained a number of provisions relating to what happens after the due process hearing. Decisions made in the hearing were to be final except that they could be appealed to the SEA, in which case that decision would be final. However, any party had a right to bring a civil action in state court or U.S. district court. These provisions continue in the 2004 reauthorization. Statute of Limitations to Appeal to Court The new law adds another statute of limitations; the party bringing the action has ninety days from the date of the hearing officer's decision to appeal to a court, or if the state has an explicit time limitation for bring such actions, the state law on the subject shall prevail (§615(i)(2)(B)). Attorneys' Fees As under previous law, a court, in its discretion, may award reasonable attorneys' fees as part of the costs to a prevailing party who is the parent of a child with a disability (§615(i)(3)(B)). However, the 2004 reauthorization also allows for attorneys' fees against the attorney of a parent for a SEA or LEA who is a prevailing party where the complaint is frivolous, unreasonable, or without foundation or where the parents' attorney continues to litigate after the litigation clearly becomes frivolous, unreasonable, or without foundation (§615(i)(3)(B)(i)(II)). In addition, attorneys' fees may be awarded to a prevailing SEA or LEA against the attorney of a parent or against the parent if the parent's complaint or subsequent cause of action is presented for an improper purpose such as to harass, cause unnecessary delay or needlessly increase the cost of litigation (§615(i)(3)(B)(i)(III)). These provisions are not applicable to the limitations on attorneys' fees that affect the District of Columbia (§615(i)(3)(B)(ii)). The previous requirements for attorneys' fees to be based on rates prevailing in the community and the prohibition of the use of bonuses or multipliers are kept in the new law as is the prohibition of attorneys' fees and related costs if a written offer of settlement is made and certain conditions apply (§615(i)(3)(C) and (D)). The new law also retains the exception to the provision regarding settlement contained in the previous law allowing attorneys' fees and related costs to a parent who is a prevailing party and who was substantially justified in rejecting the settlement offer (§615(i)(3)(E)). The 2004 reauthorization adds a new provision essentially prohibiting attorneys' fees for the resolution session. Previous law provided for a reduction in the amount of attorneys' fees when the court finds that the parent unreasonably protracted the final resolution of the controversy, the amount unreasonably exceeds the hourly rate prevailing in the community, the time spent was excessive or the attorney did not provide the appropriate information in the notice of the complaint. The new law keeps these provisions and also allows a court to reduce attorneys' fees if the parents' attorney unreasonably protracts the final resolution of the controversy (§615(i)(3)(F)). Stay Put The 2004 reauthorization keeps the stay put provision at §615(j). This provision states that except as provided in §615(k)(4) for disciplinary procedures (discussed below) or if the SEA or LEA and the parents agree, a child with a disability remains in his or her current education placement during the pendency of §615 proceedings. Disciplinary Procedures Disciplinary provisions relating to children with disabilities were a contentious issue during the 1997 reauthorization, and they remained a contentious issue in the 2004 reauthorization. Schools have often argued that the discipline provisions for children with disabilities should be the same as those for children without disabilities, and that the provisions of IDEA regarding discipline created too much of a paperwork burden. Advocates for children with disabilities, on the other hand, often argued that IDEA was enacted in 1975, in part, to prevent schools from unilaterally denying services to children with disabilities when they misbehaved, that due process procedures are necessary to prevent this denial of education, and that children with disabilities should not be punished for behavior that was caused by their disability. Although the 2004 reauthorization made significant changes to §615(k), it did keep many of the provisions of the previous law, including the concept of a manifestation determination. A manifestation determination, as discussed in more detail below, is a procedure to determine whether or not the behavior of a child with a disability was caused by a child's disability. Suspensions and Conduct That is Not a Manifestation of a Disability New provisions were added by the 2004 reauthorization concerning the authority of school personnel. School personnel may consider, on a case-by-case basis, any unique circumstances when determining whether to order a change in placement for a child with a disability who violates a code of student conduct (§615(k)(1)(A)). The authority of school personnel to remove a child to another placement or suspension for not more than ten school days is retained from previous law (§615(k)(1)(B)). Also kept from previous law is the provision that allows school personnel to apply the same disciplinary procedures to children with disabilities as children without disabilities if the violation of a school code of conduct is not a manifestation of the child's disability, except that educational services may not cease (§615(k)(1)(C)). Educational Services The 2004 reauthorization adds a section on the services which must be provided when a child with a disability is removed from his or her current placement, whether or not the behavior that triggered the move is determined to be a manifestation of the child's disability. Under the new law, children with disabilities must continue to receive educational services that enable the child to continue to participate in the general education curriculum and to progress toward meeting his or her IEP goals. In addition, children with disabilities must receive, as appropriate, a functional behavior assessment, behavioral intervention services and modifications that are designed to address the behavior violation (§615(k)(1)(D)). Manifestation Determination The concept of a manifestation determination originated in policy interpretations of IDEA by the Department of Education. The theory is that when behavior, even inappropriate behavior, is caused by a disability, the response of a school must be different that when the behavior is not related to the disability. The concept of a manifestation determination was placed in statutory language in the 1997 reauthorization. Although the House- passed bill would have deleted the concept, Congress kept the manifestation determination in the 2004 law but attempted to clarify its application. The 2004 reauthorization provides that, within 10 days of a decision to change the placement of a child with a disability because of a violation of a code of student conduct, the LEA, the parent, and relevant members of the IEP team shall review all relevant information in the student's file, including the IEP, teacher observations, and any relevant information provided by the parents to determine if the conduct in question was caused by or had a direct and substantial relationship to the child's disability or if the conduct in question was the direct result of the LEA's failure to implement the IEP. If the LEA, the parent and relevant members of the IEP team determine that the conduct in question was caused by or had a direct and substantial relationship to the child's disability or if the conduct in question was the direct result of the LEA's failure to implement the IEP, the conduct is determined to be a manifestation of the child's disability. This framework does not apply, however, to situations involving the school personnel's authority to remove a child with a disability for not more than ten school days (§615(k)(1)(E)). This current manifestation determination differs from previous law, which had the manifestation determination review conducted by the IEP team and other qualified personnel. The previous law provided that the IEP team may determine that the behavior of the child was not a manifestation of the child's disability only if the IEP team considered certain listed factors and then determined that the child's IEP and placement were appropriate and special education services, supplementary aids and services, and behavior intervention strategies were provided consistent with the child's IEP and placement. In addition, under previous law, the IEP team had to determine that the child's disability did not impair the ability of the child to understand the impact and consequences of the behavior and that the child's disability did not impair the ability of the child to control the behavior ( P.L. 105-17 , §615(k)(4)). Under the 2004 reauthorization, if the LEA, the parent, and relevant members of the IEP team determine that the conduct was a manifestation of the child's disability, the IEP team must conduct a functional behavior assessment and implement a behavior intervention plan for the child if this has not been done before. If there was a behavioral intervention plan, it shall be reviewed and modified as necessary to address the behavior. Except for situations involving weapons, drugs, or serious bodily injury, when the conduct is a manifestation of the disability, the child shall return to the placement from which he or she was removed unless the parent and the LEA agree to a change of placement as part of the modification of the behavioral intervention plan (§615(k)(1)(F)). Interim Alternative Educational Settings As in previous law, school personnel may remove a student with a disability to an interim alternative education setting regardless of whether the behavior is a manifestation of the disability in certain circumstances and for a limited amount of time. Under previous law, the time limitation was not more than 45 days; under the new law the time limitation is for not more than 45 school days. The regulations promulgated under the 1997 reauthorization defined "day" as meaning calendar day unless otherwise indicated. "School day" is defined in the regulation as any day that students are in attendance at school for instructional purposes. Thus the new law would appear to add additional time to the limit on a child's placement in an interim alternative setting. Both the old and new laws permitted this placement in an interim alternative educational setting if a child carries or possesses a weapon to or at school or at a school function, or if a child knowingly possesses or uses illegal drugs or sells or solicits the sale of a controlled substance while at school or on school premises or at a school function. The 2004 reauthorization adds another situation to the school personnel's authority: where a child has inflicted serious bodily injury upon another person while at school, on school premises, or at a school function (§615(k)(1)(G)). P.L. 108-446 also adds a notification provision. Not later than the date on which the decision to take disciplinary action is made, the LEA must notify the parents of the decision and of the relevant procedural safeguards (§615(k)(1)(H)). Both previous and new law provide that the determination of the interim alternative educational setting shall be determined by the IEP team. However, in the 1997 law, this applied only to situations involving weapons or drugs. The 2004 reauthorization includes situations where the child's behavior is determined not to be a manifestation of the child's disability and school personnel seek to change the child's placement, and situations involving the infliction of serious bodily injury (§615(k)(2)). Appeals The 2004 reauthorization allows a parent who disagrees with any decision regarding placement or the manifestation determination, or a LEA that believes that maintaining the current placement of the child is substantially likely to injure the child or others, to request a hearing (§615(k)(3)(A)). The new law specifically delineates the authority of a hearing officer. First, a hearing officer is to hear and make a determination regarding any hearings requested pursuant to §615(k)(3)(A). In making this determination, the hearing officer may order a change of placement which may include: returning a child with a disability to the placement from which he or she was removed, and ordering a change in placement to an appropriate interim alternative educational setting for not more than 45 school days if the hearing officer determines that maintaining the current placement of the child is substantially likely to result in injury to the child or others. The new law also changes the "stay put" provision in the appeals section. Under the 2004 reauthorization, when an appeal has been requested by either a parent or the LEA under §615(k)(3), the child is to remain in the interim alternative educational setting pending the decision of the hearing officer or until the time period for the disciplinary infraction ends. Under previous law, the child was to remain in the interim alternative educational setting for 45 days unless the school and the parents agreed or a hearing officer rendered a decision ( P.L. 105-17 , §615(k)(7)). The new law requires that the SEA or LEA must arrange for an expedited hearing that must occur within 20 school days from when the hearing is requested. The hearing determination must be made within ten school days after the hearing (§615(k)(4)). Protections for Children Not Yet Eligible for Special Education and Related Services The 2004 reauthorization keeps much of the previous law regarding the protections afforded children who have not yet been identified as eligible for special education. However, several changes were made regarding when a LEA is deemed to have knowledge that a child is a child with a disability. Generally, a LEA is deemed to have knowledge that a child is a child with a disability if, before the behavior that precipitated the disciplinary action: the parent of the child expressed concern, in writing, to supervisory or administrative personnel of the LEA or the child's teacher that the child is in need of special education and related services, the parent has requested an evaluation, or the teacher of the child or other LEA personnel has expressed specific concerns about a pattern of behavior directly to the director of special education or other supervisory personnel (§615(k)(5)). Under previous law, a LEA was deemed to have knowledge that a child is a child with a disability if the behavior or performance of the child demonstrated the need for such services. This section was deleted from P.L. 108-446 . The Senate report stated that this provision was deleted because a teacher could make an isolated comment to another teacher expressing concern about behavior and that could trigger the protections. The 2004 reauthorization also contains a new exception stating that a LEA shall not be deemed to have knowledge that a child is a child with a disability if the parent of the child has not allowed an evaluation of the child, or has refused services, or the child has been evaluated and it was determined that the child was not a child with a disability (§615(k)(5)(C)). The provisions of previous law regarding the conditions that apply if the LEA has no basis of knowledge that a child is a child with a disability were kept by the 2004 reauthorization. If a LEA does not have such knowledge, the child may be subjected to disciplinary measures that are applied to children without disabilities who engage in similar behaviors. Referral to and Action by Law Enforcement and Judicial Authorities The 2004 reauthorization keeps the previous requirements concerning referral to law enforcement authorities. Nothing in Part B is to be construed to prohibit an agency from reporting a crime committed by a child with a disability to appropriate authorities. Like previous law, an agency reporting a crime committed by a child with a disability shall ensure that copies of certain records are transmitted (§615(k)(6)). Definitions The definitions of "controlled substance," "illegal drug," and "weapon" are the same as in the 1997 reauthorization. The previous definition of substantial evidence is deleted and a new definition of "serious bodily injury" is added. Serious bodily injury is defined as having the meaning given in 18 U.S.C. §1365 (h)(3), which states: "the term 'serious bodily injury' means bodily injury which involves—(A) a substantial risk of death; (B) extreme physical pain; (C) protracted and obvious disfigurement; or (D) protracted loss or impairment of the function of a bodily member, organ, or mental faculty" (§615(k)(7)). Rule of Construction The 1997 reauthorization provided that nothing in this title shall be construed to restrict or limit rights under the Constitution, the Americans with Disabilities Act, title V of the Rehabilitation Act of 1973 or other federal laws protecting the rights of children with disabilities. The 2004 reauthorization kept this language except that instead of "nothing in this title," the new law reads "nothing in this part" (§615(l)). Transfer of Parental Rights at the Age of Majority P.L. 108-446 keeps the same language as in previous law. Generally, a state may provide that when a child with a disability reaches the state age of majority, the state may transfer certain rights to the child (§615(m)). Electronic Mail The 2004 reauthorization adds a new provision allowing a parent of a child with a disability to receive required notices by electronic mail if the agency makes such an option available (§615(n)). Separate Complaint The new law adds a provision stating that nothing in §615 shall be construed to preclude a parent from filing a separate due process complaint on an issue separate from a due process complaint already filed (§615(o)). Monitoring, Technical Assistance, and Enforcement (Section 616) Federal and State Monitoring Major changes were made to Section 616 by P.L. 108-446 . Generally, Congress determined that the previous law on monitoring focused too much on compliance with procedures and in the 2004 reauthorization, shifted the emphasis to focus on student performance. Under the new law, the Secretary of Education is to monitor implementation of Part B by oversight of the general supervision by the states and by the state performance plans. The Secretary is to enforce Part B as described in §616(e) and to require states to monitor implementation by LEAs and to enforce Part B. Under P.L. 108-446 , the primary focus of federal and state monitoring activities is to be on improving educational results and functional outcomes for children with disabilities and ensuring that states meet the program requirements (§616(a)(2)). The new law lists certain priority areas for monitoring which are to be monitored using quantifiable indicators. The priority areas are: the provision of a free appropriate public education in the least restrictive environment; state exercise of general supervisory authority, including child find, effective monitoring, the use of resolution sessions, mediation, voluntary binding arbitration, and a system of transition services; and disproportionate representation of racial and ethnic groups in special education and related services to the extent the representation is the result of inappropriate identification (§616(a)(3)). In addition to these priority areas, the Secretary of Education is also required to consider other relevant information and data (§616(a)(4)). The conference report emphasizes the rigorous nature of the Secretary's monitoring. "The Secretary is directed to monitor states using rigorous targets and to request such information from states and stakeholders as is necessary to implement the purposes of IDEA, including the use of on-site monitoring visits and student file reviews, and to enforce the requirements of the IDEA." The Secretary is also strongly encouraged "to review all relevant and publicly available data, including the data gathered under Section 618, related to the targets and priority areas established for reviewing the efforts of States and local educational agencies to implement the requirements and purposes of IDEA. The Secretary is also authorized to use qualitative measures to inform his decision-making process in determining the efforts of the State or LEA in implementing IDEA." State Performance Plans P.L. 108-446 requires that states have in place a performance plan evaluating the state's efforts to implement the requirements and purposes of Part B and stating how such implementation will be improved. This plan must be in place not later than one year after the date of enactment which was on December 3, 2004 (§616(b)(1)(A)). Each state must submit its performance plan to the Secretary of Education for approval (§616(b)(1)(B)). Each state is to review its performance plan at least once every six years and submit amendments to the Secretary of Education (§616(b)(1)(C)). The 2004 reauthorization requires that as part of the state performance plan, states shall establish measurable and rigorous targets for indicators established under the priority areas described above (§616(b)(2)(A)). Each state is required to collect "valid and reliable" information as needed to report annually to the Secretary. However, nothing in the title is to be construed to authorize a nationwide database of personally identifiable information (§616(b)(2)(B)). The new law requires the states to use the targets established in their performance plan and the priority areas to analyze the performance of each LEA (§616(b)(2)(C)(i)). The state is to report annually to the public on the LEAs' performance. In addition, the state's performance plan is to be made available through public means, including availability on the state educational agency's website, distribution to the media, and distribution through public agencies. The state is to report annually to the Secretary on its performance (§616(b)(2)(C)(ii)). However, the state shall not report to the Secretary, or the public, performance information that would result in the disclosure of personally identifiable information about individual children. In addition, if the available data are insufficient to yield statistically reliable information, they shall not be reported (§616(b)(2)(C)(iii)). The conference report discussed the state performance plans. "The Conferees believe that accurate decision making with regard to enforcement of the IDEA is required in order to: (1) ensure that federal dollars are being spent productively on education, and, (2) to ensure that monitoring and enforcement is administered fairly. It is our expectation that state performance plans, indicators, and targets will be developed with broad stakeholder input and public dissemination." Approval Process P.L. 108-446 provides that the Secretary of Education is to review each performance plan. The plan is considered to be approved unless the Secretary, within 120 days of receipt of the plan, makes a written determination that the plan does not meet the requirements of §616, including the specific provisions described as part of the state's performance plan (§616(c)(1)). The Secretary may not finally disapprove a plan until after the state is given notice and an opportunity for a hearing (§616(c)(2)). This notification must cite the specific provisions in the plan that do not meet the requirements and request additional information regarding the provisions in question (§616(c)(3)). If the state responds to this notification within 30 days after receipt and resubmits the plan with the requested information, the Secretary must approve or disapprove of the plan. This action by the Secretary may be either 30 days after the plan is resubmitted or after the original 120-day period, whichever is later (§616(c)(4)). If the state does not respond to the Secretary's notification within 30 days of receipt, the plan is considered disapproved (§616(c)(5)). Secretary's Review and Determination The 2004 reauthorization requires the Secretary of Education to annually review the state performance report. (§616(d)(1)) Based on this report, information from monitoring visits, or any other public information, the Secretary shall determine whether the state: meets the requirements and purposes of Part B; needs assistance in implementing the requirements of Part B; needs intervention in implementing the requirements of Part B; or needs substantial intervention in implementing the requirements of Part B. If the Secretary makes a determination regarding intervention or substantial intervention, the Secretary must provide notice and the opportunity for a hearing (§616(d)(2)). Enforcement Under P.L. 108-446 , if the Secretary makes a determination other than that the state meets the requirements and purposes of Part B, the Secretary is required to take certain actions (§616(e)). The conference report recommended "that the Secretary diligently investigate any root causes prior to selecting enforcement options, so that enforcement options are appropriately selected and have the greatest likelihood in yielding improvement in that state. However, investigations must not unduly delay the enforcement action." Assistance in Implementing Requirements If the Secretary determines that the state needs assistance in implementing the requirements of Part B for two consecutive years, the Secretary must take one or more of the following actions: advise the state of available sources of technical assistance which may include several entities, such as the Office of Special Education Programs, and require the state to work with appropriate entities; direct the use of state-level funds under §611(e) where the state needs assistance; identify the state as a high-risk grantee and impose special conditions on the state's Part B grant (§616(e)(1)). Needing Intervention If the Secretary determines, for three or more consecutive years, that a state needs intervention in implementing the requirements of Part B, the Secretary may take any of the actions listed regarding assistance in implementing regulations. In addition, the Secretary shall take one or more of the following actions: requiring the state to prepare a corrective action plan or improvement plan if the Secretary determines that the state should be able to correct the problems within one year; requiring the state to enter into a compliance agreement under Section 457 of the General Education Provisions Act if the Secretary believes that the state cannot correct the problem within one year; withholding not less than 20% and not more than 50% of the state's funds under §611(e) for each year the Secretary determines a state needs intervention until the Secretary determines the state has sufficiently addressed the areas needing intervention; seeking to recover funds under section 452 of the General Education Provisions Act; withholding any further payments to the state, in whole or in part; or referring the matter for appropriate enforcement action, which may include a referral to the Department of Justice (§616(e)(2)). Needing Substantial Intervention Any time the Secretary determines that a state needs substantial intervention in implementing the requirements of Part B or that there is a substantial failure to comply with any condition of eligibility for a SEA or LEA the Secretary shall take one or more that following actions: recovering funds under Section 452 of the General Education Provisions Act; withholding any further payments to the state under part B, either in whole or in part; or referring the case to the Office of the Inspector General at the Department of Education; referring the matter for appropriate enforcement action, which may include a referral to the Department of Justice (§616(e)(3)). Opportunity for a Hearing Before any funds are withheld under section 616, the Secretary must provide reasonable notice and a opportunity for a hearing to the SEA involved. The Secretary may suspend payments, and/or suspend the authority of the recipient to obligate funds under Part B after the recipient has been given reasonable notice and an opportunity to show cause why future payments or obligation authority should not be suspended (§616(e)(4)). Report to Congress The Secretary of Education must report to the House Committee on Education and the Workforce and the Senate Committee on Health, Education, Labor, and Pensions within thirty days of taking enforcement action. The report must include the specific action taken and the reasons for the action (§616(e)(5)). Nature of the Withholding If the Secretary withholds further payments due to the need for intervention or substantial intervention, the Secretary may determine that the withholding will be limited to programs or projects, or portions of these programs or projects, or that the SEA shall not make further payments under part B to specified state agencies or LEAs. Until the Secretary is satisfied that the situation has been substantially rectified, payments to the state must be withheld in whole or in part and payments by the SEA shall be limited to state agencies and LEAs that did not cause or were not involved in the situation leading to the Secretary's determination (§616(e)(6)). Public Attention If a state receives notice from the Secretary that the state needs intervention or substantial intervention in implementing the requirements of the part, the state must take measures to bring this information to the attention of the public (§616(e)(7)). Judicial Review If a state is dissatisfied with the Secretary's action concerning the state's eligibility under §612, the state may, not later than sixty days after the notice of such action, file a petition for review with the U.S. court of appeals in the state's circuit. The clerk of the court must transmit a copy of the petition to the Secretary and the Secretary must file the record of the proceedings which formed the basis of the Secretary's action (§616(e)(8)(A)). When a petition is filed, the court has jurisdiction to affirm or set aside the Secretary's actions in whole or in part. The court's judgment is subject to review by the Supreme Court (§616(e)(8)(B)). The Secretary's findings of fact, if supported by substantial evidence, shall be conclusive but the court may remand for further evidence. The Secretary may make new or modified findings of fact and may modify the previous action (§616(e)(8)(B)-(C)). State Enforcement P.L. 108-446 requires that if a state agency determines that a LEA is not meeting the requirements of Part B, the SEA shall prohibit the LEA from reducing the LEA's maintenance of effort under §613(a)(2)(C) (§616(f)). Rule of Construction The 2004 reauthorization states that the provisions of §616 do not restrict the Secretary from utilizing authority under the General Education Provisions Act to monitor and enforce IDEA (§616(g)). Divided State Agency Responsibility In some states, when children with disabilities are incarcerated in adult prisons, the responsibility for complying with IDEA is assigned to a public agency other than the SEA. In this situation, P.L. 108-446 provides that where the Secretary finds that the failure to comply substantially with the provisions of this part is related to a failure by the public agency, the Secretary shall take appropriate corrective action. However, any reduction or withholding of payments to the state must be proportionate and any withholding must be limited to the specific agency responsible for the failure to comply (§616(h)). Data Capacity and Technical Assistance Review P.L. 108-466 requires the Secretary to review the data collection and analysis capacity of the state to ensure that the necessary data and information are collected, analyzed, and accurately reported to the Secretary. The Secretary is also required to provide technical assistance, where needed, to improve the capacity of states to meet the data collection requirements (§616(i)). Administration (Section 617) Secretary's Responsibilities P.L. 108-446 , like the 1997 reauthorization, provides that the Secretary shall cooperate with a state and furnish technical assistance to a state relating to the education of children with disabilities and carrying out Part B of IDEA (§617(a)). Prohibition Against Federal Mandates, Direction, or Control The 2004 reauthorization specifically states that nothing in IDEA is to be construed to authorize an officer or employee of the federal government to "mandate, direct, or control" a state, LEA or "school's specific instructional content, academic achievement standards and assessments, curriculum, or program of instruction" (§617(b)). Confidentiality The provision on confidentiality is essentially the same in both the 1997 and 2004 reauthorizations. The Secretary must take appropriate action to ensure the protection of the confidentiality of any personally identifiable data, information and records collected or maintained by the Secretary, SEA or LEA (§617(c)). Personnel In both the old and new law the Secretary is authorized to hire qualified personnel (§617(d)). Model Forms P.L. 108-446 adds a provision relating to model forms. The Secretary is required to publish and disseminate widely to states, LEAs and parent and community training and information centers a model IEP form, a model individualized family service plan (IFSP) form, a model form of the notice of procedural safeguards described in §615(d), and a model form of the prior written notice requirement. These model forms are to be published and disseminated not later than the date that the Secretary publishes final regulations (§617(e)). Program Information (Section 618) The 2004 reauthorization, like the 1997 reauthorization, requires states receiving assistance and the Secretary of the Interior to provide certain data to the Secretary of Education. P.L. 108-446 adds that the data will also be made available to the public. In addition, the information required to be provided is expanded from previous law. Generally, the new law adds requirements for information on children who have limited English proficiency, and on gender, and increases the requirements for information relating to disciplinary procedures. A new provision is added requiring that these data shall be publicly reported in a manner that does not result in the disclosure of data identifiable to individual children. A new provision also is added allowing the Secretary to provide technical assistance (§618). Preschool Grants (Section 619) Section 619 of IDEA authorizes state grants to serve children with disabilities ages 3 to 5 (and in some cases younger children) if the state qualifies for the Part B grants-to-states program (discussed above) and makes FAPE available to all children with disabilities ages 3 to 5. Currently all states qualify for and receive IDEA preschool grants. P.L. 108-446 makes very few changes to §619. The only apparent substantive changes were to add two additional permitted state-level activities regarding early intervention services for children with disabilities who had received services under the Part C infants and toddlers program and are of an age that they are eligible for services under §619, and regarding "service coordination or case management for families who receive services under Part C" (§619(f)(5) and (6)). Part C—Infants and Toddlers with Disabilities Part C of IDEA authorizes grants to states to develop and maintain early intervention programs for infants and toddlers with disabilities. The IDEA infants and toddlers program has parallels with the provisions and requirements of Part B; however, these provisions and requirements differ in important respects from those of Part B because this disabled population differs in significant ways from the mainly school-aged population served under Part B. For example, while Part B eligibility is based on categories of disabilities (§602(3)), eligibility for Part C programs is often based on a diagnosis of "development delay" that requires early intervention services (§632(5). Instead of an IEP, Part C programs have individualized family service plans (IFSPs) (§636), in recognition that services must be provided to the family as well as to the infant or toddler. Because infants and toddlers are served in a variety of locations (including the home), Part C services are to be provided in "natural environments in which children without disabilities participate" (§632(4)(G)) "to the maximum extent appropriate" (§635(a)(16)(A)). P.L. 108-446 maintains the overall purposes and structure of Part C with some additions and revisions. Arguably the most extensive addition is the option for states to adopt policies that would permit parents of children receiving Part C early intervention services to extend those services until they are eligible to enter kindergarten (§635(c)). Under previous law and in states that choose not to adopt such a policy, these children would likely transition into a preschool program under Section 619 (described above). P.L. 108-446 has a series of requirements for a state policy to extend Part C services (§635(c)(2)), including: informed written consent from parents that they choose this alternative; annual notices to parents explaining the differences between the services received under the extended Part C program and services that would be received under Part B, and describing their rights under IDEA to move their child to a Part B program; and program educational components promoting school readiness and providing pre-literacy, language, and numeracy skills. P.L. 108-446 clarifies that services provided under extended Part C programs do not obligate the state to provide FAPE to children who are eligible for the preschool program under section 619 (for whom states are obligated to provide FAPE) (§635(c)(5)). In addition, the act requires the Secretary of Education, once Part C appropriations exceed $460 million, to reserve 15% of the appropriations for state incentive grants to states implementing extended Part C services (§643(e)). P.L. 108-446 makes other changes and additions to Part C, including: the addition of registered dietitians and vision specialists to the list of qualified personnel to provide Part C services (§632(4)(F)(viii and x)); addition of references to homeless infants and toddlers with disabilities and infants and toddlers with disabilities who are wards of the state, for example regarding the state eligibility requirement that early intervention services be made available to all infants and toddlers with disabilities (§634(1)). addition to the requirements for the state application requiring policies and procedures for referral for services for infants and toddlers "involved in a substantiated case of child abuse" or "affected by illegal substance abuse, or withdrawal symptoms resulting from prenatal drug exposure" (§637(a)(6)) and requiring state cooperation with Early Head Start programs and other child care and early education programs (§637(a)(10)); expansion of the requirement for an interagency agreement between the Part C lead agency and other relevant public agencies to ensure financing and provision of Part C services (§640(b)); elimination of the Federal Interagency Coordinating Council ( P.L. 105-17 §644); and authorization of "such sums as may be necessary" for FY2005-FY2010 for carrying out Part C. Part D—National Activities to Improve Education of Children with Disabilities Part D authorizes various activities aimed at improving the education of children with disabilities, including improved professional development, research and evaluation, technical assistance, demonstrations, and dissemination of information. P.L. 108-446 significantly changes and reorganizes Part D. Among other things, P.L. 108-446 eliminates the authorization for state program improvement grants under the prior law. P.L. 108-446 now authorizes state personnel development grants aimed at assisting SEAs to reform and improve their personnel preparation and professional development systems (Subpart 1). These grants are currently authorized to be competitive. Once appropriation for the program reaches $100 million, a formula grant will be initiated (§651(c) and (d)). Subpart 2 of Part D authorizes additional grant programs. In addition to SEAs, other entities, such as LEAs, charter schools, and institutions of higher education, may apply for grants. These grants deal with: personnel development (§662), technical assistance, demonstration projects, dissemination, and implementation of "scientifically based" research (§663), studies and evaluations (§664), and activities to "support safe learning environments" (§665). Subpart 3 continues to authorize parent training and information centers (§671), community parent resource centers (§672), and technical assistance for the parent centers (§673). These programs help prepare parents to exercise their rights under IDEA. Section 674 deals with technology, media services, and instructional materials. It authorizes projects for technology development, demonstration, and use (§674(a)). P.L. 108-446 makes some changes in the Secretary's authority to support educational media services. Under the prior law, these services were to be "designed to be of educational value to children with disabilities" ( P.L. 105-17 §687(c)(1)). P.L. 108-446 adds that these services are "designed to be of educational value in the classroom setting to children with disabilities" (§674(c)(1)(A), emphasis added). The prior law (after FY2001) permitted captioning of educational, news, and informational television, videos, or materials ( P.L. 105-17 §687(c)(2)). P.L. 108-446 permits captioning of television, videos, and other materials that are "appropriate for use in the classroom setting" and permits such captioning for news only through September 30, 2006" (§674(c)(1)(B)). Section 674(e) requires the Secretary of Education to create and support a national instructional materials access center through the American Printing House for the Blind. This center is to catalog "printed instructional material prepared in the National Instructional Materials Accessibility Standard" (which the Secretary is to establish), provide access to printed material for blind or other persons with print disabilities, and establish procedures to prevent against copyright infringement. Subpart 4 contains general provisions for Part D. Among these is the requirement that the Secretary create a comprehensive plan for carrying out activities under Subparts 2 and 3 (§681). Title II—National Center for Special Education Research Title II of P.L. 108-446 amends the Education Sciences Reform Act of 2002 (20 U.S.C. §9501 et seq.) to establish the National Center for Special Education Research. Headed by a commissioner of special education research (§176), the center is to sponsor research on the needs of infants and toddlers with disabilities and on improving IDEA services as well as to evaluate the implementation and effectiveness of IDEA (§175). Title III—Miscellaneous Provisions Title III of P.L. 108-446 contains miscellaneous provisions, such as the effective dates, provisions for an orderly transition from the previous law to the new law, technical amendments to other laws, and an amendment to copyright law with respect to the National Instructional Materials Access Center (discussed above). Section 302 provides for the effective dates of the act. Most provisions of the act (i.e., Parts A (except for parts of the definition of "Highly Qualified"), B, C and Subpart 1 of Part D) go into effect on July 1, 2005. The remaining subparts of Part D take effect on the date of enactment (December 3, 2004).

The Individuals with Disabilities Education Act (IDEA) is the main federal program authorizing state and local aid for special education and related services for children with disabilities. On December 3, 2004, President Bush signed the Individuals with Disabilities Education Improvement Act (P.L. 108-446), a major reauthorization and revision of IDEA. The new law preserves the basic structure and civil rights guarantees of IDEA but also makes significant changes in the law. Most provisions of P.L. 108-446 went into effect on July 1, 2005. This report details the changes made by P.L. 108-446, which include the following: An extensive definition of "highly qualified" special education teachers and requirement that all special education teachers be highly qualified. Provisions aimed at reducing paperwork and other non-educational activities (for example, a paperwork reduction pilot program). Authorization for states to use IDEA funds to establish and maintain "risk pools" to aid local educational agencies (LEAs) that provide high-cost IDEA services. Modifications to requirements for parents who unilaterally place their children with disabilities in private schools to help ensure equal treatment and participation for such children. Revised state performance goals and requirements for children's participation in state and local assessments to align these requirements with those in the Elementary and Secondary Education Act of 1965 (ESEA). Authority for LEAs to use some of their local IDEA grant for "early intervening services" aimed at reducing or eliminating the future need for special education for children with educational needs who do not currently qualify for IDEA. Significant changes to procedural safeguards, including the addition of a resolution session prior to a due process hearing to encourage the parties to resolve their dispute, revised test regarding the manifestation determination, and addition of a new category—where a child has inflicted serious bodily injury on another person—to the school's ability to place a child with a disability in an interim alternative educational setting. Major changes in compliance monitoring to focus on student performance, not compliance with procedures. Authority to extend Part C services for infant and toddler services beyond the age of two. This report will be updated to reflect legislative action. That action could result in connection with consideration of the Elementary and Secondary Education Act (ESEA), which is authorized through FY2008. It is generally assumed that the 110th Congress will actively consider legislation to amend and extend the ESEA.

What Is a Default? How the term "default" is applied depends on specific contexts. Default can be defined as failure to make a payment or more generally the failure to act or appear. Default, in the sense of failure to pay or perform, generally derives from contract law. Private contracts typically specify in some detail what actions or omissions would constitute default. For example, a firm that has borrowed funds by issuing a bond could in a contract be considered in default by failing to pay interest or principal, or by taking on additional debt, or by failing to deliver additional collateral in the event of a credit rating downgrade. Bond contracts can run to thousands of pages, in which various contingencies and default consequences are described. Private contractual terms can be specified in greater detail than public laws, and can be shaped to the interests of particular counterparties. Default in some cases may be "cured" in some way that brings a party back into compliance with a contract. For example, a default caused by failure to pay may be cured by payment, perhaps along with specified penalties. A damaged party may also sue for breach of contract to compel a counterparty to perform as agreed or to void a contract or to seek other remedies. Third Parties May Develop Their Own Definitions of Default Third parties sometimes want to make their own evaluations of how well parties comply with a contract, and may therefore develop their own definitions of default or noncompliance. Those not party to a contract may be interested in how well those who have entered into a contract comply with its terms. A third party could become interested in compliance to contract terms as it assesses future dealings with contract parties. A potential breach of a contract could also directly affect third parties. For example, when one firm fails to pay another firm, that firm may in turn become unable to pay others. Third parties might evaluate compliance in a different way than those party to a contract. For instance, one company may treat a delayed payment as a nonessential lapse, while a third party may view that delay as a more serious case of noncompliance. Moreover, third parties may have difficulty evaluating compliance because some contracts are private. While contract terms for publicly issued bonds in general must be disclosed, terms for other types of contracts and for securities issued to a small number of creditors might not be disclosed. A substantial literature on international sovereign default has developed in recent years based on data stretching back centuries. In many cases, however, lists of defaults compiled by academic researchers have differed from lists developed from credit rating agencies. Third parties, therefore, may make or rely on compliance judgments that are not based directly on contract terms. Credit ratings agencies can make their own judgments on what constitutes a default. The credit default swap market sidesteps the issue of defining default by relying on committees organized by the International Swaps and Derivatives Association (ISDA) to determine when a "credit event" has occurred. In some cases, debts or other obligations might be restructured in ways that parties describe as voluntary, which outside parties might describe as default or, in ISDA's terms, as a credit event. Thus, default or related terms like credit default can be linked to how parties comply with a contract, even if contracted parties have not contended that a default had occurred. Default due to failure to meet obligations set out in a private contract may also act as a trigger for other legal consequences. For instance, Title II of the Dodd-Frank Act ( P.L. 111-203 ) allows the Treasury Secretary to act upon a recommendation to put a financial institution into a receivership if the "financial company is in default or in danger of default" to limit damage to the wider financial system. Those provisions of Dodd-Frank appear to reflect concerns that default by a major banking institution in some circumstances may lead to financial contagion affecting many other firms, even those without direct commercial ties to the defaulting institution. Contracts Are Incomplete No contract can anticipate or specify consequences for all possible future contingencies. All contracts are therefore incomplete to some extent. Contracts might not spell out contingencies because the benefits of doing so might seem remote, or because parties are confident that unanticipated situations could be worked out. For example, credit markets, according to one legal scholar, assess the riskiness of borrowers and impose substantial constraints only on those borrowers with the strongest incentives to take risks or to fail to repay debts. In many cases, the usual principles of contract law are sufficient to resolve issues not made explicit in agreements. Treasury Securities Carry No Contractually Specified Default Clauses Conditions governing Treasury securities are specified in the U.S. Department of the Treasury's Uniform Offering Circular (UOC), which describes how securities are sold, when payments are made, and what rules buyers must follow. In particular, the UOC details when bids must be submitted, when payments must be received, when interest will be paid, and when redemptions will be settled. The UOC states that the U.S. government "will pay principal on bills, notes, and bonds on the maturity" either by crediting a Federal Reserve account for those using the commercial book-entry system or by making a payment to an account at a depository institution specified by a security owner using the TreasuryDirect system. The UOC, however, contemplates no contingency related to payment delays or default. Thus any discussion of potential default by the U.S. government on obligations related to Treasury securities cannot be based on contractual terms specified in the UOC. The absence of any provision in the UOC mentioning payment delays or defaults presumably stems from the widely held view that U.S. Treasury securities are risk-free assets. If Treasury payment delays or defaults were to become an issue, legal consequences would depend on how the corpus of contract law were applied. Some federal laws do anticipate payment delays. The 1982 Prompt Payment Act ( P.L. 97-177 ; 31 U.S.C. 3902) requires most federal agencies to take steps to ensure that bills are paid on time and provides for interest charges on late payments. The federal government is also mandated in general to pay clean claims from Medicare providers within 30 days or to pay interest as specified in the Prompt Payment Act. Federal payment delays may be inconvenient to those awaiting payment, but they are not considered defaults. Payments of interest and principal on Treasury securities and other federal payments might be distinguished in two ways. First, the U.S. Treasury has sought to make its debt operations "regular and predictable" with the aim of reducing federal borrowing costs by issuing securities on a schedule designed to avoid surprising financial markets. Moreover, Treasury markets only issue a narrow set of security types, which aids in the standardization of the market in federal securities. By contrast, other federal agencies may deal with various types of payments that are far from "regular and predictable." This in turn may lead to higher expectations that Treasury transactions will be completed on a more timely basis than those involving other parts of the federal government. Consequences of Default Depend on Expectations The consequences of a failure to pay or a late payment by the federal government or any other organization depend on the expectations of counterparties and others. The U.S. Treasury, as noted above, has sought to make its debt management processes as predictable as possible and to protect the reputation of Treasury securities as risk-free assets. A disruption to Treasury interest payments or redemptions would diverge sharply from market expectations of Treasury's reliability. Holders of Treasury securities often undertake investment strategies that depend on Treasury's payment schedule being fulfilled. In a simple case, firms use Treasury securities as collateral to obtain funding. A perceived change in the quality of that collateral could constrain the availability of credit, which could raise borrowing costs for the government and for others. The expectation that some other federal payments will be made on time may be weaker. For instance, few would be surprised if federal payments to some international organizations were not made on time. In other cases, complex administrative processes, such as review of a federal retirement application or review of a major federal contract, may hinder efforts to pay in full and on time. In addition, federal agencies are mandated to avoid improper payments, which could be hard to flag with compressed payment schedules. In those cases, well-informed federal payees may take steps to protect themselves from federal payment delays. For federal payments such as Social Security, beneficiaries generally expect that benefits will continue regularly, and thus might not have taken steps to protect themselves from payment delays. Do Intentions Matter? While expectations of payees and others would shape reactions to payment delays, intentions of payors generally matter less. If a debtor fails to pay interest or principal set out in a contract, good intentions do not alter the character of that default. For example, if a sovereign government's fiscal agent is barred from making payments to creditors, the willingness of that government to pay does not excuse the government from its obligations or relieve it from the consequences of nonpayment. In some cases, good intentions may be one factor that persuades a creditor from taking action against a debtor that has failed to pay, although such forbearance depends on the creditor's judgement, rather than upon any legal basis. Nonpayment due to events arguably beyond the control of the debtor might be considered "excused defaults" in certain cases. Some research suggests financial markets are less likely to react adversely to defaults due to natural disasters or commodity price falls than to defaults that are viewed as strategic—that is, defaults driven by an unwillingness to pay. In many cases, however, judging whether a default is an avoidable strategic default or one a debtor could not avoid may be difficult, which may lead to creditors being less willing to excuse defaults. Has the Federal Government Defaulted? During recent debt limit episodes, Treasury Secretary Lew and his predecessors have urged Congress to act to avoid an unprecedented failure to meet obligations. For instance, Secretary Lew on October 15, 2015, asked Congress to take action on the debt li mit so that the Treasury would not be "unable to satisfy all of these obligations for the first time in the history of the United States." An examination of American fiscal history, however, suggests that the federal government's record of meeting its obligations is not unblemished. This report focuses on three historical events in which the federal government's reputation has been questioned: the War of 1812, the withdrawal from the gold standard during the Great Depression, and the so-called 1979 "mini-default." Others might point to additional incidents, not considered in this report, such as the refusal to redeem Continental paper money issued during the Revolutionary War, or the issuance of "greenbacks" during the Civil War, or the abandonment of the gold standard in the early 1970s during the breakup of the post-World War II system of fixed exchange rates. Federal Finances in Disarray During the War of 1812 In June 1812, war broke out between the United States and Great Britain, which lasted until February 1815. The federal government, aside from military challenges including the burning of the Capitol and White House, suffered from severe institutional deficiencies that hindered its ability to meet its financial obligations. One pair of historians concluded that while the War of 1812 "was ill-managed militarily, [it] was even more bungled financially." Those financial difficulties included unambiguous examples of default. Absence of Fiscal Agent and Internal Revenues Constrain Federal Finances Aside from the central difficulty of mobilizing sufficient financial resources to conduct military operations, the federal government had to contend with two serious institutional shortcomings. First, Congress declined in 1811 to renew the charter of the first Bank of the United States, which acted as the government's fiscal agent. A fiscal agent carries out financial operations such as accepting tax payments, redeeming securities, or paying invoices. The absence of a national bank greatly complicated federal finances. Once the Bank of the United States closed, the federal government deposited its funds in local banks. By 1812, Treasury had accounts in 21 banks, which fragmented Treasury's operational controls. Second, Congress had followed President Jefferson's call to repeal direct and excise taxes in 1802, leaving federal coffers dependent on tariff and customs revenue. Even three years before the outbreak of war, restrictions on shipping from American ports cut customs revenues by more than half. Treasury Secretary Gallatin, however, had trusted that war expenses could be financed by loans, rather than by taxes. By December 1811, however, Gallatin called for imposing internal taxes to supplement falling customs revenues. Soon after war was declared in June 1812, Congress doubled customs rates and authorized Treasury to issue notes, thereby avoiding reliance on internal revenues. Customs revenues rose temporarily, but fell even lower in the next year, while war costs rose. Thus by mid-1813, the government's ability to borrow on reasonable terms had dwindled. Madison Belatedly Calls for Raising Internal Revenues Expanding federal purchases to support war efforts increased payment demands on the Treasury, while a dearth of effective tax instruments left it little alternative to additional borrowing. By the summer of 1813, President Madison was compelled to call Congress to a special session to consider new revenue sources. Congress agreed to reinstate internal revenue sources to raise an estimated $5 million and authorized the Administration to borrow $7.5 million. The government's ability to obtain credit, however, continued to deteriorate, and by early 1814 it could only borrow by offering unusually high yields, while efforts to borrow from American banks and European markets were rebuffed. Internal revenue rates were raised at the end of 1814, although lags in the administration of those taxes meant that most of those revenues were collected after the war. Specie Payment Suspended in August 1814 The U.S. Treasury's situation was further complicated by its lack of control over monetary policy. With the disappearance of the Bank of the United States, state banks proliferated and issued rising volumes of bank notes. Those notes, along with those issued by Treasury—some with denominations as low as $3—effectively expanded the money supply. A growing imbalance between government purchases and receipts, along with the absence of monetary controls, helped spur inflation, leading the value of state bank notes to diverge from amounts defined in terms of specie, that is, in gold or silver coin. In August 1814, payment in specie was suspended for most of the country outside of New England. Without specie payment, bank notes issued in one state were not accepted in other states. Thus, notes issued by a Philadelphia bank could not be used to pay bills in Boston or New York. The breakdown of banks' willingness to accept notes issued by other banks obliged Treasury to expand the number of accounts it maintained. By 1814, Treasury had accounts in 94 banks. Moreover, Treasury had to keep separate bank accounts for in-state bank notes, out-of-state bank notes, interest-bearing federal securities, and non-interest-bearing securities. While Treasury held some $2.5 million in bank credits in the fall of 1814, they were of little use because they were so widely dispersed and could not easily be transferred from place to place. In addition, because the federal government could no longer redeem obligations in specie it effectively could not demand specie or equivalent for tax payments. It thus began to accept heavily discounted bank notes as payment for taxes or for purchase of federal securities, further undermining the Treasury's ability to meet its obligations. Treasury Suffers "Every Kind of Embarrassment" Alexander J. Dallas, who became Treasury Secretary in October 1814, soon complained that Treasury "was suffering from every kind of embarrassment" and that "the dividend on the funded debt has not been punctually paid; a large amount of treasury notes has already been dishonored." For instance, interest federal debt due to Boston investors on October 1, 1814, could not be paid and those investors refused to accept Treasury notes as payment rather than specie, thus providing a clear example of default. At that time, the Treasury had not exhausted its authority to borrow or issue notes. Banks and investors, however, were unwilling to lend or to accept notes on terms that Treasury felt prudent to offer. Dallas lamented that, while "[p]ublic credit depends essentially upon public opinion, … public opinion, manifested in every form, and in every direction, hardly permits us, at the present junction, to speak of the existence of public credit." Government finances improved with the end of the war and the rebound in customs revenues stemming from the resumption of international commerce. President Monroe in December 1815 noted that "great satisfaction has been derived in contemplating the revival of the public credit." The Second Bank of the United States, chartered in 1816 and opened the following year, for a time laid a more stable foundation for banking and currency. Not until the 1820s were public finances restored to a sound basis, as land sales and rising customs revenues began to outrun federal expenditures consistently. The Great Depression and the Gold Clause Cases The decision by President Franklin Roosevelt and Congress to move the U.S. government off the gold standard in 1933 and 1934, in the eyes of some, amounted to a repudiation of the contract terms, and in particular, to the terms of the Second Liberty Bonds issued in 1917. The abandonment of the gold standard in 1933 was the culmination of a banking crisis that began with the onset of the Great Depression in October 1929. An enormous literature discusses the Great Depression and the suspension of the U.S. gold standard. This section provides a thumbnail sketch of those events to focus on whether the U.S. government met its obligations. Gold Clauses and Treasury Securities During the first part of the 20 th century, several Treasury securities carried gold clauses that specified that interest and principal would be paid in "U.S. gold coin of the present standard of value." Some, during that period, argued that U.S. bonds without such protections would be "absolutely unsaleable." If Treasury had omitted gold clauses, higher yields would have been necessary to sell bonds, which would have increased debt service costs. Investors were presumably wary that the U.S. government might leave the gold standard, as it had during the War of 1812 (as noted above) and during the Civil War. The Great Depression and State Bank Holidays The October 1929 Wall Street crash left many banks holding assets worth less than they had paid for them. As the financial crisis began to affect the real economy, the price level dropped sharply, and unemployment rose. Difficult economic conditions made debtors less able to pay, while constricted credit further reduced economic activity. Between 1929 and 1933, over 9,700 of the 25,000 banks in operation before the Great Depression failed. A failure of one bank, in the era before deposit insurance, diminished the public's trust in ability of other nearby banks to redeem deposits. Governors began to impose state-wide bank holidays to tamp down contagion of bank runs, starting with Nevada in October 1932. By 1933, 34 of 48 state governors had declared banking holidays to allow financial institutions to reorganize, and at 2:30 on the morning of Franklin Roosevelt's inauguration, the governor of New York declared a banking holiday. Other banks were closed under the authority of the Comptroller of the Currency. Withdrawals Threaten to Exhaust Federal Reserve's Excess Gold Concerns about the state of the American banking system and uncertainty about policies of the new President prompted international investors to withdraw funds from the United States. The United Kingdom and four Scandinavian countries suspended the gold standard in 1931, which fueled concerns that other countries would follow. The Federal Reserve attempted to attract gold by raising discount rates in the fall of 1931 and in February 1933, which tightened the supply of credit and led to further falls in the price level. Withdrawals of U.S. deposits strained the gold reserves of the Federal Reserve, which were required to be at least 40% of the value of currency issued. While the Federal Reserve normally had gold reserves well above the 40% minimum, heavy outflows in March 1933 drained those reserves. On Friday, March 3, 1933, the Federal Reserve Bank of Chicago (Chicago Fed) refused a loan to the Federal Reserve Bank of New York (NY Fed), which forced the Federal Reserve Board to suspend its gold reserve requirement. The governor of New York, as noted above, declared a banking holiday early the next morning, which could have disrupted operations of the country's largest banks. Newly Inaugurated President Roosevelt Takes Emergency Actions President Franklin Roosevelt, upon assuming office, took a series of steps to resolve the banking crisis, including a suspension of the gold standard. Roosevelt, inaugurated on Saturday, March 4, 1933, declared a four-day federal bank holiday early the following Monday that suspended all banking activities and barred trade in gold bullion, thus ending the immediate banking crisis. At the end of that holiday, Congress passed the Emergency Banking Act (P.L. 73-1), which empowered the President to control international and domestic gold shipments and gave the Treasury Secretary the power to compel exchanges of gold for currency. The President, in response to persistent gold outflows, suspended the gold standard on April 20, 1933. On May 12, 1933, President Roosevelt signed legislation (P.L. 73-10) into law that reduced the gold content of a dollar by half and allowed the President to tie the dollar's value to silver. On June 5, 1933, Congress passed a resolution that abrogated gold clauses in private and public contracts, which President Roosevelt signed the next day. Reducing the gold content assigned to the dollar had the effect of depreciating the dollar, making dollar-priced exports cheaper and imports more expensive, which improved the U.S. trade balance. In October 1933, the Roosevelt Administration directed purchases of gold at set prices, which provided a link to the value of a dollar, even if gold were not exchanged for dollars. In the following year, the Gold Reserve Act of 1934 (P.L. 73-87 , 48 Stat. 337), signed into law by President Roosevelt on January 30, 1934, set a book value of gold at $35, thus reestablishing a gold standard. The act, however, ratified earlier actions by barring private trade in monetary gold and brought all federal holdings of gold under the control of the U.S. Treasury. Supreme Court Upholds Congressional Actions The cancellation of gold clauses prompted some investors to sue the U.S. government. Holders of many Treasury bonds that promised payment in gold viewed the cancellation as a repudiation of federal obligations. In 1935, however, the Supreme Court upheld the power of Congress to regulate the value of money, but that "insofar as it attempted to override the obligation created by the bond in suit, went beyond the congressional power." The Court held that bondholders were not damaged, in part, because if they had been paid in gold, they would have been mandated to sell that gold to the federal government at the price set by the Gold Reserve Act or previous measures. The dissent, however, contended that in cancelling the gold clauses "Congress really has inaugurated a plan primarily designed to destroy private obligations, repudiate national debts, and drive into the Treasury all gold within the country in exchange for inconvertible promises to pay, of much less value." Economic Consequences of the Cancellation of the Gold Clauses The cancellation of the gold clauses appeared to have little effect on Treasury's ability to borrow on financial markets. While the suspension of the gold standard in the United States led some to shift investments to countries still on the gold standard, the U.S. Treasury had little difficulty in borrowing. Treasury auctions continued to be oversubscribed even after the 1933 actions to suspend the gold standard and after the 1935 Supreme Court decisions that upheld those measures. Over 80% of holders of Treasury securities with gold clauses rolled over their investments in new Treasury issues. Moreover, the improvement in the U.S. balance of trade, spurred by the devaluation of the dollar, served to bring gold back, and official government purchases of gold increased the Treasury's holdings. The suspension of the gold standard, while disappointing creditors, helped stimulate economic recovery and laid the foundations for modern monetary policy, according to economists who have studied the issue. Researchers also concluded that the gold standard and how it was maintained by central banking authorities helped spread shocks from country to country, helping propagate the Great Depression. Several economists found that countries that left the gold standard earlier in the 1930s recovered more quickly than those that remained longer on the gold standard. In the case of the United States, the economy grew at an annual average real rate of 9.4% a year from 1933 to 1937, while the economy in 1933 was 26% below its 1929 level. Although some have called for a return to the gold standard, no country currently operates on a gold standard. One survey of economists found no support for reinstituting the gold standard. The So-Called 1979 "Mini-Default" Delays in payments from the U.S. Treasury to some investors in the spring of 1979 were dubbed by some as a "mini-default." The timing of the first payment delay coincided with a sharp increase in Treasury yields. A security's yield is its effective interest rate, which varies inversely with the security's market price. The price investors are willing to pay for a security reflects judgements about credit risks and the expectations of the future inflation rate, among other factors. If payment delays persuaded investors that Treasury securities were not risk-free investments, market demand for those securities would fall, leading to lower prices and higher yields. Higher yields, in turn, would imply an increase in Treasury's borrowing costs. A reexamination of available information, however, indicates that interest rate movements at that time were more likely driven by news that anticipated major changes in U.S. monetary policy aimed at reducing the inflation rate. Moreover, only a small fraction of holders of Treasury securities were affected. While the 1979 payment delays certainly inconvenienced many small investors, the stability of the wider market in Treasury securities was not put at risk. Treasury Payment Delays in the Spring of 1979 In late April and early May 1979, about 4,000 Treasury checks for interest payments and for the redemption of maturing securities held by individual investors worth an estimated $122 million were not sent on time. F oregone interest due to the delays was estimated at $125,000 . Wire transfers to financial institutions and large-scale investors, whose holdings were reflected in the Federal Reserve's book-entry system, were unaffected. At the time, over 90% of marketable Treasury securities were held in book-entry form. In addition, small investors who opted to roll over proceeds of maturing Treasury bills also would have been unaffected. Check processing returned to normal by May 14, 1979, and payments for securities maturing on May 10, 1979 , were mailed the following day. Why Were Payments Delayed? Payment delays were chiefly due to back-office technical and organizational problems. At the time, the Bureau of the Public Debt was in the process of automating its own book-entry system of accounts and its data processing office was being reorganized. The U.S. Treasury's check issuance operations were also in the midst of a relocation and word processing equipment failed unexpectedly. Rising small investor demand for T-bills also contributed to pressures on Treasury operations. T-bills had become increasingly attractive as inflation was increasing yields. By the end of 1977, yields on Treasury securities rose above interest rate ceilings imposed by federal regulations on standard demand deposit accounts. By late April 1979, the 3-month Treasury bill carried a yield of over 9%, while federal regulations limited interest rates on standard demand deposit accounts to 5.25%. The widening gap between Treasury yields and regulated rates on bank deposits spurred many small investors to invest directly in Treasury securities. While the U.S. Treasury had sought to discourage small investor purchases by raising the minimum denomination of Treasury bills from $1,000 to $10,000 in February 1970, by the late 1970s inflation and rising real incomes had made that minimum a less formidable hurdle to many small investors. One investment guide noted that until about 1978, very few average investors knew about investing in Treasury securities. By 1979, small investor demand for Treasury securities was rising rapidly. From January 1978 to late April 1979, purchase requests (tenders) for Treasury bills rose 379% and the volume of Treasury's daily bill transactions increased by 427%. Small investors were also given the option of rolling over the principal for maturing Treasury bills into new bills. Many of those investors, according to Treasury officials, waited until the last minute to request rollovers, which added additional administrative burdens onto debt management operations. The U.S. Treasury also attributed the delays, in part, to auctions that were postponed due to a contentious debt limit episode that culminated in a temporary increase in the debt limit on April 2, 1979 ( P.L. 96-5 ). The debt limit, however, was not a direct cause of payment delays, as federal debt was a comfortable $32.5 billion below its limit when the first checks were delayed. Thus, the U.S. Treasury had the financial means to make all payments that were due, even if its operational capacity to cut checks may have been impaired for some weeks. Compensating Small Investors The U.S. government has no legal mechanism in place to compensate investors for the consequences of payment delays. In particular, the U.S. Treasury has no authority to reimburse investors for the time-value of delayed payments. Moreover, Treasury bond offering documents then, as at present, did not contemplate delays in payments to bondholders. One small investor, Claire Barton of Encino, CA, represented by her attorney husband, filed a class action suit against the U.S. government on May 11, 1979, in the U.S. District Court for the Central District of California. The suit alleged that payment delays, by allowing the government to use funds that were due to investors, "constituted unjust enrichment" at the "cost, loss, and expense" of Mrs. Barton and similar Treasury debt holders. The government was granted a stay to allow time to put forth a settlement offer to affected investors, and reportedly more than 80% of them accepted. Representative Richard Gephardt introduced a measure ( H.R. 6054 , 96 th Congress) on December 6, 1979, to authorize the Treasury Secretary to compensate the remaining investors from the case. The bill was referred to the House Committee on Banking, Finance and Urban Affairs. No further action was taken. The class action suit was dismissed with prejudice on May 12, 1980. Payment Delays Caused No Discernable Change in Treasury Yields A decade after the so-called 1979 mini-default, a 1989 Financial Review article noted that the day the first delayed payments were due (April 26, 1979), Treasury yields spiked up by 60 basis points (100 basis points=1%). The resulting increase in annual borrowing costs of the federal government, according to estimates presented in the article, was about $12 billion. The Financial Review article's authors contended that the payment delays "apparently warned investors that Treasury issues were not completely riskless." This spike is evident in Figure 1 , which shows secondary market daily yields for 3-month, 6-month, and 1-year Treasury bills from November 1978 through November 1979. This period is bookended by November 17, 1978 (first vertical line), when several banks announced increases in lending rates shortly after an influential Solomon Brothers economist, Henry Kaufman, delivered a speech predicting a sharp rise in interest rates, and October 6, 1979 (last vertical line), when the Federal Reserve announced a new approach to monetary policy. Whether the spike in Treasury yields noted in the Financial Review article stemmed from payment delays to small investors, which indicated that Treasury securities were not risk-free assets, or from larger shifts in monetary policy becomes a natural question. This time period spanned by Figure 1 contains not only the so-called mini-default, but also one of the most dramatic shifts in U.S. monetary policy. In particular, President Jimmy Carter's nomination of Paul Volcker to serve as chairman of the Board of Governors for the Federal Reserve System on July 25, 1979, reflected growing concerns about accelerating inflation rates and signaled a coming change in monetary policy. Although the first delayed payments were due on April 26, 1979 (second vertical line), the Wall Street Journal (WSJ) first reported on those payment delays on May 9, 1979 (third vertical line). The previous day, the U.S. Treasury issued a press release noting the delay in mailing checks for Treasury bills. On both dates (May 8 and 9), no large movements in Treasury yields were observed. Well-informed market traders conceivably could have known of the payment delays a few days before the WSJ report. Treasury yields for various bills, however, were falling in the days leading up to that date. Alternatively, traders may have taken a few days to absorb the implications of the WSJ report. Treasury yields fell, however, in the days after that news, as can be seen in Figure 1 . In either case, market movements of Treasury yields around the time that payment delays became widely known are inconsistent with the contention that those delays reduced demand for Treasury securities by changing risk perceptions of investors. One might argue, however, that large traders might have learned of the payment delays well before the first newspaper report, perhaps through banks that held accounts of affected small investors. Traders wishing to benefit from that information would have needed to short Treasury bills to profit. In a short sale, a trader borrows a security and promises to return it at a future date along with a borrowing cost adjustment. A short seller profits if the security's price falls. In general, short sellers aim to persuade others that an asset's underlying value has decreased. Short sellers often propagate that information aggressively once a short position is established. The lag of nearly two weeks between the first payment delay and the first report of it suggests that few or no such short sellers actively traded on information of those delays. Federal Reserve Took Steps to Tighten Credit The absence of discernable market reactions to news of Treasury payment delays suggests other factors might explain a spike in Treasury yields in late April 1979. The same day that delayed Treasury payments were first due, monetary policy developments signaled a turn toward credit tightening. As noted above, the Federal Reserve was in the midst of a major policy shift in its willingness to use monetary policy to restrain inflation. In the week before the first payment delays, market watchers thought the Federal Reserve was unlikely to tighten credit. On April 26, 1979—the maturity date for the first Treasury bills affected by payment delays—a consumer price index estimate was released that indicated inflation was proceeding at a 13% annual rate. A few hours later, the Federal Reserve announced a large, unexpected increase in the U.S. money supply. Financial markets reacted within minutes to that announcement, which signaled new expectations that the Federal Reserve would act to restrict credit. In addition, that same day the WSJ noted a Federal Reserve research paper that argued that aggregate money measures should be redefined to include near-money substitutes, such as money market funds, which were expanding exponentially at the time, and repurchase (repo) agreements that large corporations had begun to use. The expansion of near-money substitutes, the paper argued, was matched by slower than expected growth in traditionally defined monetary aggregates, which could lead to an underestimation of the expansion of the money supply. A broadening of those definitions might be expected to affect Federal Reserve policy statements, which were phrased in terms of those monetary aggregates. On the following day (April 27, 1979), the Federal Reserve, according to market observers, took steps to tighten credit, which was generally taken as a signal that it would raise benchmark interest rates. Market concerns about inflation, credit conditions, news of a rapid expansion of the money supply, and Federal Reserve actions provide a straightforward explanation for those Treasury yield movements in late April 1979. That payment delays experienced by small investors increased federal borrowing costs by changing perceptions of the riskiness of Treasury securities appears to be an implausible explanation of those movements. Federal Payment Delays Not Uncommon in Late 1970s Paying federal obligations on time makes the U.S. government a more attractive business counterparty. The U.S. Treasury and other agencies have therefore sought over time to improve the timeliness of federal payments. Despite those improvements, some payment delays still occur, and were more common during the 1970s when the federal government was transitioning payment to electronic systems. The delays in Treasury interest and maturity payments in 1979 were unusual. Delays in federal payments for other types of obligations, however, were common during that time. In the late 1970s, federal benefits provided via direct deposit, such as Social Security payments, were often late, or early, misposted, or not issued. A 1978 GAO report that analyzed a sample of contractor bills found that only 61% of the number of bills and 81% of the dollar amounts owed were paid within 30 days. For bills not paid within 30 days, the time between invoice and payment averaged 74 days. Congress responded to those findings by passing the Prompt Payment Act of 1982 ( P.L. 97-177 ), which generally requires agencies to pay bills on time or pay interest on delayed payments. A 1986 GAO follow-up study found that timeliness of agency payments was better, but could be improved. Causes of payment delays were diverse. The 1978 GAO report attributed most delays to lags in acknowledging delivery of goods, acquiring necessary paperwork, and failure of agencies to adopt procedures that would minimize paperwork. The 1979 Treasury bill redemption payment delays, as noted above, appeared to stem from the confluence of specific historical trends and unforeseen operational challenges, but were not the only payment delays in those years. For instance, t he U.S. Treasury reportedly delayed some tax refunds in 1980 as part of a cash management strategy. Assessing the U.S. Government's Payment Record The historical record appears not to support the contention that the U.S. government has had an unblemished payment record since its origin. Under any reasonable definition of default, the federal government defaulted in 1814. The Treasury Secretary of the time, Alexander Dallas, referred to "every sort of embarrassment." The current website of the U.S. Treasury notes that Secretary Dallas faced a "bankrupt" Treasury. The failure of the Treasury to pay interest on its securities due to Boston banks in 1814 represents an unambiguous default event. Whether the suspension of the gold standard in 1933-1934 amounted to a default is controversial. Bondholders were repaid, albeit on terms other than those specified in their contracts. Breaking the linkage between gold and the dollar enabled the federal government to implement a more modern monetary policy that helped promote economic recovery. That linkage, however, could also have been severed in a way that could have mitigated losses of owners of bonds that contained gold clauses. Claims that payment delays to small investors holding Treasury securities in the spring of 1979 constituted a default or a "technical default" appear weaker. Delays affected only a relatively small proportion of Treasury securities and the federal government responded to mitigate the inconvenience suffered by those investors. The legal document setting out terms for Treasury securities contained no default clause. Claims that such payment delays increased federal borrowing costs appear weak, if not implausible, in the face of stronger explanations reflecting shifts in monetary conditions and policy. Delays to holders of Treasury securities might also be put in context of delays to other federal payees. Federal statutes provide no clear basis for prioritizing payment of one obligation over another. In an organization as complex as the federal government, delays in meeting some financial obligations may be inevitable, and bondholders affected by the so-called 1979 mini-default represent a small fraction of those affected by federal payment delays. Was the Government's Ability to Borrow Affected? Analysis of available evidence suggests that the federal government's ability to borrow did not suffer lasting damage from any of the events discussed in this report. After the War of 1812 concluded, belated collections from internal revenue measures came into the Treasury and the resumption of international trade and higher tariff rates led to a rebound in customs revenues. Federal revenues in the following decades were strong enough to retire the federal debt in 1835. Recent research, discussed above, indicates that the U.S. Treasury faced little or no observable difficulty in borrowing after the 1933-1934 suspension of the gold standard. In 1979, as noted above, a major shift in monetary policy and conditions can explain changes in market yields on Treasury securities. Financial markets exhibited no discernable reaction to newspaper reports of the Treasury payments delays to some small investors. The U.S. experience accords with broader research on sovereign default. Countries that defaulted in the 19 th century or 1930s, but not since, have suffered no credit market consequences. That the U.S. Treasury's ability to borrow on reasonable terms was not hindered by events in the 19 th century or 1930s does not suggest that the consequences of a Treasury default in the present day would be minor. The market for U.S. Treasuries is broad, meaning that large numbers of buyers and sellers trade in them, and liquid, meaning that traders believe they could engage in large transaction in Treasuries without significant price effects. Treasuries often serve as collateral, enabling financial firms to borrow or lend at low cost, which promotes the efficient supply of credit. Concerns about the quality of collateral assets can cause serious problems in credit markets. Market participants have stated that systematic payment delays by the U.S. Treasury could have serious economic consequences. What Lessons Can Be Learned? In each historical episode examined here, the federal government was confronted with financial and operational challenges that it was poorly prepared to meet. The neglect of operational capacities appears to have played a key role. More recently, the federal government has paid more attention to contingencies that could affect its financial operations. For instance, the U.S. Treasury recently changed its cash management policies to keep a larger cash cushion to ensure continuity of operations in the face of catastrophic events. On the other hand, expressions of fiscal constraint, such as promises to balance federal budgets, were not sufficient to prepare the federal government to address fiscal emergencies. In the years preceding each episode, policymakers had expressed a strong commitment to budgetary and fiscal discipline. Treasury Secretary Gallatin had reduced federal debts in the decade preceding the War of 1812, and President Herbert Hoover attempted to maintain a balanced budget in the early years of the Great Depression. Less than four weeks before the first Treasury payment delay in April 1979, Congress stated it "shall balance the Federal budget" and directed the Budget Committees to submit budget plans for the next three fiscal years that would be in balance. The failure to establish or maintain key operational capabilities, however, presented the government with obstacles that could not be overcome in short order. The lack of a fiscal agent or the administrative capacity to administer internal revenues undermined the U.S. Treasury's ability to meet federal obligations during the War of 1812. On a smaller scale, the U.S. Treasury in 1979 found itself unable to cope with the strains of overhauling financial processing systems and procedures while relocating some of its fiscal operations, in the face of unprecedented increases in small investor demands for Treasury securities. President Franklin Roosevelt, when he took office in March 1933, by way of contrast, was aided by proposals drafted by officials from the Hoover Administration. Furthermore, the Reconstruction Finance Corporation, which the Hoover Administration had created, provided the federal government with a powerful vehicle for economic policy. The reluctance to set aside adequate fiscal resources to respond to emergency conditions may also have played a role. Congress, in the view of historians, was slow to make military or fiscal preparations ahead of declaring war in 1812. In more modern terms, macroeconomists have stressed the importance of "fiscal space," that is, having a sound fiscal situation that enables a government to respond energetically to serious economic downturns. Even if the payment history of the U.S. government is not completely unblemished, it does compare favorably to nearly all other advanced countries. Acknowledging past episodes when the U.S. Treasury's ability to meet obligations was strained would underline the benefits of maintaining a strong fiscal and credit reputation.

During recent debt limit episodes, federal officials have contended that if the debt limit were to constrain the government's ability to meet its obligations, that would be an unprecedented blemish on the nation's credit. For example, the U.S. Treasury has asserted that "(f)ailing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations" or that it "would represent an irresponsible retreat from a core American value: we are a nation that honors all of its commitments. It would cause the government to default on its legal obligations." Failure to pay obligations on time is regarded as a central indicator of default, although default may be triggered by a wide range of contractual provisions. More generally, the concept of default stems from contract law, and thus may be ambiguous because contract terms may be private or contracts may be incomplete, in that the consequences of some contingencies are left unspecified. For instance, the terms under which Treasury securities are offered lack any mention of payment delays or nonpayment. The ambiguity of the term "default" leads many third parties to develop their own definitions to monitor compliance with promises to pay. The U.S. Treasury in some historical instances was unable to pay all its obligations on time or made payments on terms that disappointed creditors. Those instances resulted from extraordinary stresses on public finances. Over time, the United States has managed its finances so that its credit history compares favorably to nearly all other advanced countries. This report examines three episodes in the federal government's fiscal history when some have questioned the public credit of the U.S. government. During the War of 1812, the federal government eventually became unable to meet its obligations. Shortly before that war, Congress had declined to renew the charter of the first Bank of the United States, leaving the government without a fiscal agent. In addition, President Jefferson and Treasury Secretary Gallatin had dismantled the administrative machinery needed to collect internal revenues, leaving Treasury revenues heavily dependent on customs income. In 1814, military expenses and lagging revenue left the U.S. Treasury unable to meet all of its obligations, including some interest payments on federal debt. The end of that war, the establishment of the second Bank of the United States, and the rebound of tariff revenues put federal finances on a sounder foundation. In March 1933, newly inaugurated President Franklin Roosevelt soon took steps to suspend the gold standard, as one measure to address severe disinflation, a collapse of the banking system, and other consequences of the Great Depression. While the Supreme Court upheld actions that suspended the gold standard, others contended that the cancellation of gold clauses in federal bond contracts amounted to a restructuring of debt. Although the cancellation of gold clauses in 1933-1934 had no discernable effect on the U.S. Treasury's ability to borrow, holders of Treasury securities lost money relative to what they had expected to receive. More recently, when the U.S. Treasury failed to make timely payments to some small investors in the spring of 1979, some dubbed the incident a "mini-default." While the payment delays inconvenienced many investors, the stability of the wider market in Treasury securities was never at risk. Shifts in monetary policy, as constraining inflation became a policy priority, provide a stronger explanation for changes in yields in federal securities. Moreover, payment delays were not uncommon at that time, when automatic data processing was at a relatively primitive stage. Other countries that defaulted in the 1930s or in the 19th century apparently suffered no lasting damage to their ability to borrow. Nonetheless, the prominent role of U.S. Treasury securities in global and domestic financial arrangements implies that systematic delays in Treasury payments now could have serious consequences.

Introduction A clean energy standard (CES) has been proposed as a tool to provide a more sustainable domestic energy supply, reduce greenhouse gas emissions, and secure the United States as a leader in clean energy technology. Some assert that a CES could contribute to economic growth. Opponents of a CES contend that a CES could raise electricity prices, introduce grid reliability concerns, require significant investment in additional transmission lines, and depend on adopting some technologies not yet established for widespread commercial-scale use. A CES could require certain electricity providers to obtain a portion of their electricity from qualifying clean energy sources. In his 2012 State of the Union address, President Obama challenged Congress to "set a clean energy standard that creates a market for innovation." A CES could be one approach if Congress chooses to act. On March 21, 2011, Senators Bingaman and Murkowski issued a white paper on a clean energy standard that laid out some of the key questions and potential design elements of a CES, in order to solicit input from a broad range of interested parties, to facilitate discussion, and to ascertain whether or not consensus can be achieved. On March 1, 2012, Senator Bingaman introduced the Clean Energy Standard Act of 2012 ( S. 2146 ), which would require large utilities to sell a percentage of their electricity from clean energy sources—at least 24% in 2015 and gradually increasing over time to 84% by 2035. The CES expands on the concept of a national renewable energy standard (RES), an idea that has received significant congressional attention. An RES would encourage the production of electricity from renewable resources. RES legislative discussions date back to at least the 105 th Congress. A CES expands qualifying energy sources to include other "clean" energy sources (e.g., nuclear, natural gas, clean coal) along with renewable energy sources (e.g., wind, solar). Any CES would need to define which energy sources would qualify as "clean." The bulk of electricity generation in 2011 was from coal, natural gas, and nuclear (see Figure 1 ). Renewable sources constituted roughly 12% of total electric power net generation in 2011 (including conventional hydroelectric). Analysis from the Energy Information Administration (EIA) that does not include the addition of a federal RES or CES suggests that electricity generation from renewable sources (including conventional hydroelectric) will grow from 10% in 2010 to 16% in 2035. EIA analysis indicates that most of the growth in renewable electricity generation in the power sector, excluding hydroelectricity, from 2010 to 2035 will consist of generation from wind and biomass facilities. Multiple features of a CES may require congressional action. Eligible energy sources would likely be among the topics at the forefront of a CES debate; at stake is what resources could and could not participate in a CES. Each energy source has advantages and disadvantages, and each brings different natural resource, economic, and technical challenges. For example, the cost to build clean energy projects and operate and maintain them is expected to vary (see Table 1 ). Additionally, sources for supply-side energy options are dependent on regional resources; energy efficiency is a demand-side source that is available everywhere because it is derived from power consumption locations—not from natural resource geography. Congress might consider these factors, among others such as how a federal CES would interact with state power provisions, in determining which energy sources would be eligible for a CES. This report begins with a brief examination of clean energy, renewable energy, and alternative energy. It then presents possible selection criteria Congress could use to determine which sources could be eligible for a CES depending on the goal(s) of the CES. The report provides an overview of the energy sources most commonly discussed as potential CES qualifying sources: biomass, fossil fuels (natural gas combined-cycle and coal-fired power plants with carbon capture and sequestration), geothermal resources, nuclear, solar, water, and wind. The report describes where each source can be found in the United States, the estimated quantity available for electricity generation, technologies used to create electricity from the source, advantages and disadvantages of using the source for electricity generation, and policy implications should the source be included in a CES. The report also contains a section on energy efficiency and its potential inclusion in a CES. Clean, Renewable, Alternative—What Is the Difference? Clean energy, renewable energy, alternative energy—these terms have been used interchangeably. However, they are not synonymous, although one term can encompass another. The terms differ with respect to an energy source's point of origin (e.g., fossil or non-fossil), replenishment time frame (e.g., instantaneously or millions of years), supply (e.g., exhaustible or inexhaustible), and environmental impact (e.g., greenhouse gas emissions and other pollutants), among other qualities. In general, a renewable energy source is naturally replenishing but flow-limited. A clean energy source is typically a source that produces little to no air pollution. The term "alternative" usually describes a non-conventional energy source. Most but not all renewable energy sources qualify as clean energy, depending on how electricity is produced from the source. Some clean energy sources (e.g., nuclear) are not generally considered renewable. Possible Selection Criteria for CES Energy Resources Potential CES energy source selection criteria could depend on the goal of a CES. While a CES generally would have the basic goal of producing a significant portion of electricity from clean energy sources, the reasoning behind this goal could influence which sources are selected. In evaluating individual energy sources for possible inclusion, Congress might consider the following criteria: geographic location of the energy source, energy source supply levels, job creation associated with the energy source, implementation time frame, EPA regulations (existing and forthcoming), environmental issues (air quality, water quality, water quantity, wildlife), greenhouse gas emissions, baseload versus non-baseload, energy balance, energy content, land use change, scalability, and cost. Potential Supply-Side CES Qualifying Energy Resources This section discusses selected energy resources that are commonly identified as potential qualifying sources for a CES. Each overview describes where the source can be found in the United States, how much is estimated to be available for electricity generation, the technologies used to create electricity from the identified source, advantages and disadvantages of using the source for electricity generation, and policy implications. Potential resources are renewable (e.g., wind) or technology-aided (e.g., fossil fuels). The energy resources may include biomass, clean energy fossil fuels, geothermal resources, nuclear, solar, water, and wind. Issues Applicable to All Clean Energy Resources A number of cross-cutting issues are associated with large-scale electricity production for many or all of the clean energy sources: Technology. For certain energy sources, technology to capture the resource and generate electric power is likely to require significant upgrading and financial investment. Electricity Transmission. In some cases, the energy source is located a considerable distance from where the electricity is needed. Transmission lines may have to be constructed to transmit the electricity from its point of origin to its point of use. This raises concerns not only for capital investment, but also siting issues. Variability. Electricity generated from certain sources (e.g., wind, solar) is variable; it is subject to acts of nature, and is not always available. This may affect grid stability if sufficient back-up generation is not available. Project economics. It may be cost-prohibitive to embark on certain clean electricity investments if the rate-of-return on the investment is not favorable. The rate-of-return is likely to vary across the United States, depending on source availability and regional market prices among other things. Material cost and supply. Certain clean electricity projects may require expensive or scarce amounts of raw materials. Use of these materials for electricity generation may have an impact on other markets that rely on the same materials. Biomass14 Biomass is organic matter that can be converted to energy. Common types of biomass are wood, wood residues (e.g., branches), agricultural biomass (e.g., corn stover), aquatic biomass (e.g., algae), animal manure, and industrial biomass wastes. Relative to other locations in the United States, large quantities of biomass have been identified east of the Rocky Mountains, and in the Northwest, Alaska, and Hawaii. Biomass can be converted to electricity (biopower) by either a thermochemical or a biochemical conversion process. Biopower conversion processes include combustion, co-firing, gasification, pyrolysis, and anaerobic digestion. The technologies are at varying stages of maturity. Approximately 1.4% of electricity generation in 2011 originated from biomass. Biopower was the third-largest renewable energy source for electricity generation (following conventional hydroelectric power and wind). The EIA estimates that electricity generation for all sectors from biomass will grow 5.6% from 2009 to 2035, and its contribution to the total U.S. electric power capacity will be 0.5% in 2035. There are advantages and disadvantages to pursuing biomass for electricity generation under a CES. Proponents of using biomass point out that various types of biomass are available in more than 35 states for electricity generation. In addition, they suggest that a CES would establish another market for biomass producers to sell their product, and that it would serve as an economic incentive to remove and use pest-infested woody biomass for electricity generation. Also, some biomass feedstocks can be used for baseload power production (minimum amount of electric power delivered or required over a given period of time at a steady rate), unlike wind or solar, which are variable resources. Some suggest that biomass use may be unsustainable, or that biomass combustion could increase carbon emissions. If it is economically advantageous to use biomass for electricity generation, some contend, less biomass will be available for traditional purposes. In particular, some are concerned there may not be enough biomass to meet both liquid transportation fuels and electricity needs under a CES. The natural resource implications of using biomass will depend on management of the sources from which it originates. For example, woody residues are more likely to remain available if woodlands are sustainably managed. The following policy questions might arise when considering biomass as a qualifying CES energy source: Will agricultural producers continue to receive support from the federal government to grow certain crops if a CES is established? Some agricultural producers receive financial assistance from the federal government to grow select crops (e.g., corn). In certain cases, these same producers could sell the residues of these crops for electricity generation to meet a CES mandate. Will the inclusion of biomass as a qualifying CES source conflict with other energy mandates? The Renewable Fuel Standard (RFS) is a liquid transportation fuels mandate that drives demand for some of the same biomass feedstocks used for electricity generation. Will the CES be economically competitive for those entities that require feedstock collection and transportation? Some biomass is located in areas that are difficult to reach. Would-be participants may demand that a CES offer a price that will compensate them for feedstock collection and transportation efforts. Will the CES include biomass-to-thermal applications? While discussions about a CES have focused on energy in the form of electricity, some assert that the standard could be broadened to include other non-electric energy applications such as space and domestic water heating, process heat, and the thermal portion of combined heat and power. Fossil Fuels Qualifying as Clean Energy Natural Gas Combined-Cycle24 Natural gas, predominantly methane, is present throughout all 50 states in various forms, and is commercially produced in 33 states. The recent development of large shale-gas resources has increased U.S. reserves and production, and has contributed to a steep drop in natural gas prices. Possible changes in government regulations regarding hydraulic fracturing—in part due to local opposition—raise uncertainty about future development of the resource. All 50 states consume natural gas, as vast pipeline networks transport the fuel around the country and within states. Natural gas is used for electric power generation in 48 states (all but Hawaii and Vermont), and natural gas combined-cycle (NGCC) facilities—among the most efficient combustion technologies for natural gas—are in 40 states. This highlights the role of natural gas in electric generation throughout the United States. Natural gas ranked second behind coal as the largest fuel source for U.S. electricity generation in 2011, accounting for almost 25% of U.S. generation. Natural gas has the most electric generation capacity in the United States, approximately 41%, with NGCC facilities accounting for about half. However, many natural gas power plants are not operated at capacity. While coal-fired electric generation plants operate on average at 64% of their maximum generation capacity, NGCC facilities operate at only 43% of their capacity. This is due both to the relative prices of natural gas and coal, and to the flexibility of NGCC facilities, which can be shut down and restarted (i.e., "cycled") depending on economic conditions. Coal plants are difficult to cycle and thus are less able to respond to economic factors and demand fluctuations. With respect to a CES, NGCC facilities have certain advantages over other fuel sources. NGCC power plants display the highest efficiency in converting thermal energy to electric energy and can be installed quickly and cheaply relative to other generation types. NGCC facilities can provide operational flexibility and can offer baseload or peak generation. Additionally, the almost 50% decline in 2011 natural gas prices for electric generation from their peak in 2008 has led utilities and generators to substitute natural gas-fired electric generation for other generation types. Spot natural gas prices are down even more in 2012. Relative to coal and oil, natural gas—whether in NGCC or simple cycle—produces fewer greenhouse gas emissions (almost 40% less carbon dioxide) and other pollutants, including carbon dioxide, nitrogen oxides, sulfur dioxide, and particulate matter. However, natural gas still emits greenhouse gases. Methane (CH 4 ), the main component of natural gas, is a potent greenhouse gas when released into the atmosphere, but is not emitted in the electricity generation process. When combusted, natural gas produces nitrogen oxides and carbon dioxide, but in lower quantities than would occur burning oil or coal. The following policy questions could arise when considering natural gas as a qualifying CES energy source: Does the United States have enough natural gas to devote to a CES? Development of shale gas will be critical for the long-term use of natural gas. With prices as low as they are currently, some companies have proposed and applied for permits to export natural gas as a way to increase demand. Environmental concerns regarding water and air may limit development of shale gas resources. Will the inclusion of natural gas as a qualifying CES energy source conflict with other energy mandates? Natural gas qualifies as an alternative fuel under various programs targeting the transportation sector. Will including natural gas as a CES energy source have negative consequences for other consumers of natural gas? Increased demand from inclusion in a CES could put upward pressure on natural gas prices. Natural gas is used in industrial manufacturing and residential heating, both of which would be negatively affected by a rise in prices. However, increased demand could also make some additional natural gas resources economic to develop. Some producers have stopped production because of low prices during the last two years. Clean Coal36 There has been considerable discussion about including clean coal (coal-fired power plants equipped with carbon capture and sequestration) as a qualifying energy source for a CES. Coal was the largest fuel source for electricity generation in 2011, accounting for nearly 42% of U.S. generation. U.S. coal deposits are mainly in three large regions: the Appalachian Coal Region, the Interior Coal Region, and the Western Coal Region. Coal is mined in 25 states. The top coal-producing states are Wyoming, West Virginia, Kentucky, Pennsylvania, and Montana. In 2009, about 5.5% of coal produced in the United States was exported, over half to Canada, Brazil, the Netherlands, the United Kingdom, and France. At the same time, 2.3% of coal consumed in the United States (mainly barged to the Gulf and east coast states) is imported, primarily from Colombia. Carbon capture and sequestration (or storage)—known as CCS—involves capturing carbon at its source, transporting and storing it to prevent or minimize its release to the atmosphere. Currently, three main approaches are available to capture CO 2 from large-scale industrial facilities or power plants: post-combustion capture, pre-combustion capture, and oxy-fuel combustion capture. After capture, the next step is transportation. Most CO 2 transport in the United States is through pipelines. The last step is sequestration in geological reservoirs. Three main types of geological formations are being considered for carbon sequestration: depleted oil and gas reservoirs, deep saline reservoirs, and unmineable coal seams. Coal-fired electricity-generating plants are strong initial candidates for CCS or reuse of CO 2 because they are usually large, stationary, single-point sources of emissions. According to the Environmental Protection Agency, the United States produces over 5.1 billion metric tons of CO 2 each year from fossil fuel combustion over the past six years, and in 2010 nearly 42%, or 2.26 billion metric tons, of that was from generating electricity. The United States can potentially store CO 2 for decades or longer at current emission rates from power plants and other stationary sources. According to the Department of Energy (DOE), storage estimates range from 1.65 trillion to 20.2 trillion metric tons for deep saline reservoirs, the geological formation with the highest potential for long-term CO 2 storage. If these estimates are correct, then the United States has the capacity to store all of its emissions from electricity generation for the next 770 to 9,400 years in saline reservoirs at current emission rates. Questions to consider about CCS as a qualifying source for a clean energy standard include the following: Can CCS be a long-term component of a CES portfolio? Using CCS to limit CO 2 emissions to the atmosphere is widely perceived as a medium-term option, allowing continued use of coal to generate electricity until less carbon-intensive technologies can substitute at an equivalent cost. Adding CCS to coal-fired generation, however, reduces the efficiency of the plants and increases the cost to produce electricity, especially during the capture step. Will inclusion of CCS as a qualifying CES source spur the adoption and deployment of CCS in the energy sector? Without an economic incentive or a regulatory requirement to install CCS at existing power plants or to build new plants with CCS, it is unlikely that CCS would be deployed commercially, unless its costs decrease dramatically. In addition to the cost of capture, the legal and regulatory framework for storing CO 2 underground is under development. At what stage of research, development, and deployment is CCS? Many experts call for a series of industrial-scale CCS projects to demonstrate how CO 2 can be captured, transported, and stored safely and efficiently in a variety of environments throughout the United States and how costs, decreases in efficiency, and transportation issues might be managed. Geothermal Resources44 Geothermal resources are found where circulating groundwater contacts the heated rocks near the Earth's surface, and where the resulting hot fluid can potentially be exploited for heat or electricity. To generate electricity, wells are drilled into the geothermal resource to extract the hot water or steam, which is then used to drive a turbine. In general, geothermal resources above 150 o C (300 o F) are used for electricity generation. Resources below 150 o C are typically used for direct heating. The United States is the largest producer of electricity from geothermal resources, with 2,382 megawatts (MW) of net installed capacity in 2009 (0.2% of total net summer electric generating capacity in 2008). The size of individual geothermal power plants ranges from small (less than 5 MW) to large (greater than 30 MW). Most of the installed capacity is in California and Nevada, with additional capacity in Hawaii, Utah, Idaho, and Alaska. The Geysers, comprising 45 square miles in northern California, contains a large geothermal complex with multiple power plants and over 300 steam wells; these facilities account for most of the electricity generated from geothermal resources in California, and a large share of the U.S. installed capacity. In a 2008 assessment of U.S. geothermal resources, the U.S. Geological Survey estimated that the mean electric power generation potential from identified geothermal systems is slightly over 9,000 MW, distributed over 13 states. California has nearly 60% of the identified geothermal resource base, followed by Nevada (15%) and Alaska (7.5%). The USGS also indicated that undiscovered geothermal resources could add over 30,000 MW of potential production capacity from public and private lands. A different category of geothermal resource, called enhanced geothermal systems (EGS), further adds to the nation's potential geothermal resource base. EGS require some form of engineering to drill down to high temperature zones to access the hot water or steam and recover the heat to generate electricity. Conventional geothermal systems take advantage of naturally circulating hot water and steam. Enhanced geothermal systems require elevated temperatures at drillable depths, which expands the potential resource base outside the boundaries of conventional geothermal resources but also increases the technical difficulty to harness the resource. Assuming that EGS technology is feasible, the USGS estimated that the mean electric power-generating capacity from EGS could be over 517,000 MW. Future exploitation of these resources depends in part on their nature compared to other sources of energy. A potential advantage of geothermal resources is that, in contrast to fossil fuel energy resources, the heat from geothermal fluids may be used without combustion, thus avoiding releases of carbon dioxide and other waste gases. A possible disadvantage involves the accessibility of geothermal resources. Geothermal plants must be built at the resource site, and are thus limited to locations where geothermal resources occur in the United States. By contrast, while proximity to the fuel source is considered in determining the economic viability of a fossil-fuel power plant, fossil fuels like coal and natural gas can be transported to the plant site; thus conventional plants may be built almost anywhere in the United States. Other policy questions in considering geothermal resources for a CES include the following: If geothermal is included in a CES portfolio, what other factors may affect its expansion and deployment as a source of energy for electricity generation? Similar to mineral and energy resource development, geothermal resources need to be discovered and characterized, and the reservoir itself engineered and managed to most efficiently extract its energy. That process can require significant investment and long lead times before any electricity is actually produced. Factors such as accessibility, distance to electricity consumers, the presence of adequate supplies of cooling water, and other site-specific factors affect the economic and regulatory (e.g., transmission siting) viability of the resource. At what stage of research, development, and deployment are enhanced geothermal systems? Enhanced geothermal systems (EGS) could expand the potential geothermal resource geographically, but require large engineering and infrastructure investments that so far constitute an unproven technology. Key technical challenges must be met for EGS to succeed, such as creating an efficient closed-loop system and limiting the amount of fluid loss. In addition, water resources for EGS may be constrained in the more arid portions of the country. The role of the federal government in advancing EGS technology is an ongoing question. Nuclear51 Nuclear energy results from the fission (splitting) of the nuclei of heavy radioactive isotopes, such as uranium-235 and plutonium-239, in a nuclear reactor. The United States has 104 licensed commercial nuclear reactors that generated about 19% of U.S. electricity in 2011. Nuclear power plants are the largest U.S. source of non-carbon-emitting electricity generation, although some carbon is emitted during the production of nuclear fuel. U.S. nuclear reactors are fueled by enriched uranium (uranium with an increased proportion of uranium-235). About 8% of the uranium purchased by U.S. reactor operators in 2010 came from domestic sources, with most foreign supplies typically coming from Australia, Canada, and Russia. Using the classification system of the International Atomic Energy Agency, worldwide reasonably assured uranium resources are estimated to equal about 80 years of current annual consumption. Some countries, particularly France, are reprocessing and recycling spent fuel from nuclear reactors to modestly extend uranium supplies. Research on technologies that could extend uranium supplies much further is being conducted by DOE and in several other countries. A major concern about such technology is that it may encourage the production of material that could be used in nuclear weapons. Growth in U.S. nuclear power generation is expected to be small without favorable federal policies, such as carbon controls or a CES that includes nuclear energy. EIA projects that under current policies, U.S. nuclear power generating capacity will rise from 101 gigawatts in 2009 to 112 gigawatts in 2035, with the increase coming from a combination of new reactor construction and increased capacity at existing reactors. One new power reactor is currently under construction in the United States, the Watts Bar 2 reactor owned by the Tennessee Valley Authority. Construction of Watts Bar 2 began in the 1970s but had been suspended until recently. The Nuclear Regulatory Commission (NRC), on February 9, 2012, approved the first licenses to build new U.S. commercial reactors since the 1970s, for two new units at the Vogtle nuclear power plant in Georgia. License applications for as many as 18 additional reactors are still pending before NRC, but several other proposed projects have been suspended or delayed, and the number of reactors that will actually proceed to construction is unknown. Along with low carbon and other emissions, a major advantage of nuclear power is its relative invulnerability to volatile fuel prices. The cost of uranium is a small fraction of the total cost of nuclear generation, unlike coal- and gas-fired plants, in which fuel is a major cost driver. However, the cost of building nuclear power plants is higher than that of fossil-fuel plants, placing new nuclear plants at an overall economic disadvantage, especially if natural gas prices remain relatively low. EIA estimates that a new two-unit nuclear plant would cost $5,335 per kilowatt of capacity (in 2010 dollars without interest), compared with $978 for a combined-cycle natural gas plant and $2,844 for a two-unit advanced pulverized coal plant. Nuclear power is also facing renewed scrutiny over safety in the wake of the March 2011 disaster at the Fukushima Daiichi nuclear plant in Japan, and continued concern over storage and disposal of highly radioactive spent fuel. Following are some policy questions that arise when considering the expansion of nuclear power in the context of a CES: Would inclusion of existing nuclear power capacity in a CES encourage life extension of existing reactors? Concerns have been raised about the safety of older reactor designs, including those that are similar to the damaged Fukushima reactors. NRC contends that no U.S. reactor would be permitted to keep operating if it did not meet U.S. safety standards, regardless of any economic incentives for continued operation. How would an expansion of nuclear power affect the management of highly radioactive waste? The Obama Administration has moved to halt further development of the proposed national nuclear waste repository at Yucca Mountain, Nevada. To develop an alternative waste management strategy, the Administration established the Blue-Ribbon Commission on America's Nuclear Future, which issued its recommendation on January 26, 2012. Until a new strategy can be implemented or the Yucca Mountain project is restarted, spent nuclear fuel will continue to be stored at nuclear plant sites. Could new nuclear fuel technology lead to the proliferation of nuclear weapons? Advanced spent fuel reprocessing and reactor technologies could greatly increase the amount of energy extracted from uranium supplies and reduce the long-term radioactivity of nuclear waste. Such technologies are often viewed as crucial for long-term expansion of nuclear power. However, such technologies also raise concerns about the separation of weapons-useable plutonium from spent fuel. A major goal of DOE nuclear research is to minimize that problem. The spread of uranium enrichment technology also poses proliferation concerns. Solar60 Solar energy, in the context of electricity generation potential, might be defined as radiation from the sun that reaches the earth's surface. Energy from the sun can be used for heat and electricity. Converting solar energy into electricity is generally accomplished by capturing and converting solar photons (photovoltaic), or capturing and converting heat from the sun (solar thermal). Photovoltaic conversion typically uses semiconductor material (i.e., silicon) that absorbs photons of a certain wavelength. Absorbed photons create electricity by dislodging electrons from the semiconductor material. Electricity from this conversion process can be used at the generation source or transmitted on the electrical grid to the areas of demand. Solar thermal electricity conversion (also known as concentrating solar power) typically uses heat from the sun to generate electricity. Technologies used for solar thermal electricity generation include parabolic trough, power tower, linear fresnel, and dish stirling technologies. Trough, tower, and fresnel technologies typically use thermal energy from the sun to heat water and make steam. The steam then powers a turbine generator, which in turn produces electricity. Dish stirling technology typically does not require water for electricity production and instead relies on thermal expansion properties of gases, usually hydrogen or helium, to mechanically power a stirling engine. At the end of 2011, total solar electricity capacity in the United States was approximately 4,460 megawatts, up from 494 megawatts in 2000. U.S. electricity generation in 2011 from photovoltaic and solar thermal technologies was approximately 1.8 million megawatt-hours, which represented roughly 0.04% of total U.S. electricity generation. The majority of this electricity generation came from photovoltaic solar systems. California, New Jersey, Arizona, Massachusetts, and Pennsylvania are the top five states, in terms of total installed photovoltaic capacity. Concentrated solar power (CSP), a much less mature solar market segment, is generally better suited for large utility-scale operations located in high solar insolation areas such as the desert Southwest. Most existing CSP capacity and planned projects are located in southwestern states such as California, Arizona, and Nevada. Some argue that solar electricity provides a number of benefits to the United States, such as zero-emission electricity generation, electricity that can be consumed at the point of generation, and peak power production. Critics of solar electricity point out several limitations to widespread solar electricity deployment. Possible limitations may include the cost of electricity generation, intermittent operation, and that some solar thermal technologies may require abundant water supplies in areas that are typically water constrained. Another possible disadvantage is that large-scale solar projects typically require large swaths of land that may not be located near electricity consumers. Connecting large volumes of solar electricity with sources of demand may be challenged by limits to existing transmission infrastructure, or by the cost of building new transmission capacity. Policy questions for solar as a qualifying CES energy source could include the following: How will the electricity grid compensate for the intermittent nature of solar electricity? Grid operators are challenged with maintaining the grid integrity and keeping electricity supply balanced with electricity demand. Stable sources of supply are necessary for reliable grid operations. Electricity generated from solar technologies is, by its nature, variable and can fluctuate based on weather patterns. If solar electricity installations become a large source of electricity, grid operations and reliability might be impacted. Should the federal government fund additional research and development efforts that might reduce the cost of solar electricity production? In order to reduce the cost of solar electricity, research and development initiatives may be necessary. As a result, solar technology companies may seek additional government assistance to pay for cost reduction R&D activities. Will off-grid solar electricity projects be included in a CES? Opportunities exist for businesses and homeowners to generate solar electricity that may be completely consumed on-site. These types of projects will be generating electricity, but the electricity may not be sent to the electric grid for sale to other consumers. Determining if off-grid solar generation will receive CES credits and accounting for the role of state metering laws may be policy considerations as legislation is formulated. How might a CES policy interact with natural resource policy? Solar projects (photovoltaic and thermal) generally require relatively large land areas for utility scale generation. Some solar thermal technologies may also require large volumes of water. Balancing electricity generation with natural resource requirements may be a topic of interest as CES policy is formulated. Water74 Water can be used in various ways to generate electricity. Some water energy technologies include conventional hydropower, small hydropower, low-head hydropower, hydrokinetic, tidal turbines, and ocean thermal energy. Hydropower is the generation of electricity from flowing or falling water. Hydrokinetic electricity is generated by river currents that drive turbines anchored to a river bottom or attached to an existing structure such as a bridge foundation. Tidal turbines capture energy from tidal waves. Ocean thermal energy conversion uses the heat energy stored in the earth's oceans to generate electricity. The most established form of water energy is conventional hydropower. Conventional hydropower technologies include using turbines at storage facilities, pumped storage, and run-of-river plants. Larger potential for increased hydropower generation lies primarily in the western United States (California, Oregon, and Washington) and Alaska. However, DOE reports that roughly 33 states could increase their hydropower generation by 100% or more, assuming they develop as low-power (less than 1 average megawatt or MWa) projects or small hydro (between 1 and 30 MWa) projects. Moreover, the Bureau of Reclamation identified 70 sites on federal land that could prove economically feasible for development of hydropower based on available data and study assumptions. The United States has used hydropower for more than 100 years, and at one point hydropower supplied roughly 40% of all electricity generated. Conventional hydropower was the largest renewable energy source for electricity generation in 2011. Nearly 9% of total electricity net generation in 2011 originated from conventional hydropower. In the 2011 Annual Energy Outlook, EIA projected that conventional hydropower generation will have an annual growth rate of 0.5% from 2009 to 2035, but is not expected to exceed 7% of total U.S. electricity generating capacity in 2035. Depending on the technology and site location, there are benefits and drawbacks to expanding hydropower. Some advantages include the generation of electricity as needed to meet demand during peak periods, potentially lower capital costs to upgrade an existing facility or power a non-power dam, and minimal carbon dioxide emissions from energy production in the United States relative to coal power plants. Moreover, certain hydropower facilities may also be used for other purposes, such as irrigation, flood control, and recreation. Disadvantages include relatively high capital costs to construct a new large facility, potential adverse impacts from dams on the environment, and dam safety concerns. Dams can change the natural habitat, affecting wildlife, water quality, and land erosion rates. One primary natural resource concern for hydropower is adequacy of fresh water supplies. Electricity use and distribution plans must ensure adequate water loads to satisfy energy, human consumption, and agrarian purposes, among others. Policy questions for water as a qualifying CES energy source could include the following: Should existing hydropower facilities be included as a CES qualifying energy source? An analysis of EIA data suggests that, if allowed, a few states would currently comply with President Obama's proposed CES mandate of 80% clean energy generation by 2035 largely through the use of existing hydropower facilities. A goal of past CES proposals has been to encourage development of new hydropower facilities. If new hydropower facilities qualify for a CES, will potential licensing issues discourage investment in privately owned facilities? Privately owned facilities operate under licenses issued by the Federal Energy Regulatory Commission (FERC). The licenses are valid for 30 to 50 years and establish operating parameters for privately owned facilities. Time and cost concerns have arisen in the licensing and relicensing of privately owned facilities. It can take multiple years and millions of dollars to obtain a license. Will small hydro and low-head hydro power facilities be included as "qualifying hydropower" in a CES? Development of economic small and low-head hydropower resources may be emphasized in a CES. Will new water energy technologies be included as "qualifying hydropower" in a CES? Hydrokinetic turbines, tidal turbines, and ocean thermal energy conversion are relatively new water energy technologies that might help meet a CES mandate. Wind85 Wind results from uneven heating of the atmosphere by the sun, surface irregularities, and the earth's rotation. Wind is essentially kinetic, or motion energy that can be "harvested" into mechanical and electrical energy through a conversion technology. Typically, a turbine and generator are used to capture wind energy and convert it to usable electricity. Other than hydropower, wind is the largest developed renewable source of electricity in the United States. In 2011, approximately 2.9% of U.S. electricity was generated from wind energy. Wind electricity generation facilities produced nearly 120,000 million kilowatt-hours of electricity in 2011. To date, wind electricity generation has come from onshore assets. Abundant offshore wind resources have not been developed for a variety of reasons, although they are close to coastal demand loads. The United States was the largest wind market in the world in 2009, with installed U.S. wind capacity of approximately 35 gigawatts. However, in 2010 China took the lead for the most installed wind capacity, with approximately 44 gigawatts. Total installed wind capacity in the United States at the end of 2011 was approximately 47 gigawatts. U.S. wind capacity is expected to grow by 2.1% from 2009 to 2035, but is not expected to exceed 5% of total U.S. electricity generating capacity in 2035. Wind is currently one of the lowest-cost renewable electricity options. According to the EIA, the total levelized cost of energy (LCOE) for onshore wind electricity is $97 per megawatt-hour (MWhr) (see Table 1 ). For reference, EIA estimates that solar photovoltaic and solar thermal LCOEs are $210/MWhr and $311/MWhr, respectively. Proponents for wind development in the United States argue that wind power is clean and emission-free, and that it does not deplete finite resources. In addition, proponents assert that fuel for wind power is essentially free, thus providing a hedge against relatively volatile fossil energy costs. Other suggested advantages are that encouraging wind energy may create jobs if the U.S. wind market is expanded and may establish the United States as a global renewable energy leader. Opponents of wind energy development argue that wind energy is an intermittent resource and large-scale wind development may result in electricity grid disruptions, if not properly managed. They also contend that the best U.S. resources are located in somewhat remote areas with inadequate transmission access to connect the resource with load centers; that wind projects have environmental consequences, including noise and potential threats to avian species; and that the cost of electricity from wind, when taking into account all costs for transmission, interconnection, and ancillary services, among others, will generally be higher than that from conventional sources of electricity generation. Ultimately, electricity consumers will need to compensate for these additional costs. Policy questions for wind as a qualifying CES energy source could include the following: Could project location and wildlife concerns escalate to a level that might impede large-scale development of wind power projects? Some opponents of wind argue that rotating wind turbines are a threat to avian species, and some opponents charge that noise from wind turbine operations is considered a nuisance. Others are concerned with radar interference. If wind development continues to increase, these concerns could impact widespread development of wind projects in optimal locations. How will the electric grid compensate for the intermittent nature of wind electricity? Electricity generated from wind is, by its nature, intermittent and somewhat unpredictable. With grid operators having responsibility for balancing the grid by adjusting supply to accommodate demand, it may be important to have stable and reliable sources of power. Given the intermittent nature of wind electricity generation, grid operators may experience challenges as wind capacity increases. Potential Demand-Side Source: Energy Efficiency95 Energy efficiency is a demand-side resource that could contribute to a CES if reducing future needs for electric energy and power plant capacity is a goal. This section describes the concept of energy efficiency, opportunities for energy efficiency measures, and policy design issues concerning efficiency use in a CES. The section ends with possible policy implications should energy efficiency be included in a CES. An energy efficiency measure reduces the amount of energy required by specific end-use devices and systems, without reducing the services provided. Energy efficiency is increased when an energy conversion device, such as a household appliance, central air conditioner, or electric motor, undergoes a technical change that enables it to provide the same service (lighting, cooling, motor drive) while using less energy. Energy efficiency involves all aspects of energy production, distribution, and end-use. The energy-saving result of the efficiency improvement is often called "energy conservation." For an electric utility company, energy efficiency measures are usually packaged into an outreach program that targets demand reductions on the customer's side of the meter. The collective effect of efficiency improvements to a variety of end-use equipment (e.g., lights, refrigerators, air conditioners) provides demand-side power reductions that are equivalent in many ways to supply-side production from new power plants. As a result, energy efficiency can provide power service needs while actually reducing resource use and environmental impacts. There has been considerable debate about the possible role of energy efficiency in a CES. There are at least three key advantages to the use of energy efficiency measures: it is available everywhere that power demand is located; because it cuts energy use, it may reduce environmental impacts; and when it helps avoid growth in power plant capacity, it also reduces the need for additional reserve capacity and may reduce the need for additional transmission infrastructure. On the other hand, there are at least three disadvantages and/or barriers to the use of energy efficiency measures. First, utility profits generally follow in direct proportion to volume of power sales: the utility has an incentive to increase power sales and a disincentive to reduce power sales. Second, the analytic difficulty of estimating the potential cost savings from energy efficiency measures can deter utility customers (especially residential customers) from using cost-effective efficiency measures. Third, the time requirement and statistical nature of evaluating the impacts of utility energy efficiency programs tend to cause a time delay for the results, and some degree of uncertainty about the magnitude of actual energy savings. The three main sectors that present opportunities for improving demand-side efficiency in electric energy use are buildings, industry, and transportation. Buildings in the residential, commercial, and industrial sectors present the largest available opportunity. In existing buildings, efficiency improvements can reduce power demanded by hundreds of types of electrical end-use equipment (e.g., lights, refrigerators, air conditioners). Savings may also be available through increased insulation, more efficient windows, and other measures. For new buildings, additional design measures can be incorporated, such as passive heating and cooling features and building integrated solar photovoltaics. For industry, on-site power generation is another means to reduce demand for electricity generation. Industrial process use of electricity is the next largest opportunity for efficiency. For example, large amounts of electricity are needed to process bauxite into final alloy products in the aluminum industry. Due to heavy dependence on liquid fuels, the transportation sector currently provides a smaller opportunity for efficiency to reduce electric power use. Currently, most electric power use in this sector supports public transit systems. However, the recent policy focus on increasing the use of electric vehicles and hybrid-electric vehicles could cause the share of power use in this sector to climb significantly. In such a case, efficiency measures for electric vehicles would take on greater importance. There is at least one key issue that would influence the potential contribution from energy efficiency resources. Decoupling of electric utility profits from sales volume is a long-standing issue for the development of energy efficiency resources in power markets. Most utilities have rate structures that encourage greater electricity use by offering lower rates for larger purchases. This practice deters utility use of efficiency because it would reduce profits. Some states (e.g., California) have experimented with innovative rate-making policies that make efficiency profitable. Historically, utilities were designed to make profits in proportion to power sales volume. In the face of growing power demands, that design factor has driven utilities to seek additional supply-side sources and deterred them from seeking demand-side energy efficiency sources that curb sales. Recognition of this key barrier has led to some state regulatory efforts to "decouple" utility profits from sales volume. California, for example, had such an electricity rate-adjustment mechanism in the early 1990s, dropped it during the industry restructuring trend of the mid-to-late 1990s, and re-instated it after the state power shortages of 2001. The mechanism allows rates to increase slightly, to compensate for reduced sales, with the goal of reducing the overall consumer bill. The role of energy efficiency in a CES depends on potentially conflicting policy goals: use of new, more expensive clean energy technologies or reducing overall demand for electricity. One alternative that has been proposed is to establish a fixed percentage carve-out or "cap" for energy efficiency resources. This was an issue for recent efforts in the debate on renewable energy portfolio standard (RES) legislation. There are at least two purposes of such a cap. One purpose is to provide flexibility to regulated entities that may have a limited amount of clean energy resources. Another purpose is to limit the amount of efficiency resources that could have lower costs, in order to avoid diluting the main CES focus on developing new higher-cost forms of power supply. Policy questions for energy efficiency as a qualifying CES energy source could include the following: Do potential benefits of energy efficiency, such as lower power costs and reduced pollution, justify its inclusion as an eligible resource under a CES? Many energy efficiency measures are capable of rapid implementation and are available at costs well below those for supply-side resources. In this regard, efficiency may be seen to have less need for new incentives and regulatory policies, such as the CES. If energy efficiency measures were included in a CES, would the relatively low costs inhibit the development and implementation of some clean energy and other supply-side power generation options? Could a cap on the maximum contribution from efficiency measures help avoid such a concern? Some previous proposals for an RES (i.e., §101 of H.R. 2454 in the 111 th Congress) included energy efficiency as a qualified source, but with a cap that set a maximum for its contribution. A key purpose for including efficiency was to increase flexibility for those states or regions that had limited renewable energy resources. If energy efficiency measures were included in a CES, would additional federal funding and regulatory policies (e.g. , to help realign utility incentives for profitability) still be needed to help overcome barriers to broader use of energy efficiency measures to defer or displace power plants? The NAPEE study suggests that efficiency could make a major contribution, effectively providing the equivalent of up to 20,000 mw of new generating capacity over 10 to 15 years, conditioned on a major increase in efficiency program funding and alignment of the utility profitability incentive. CES Legislative Initiatives in the 112th Congress Congress has discussed a clean energy standard and its role in the larger national energy debate. At least two bills pertaining to a clean energy standard were introduced during the 112 th Congress—the Fulfilling U.S. Energy Leadership Act of 2011 ( S. 1220 ) and the Clean Energy Standard Act of 2012 ( S. 2146 ). S. 1220 S. 1220 directs the Secretary of Energy to establish a CES, but gives few details about which sources to include, the time frame for implementation, and compliance measurements. S. 2146 S. 2146 proposes a national market-oriented standard that would require certain utilities to generate or purchase clean energy. The primary goal of S. 2146 is to reduce CO 2 emissions from the U.S. electric power sector. The bill would require that non-exempt utilities obtain a minimum annual percentage of the electricity they sell to consumers, less certain deductions, from clean energy sources, starting at 24% in 2015 and increasing by an additional 3% each year to 84% in 2035. The CES proposal aims to encourage the development of electric power resources with low (or zero) CO 2 emissions. Utilities would be able to demonstrate compliance by acquiring credits that recognize the generation, or purchase, of electricity from qualified clean energy facilities, by making alternative compliance payments, or by employing a mix of those two options. Depending on the CO 2 emission intensity (metric tons of CO 2 per megawatt-hour) of the clean energy generated, partial credits could be issued. Certain utilities would be exempt from the standard using a sliding scale based on the amount of electricity sold to consumers in each calendar year. The bill requests two reports and the commissioning of one study. The bill defines clean energy as electricity generated at facilities placed in service after 1991 that use renewable energy, qualified renewable biomass, natural gas, hydropower, nuclear power, or qualified waste-to-energy; at facilities placed in service after the bill is enacted that use qualified combined heat and power, or a source of energy, other than biomass, that has an annual carbon intensity lower than 0.82 metric tons of CO 2 /MWh; as a result of qualified efficiency improvements or capacity additions to certain hydropower and nuclear power facilities; or at a facility that captures CO 2 and prevents its release into the atmosphere. Unresolved Issues Legislative examination of a CES could raise multiple questions, including similar questions posed during the renewable fuel standard (RFS) debate. Which sources should be included? Should legislation account for other sources and technologies that are not yet developed? How much clean electricity can be generated in the time frame specified from each qualifying energy source? Should a carbon accounting factor be assigned to each qualifying energy source? Will a time come when some resources (e.g., wind, solar) used to generate clean electricity cease to be considered a "free" resource? If so, what impact might this have on using that resource to meet the CES mandate? Will certain clean energy sources (e.g., natural gas) force out or significantly lower electricity generation from renewable resources? Should energy efficiency be included in a CES, and if so, how should it be included? How would a CES interact with state renewable electricity requirements? Who would assume the costs of new transmission capacity? These questions and other concerns require further exploration to ensure that, if established, a CES would work as intended.

A clean energy standard (CES) has been identified as one possible legislative option to encourage a more diverse domestic electricity portfolio. A CES could require certain electricity providers to obtain a portion of their electricity from qualifying clean energy sources. A CES is broader than a renewable energy standard (RES), including "clean" energy sources along with renewable sources. The RES has been a topic of legislative attention since at least the 105th Congress. A CES gained legislative attention with the introduction of the Clean Energy Standard Act of 2012 (S. 2146). The bill would require large utilities to sell a percentage of their electricity from clean energy sources—at least 24% in 2015 and gradually increasing over time to 84% by 2035. Some assert that a CES could lead to economic growth, reduce greenhouse gas emissions, and secure U.S. leadership in clean energy technology. Others argue that it could raise electricity prices, necessitate additional financial investment in grid infrastructure, and—in some cases—depend on energy technologies that are not yet established for widespread commercial-scale use. Without a CES, some clean energy sources—mostly the renewables—may face barriers to penetrating and gaining traction in the electricity market. Renewable sources (including conventional hydroelectric) constituted roughly 12% of total electric power net generation in 2011. Analysis from the Energy Information Administration (EIA) suggests that without a CES or RES, electricity generation for renewable sources (including conventional hydroelectric) will grow from 10% in 2010 to 16% in 2035. EIA analysis indicates that most of the growth in renewable electricity generation, excluding hydroelectricity, in the power sector from 2010 to 2035 will consist of generation from wind and biomass facilities. Policy, economic, and technical considerations arise when evaluating CES options. A primary question in the CES legislative discussion is which energy sources would be eligible to participate. Congress could take into account the following clean energy source selection criteria: geographic location of the energy source, energy source supply levels, job creation associated with the energy source, the implementation time frame, environmental regulations (existing and forthcoming), and cost. Each potential qualifying energy source has advantages and disadvantages, and has different natural resource, economic, and technical challenges. For instance, the cost to build, operate, and maintain clean energy power plants varies widely, from $63 (natural gas advanced combined-cycle) to $312 (solar thermal) per megawatt-hour. Moreover, some of the sources proposed have encountered public opposition (e.g., nuclear energy). Many proposed sources (e.g., solar) have received government support in the form of research and development assistance or favorable tax treatment. In some cases, the technology that might allow certain sources to qualify for a CES is not yet at commercial scale (e.g., coal-fired plants equipped with carbon capture and sequestration). Cross-cutting issues including electricity transmission, variability, and material cost and supply are associated with large-scale electricity production for many of the commonly discussed clean energy sources. Many questions will need to be answered if a CES is established. How much clean electricity can be generated from each qualifying energy source, given the proposed CES time frame? Should a carbon accounting parameter be assigned to each source? Will a time come when some resources (e.g., wind, solar) used to generate clean electricity cease to be considered a "free" resource? Should energy efficiency be included in a CES, and if so, how should it be included? How would a CES interact with state renewable electricity requirements? Who would assume the costs of new transmission capacity?

Context Reorganization authority was delegated by Congress to the President (5 U.S.C. 901-912)from time to time under various forms between 1932 and 1984. The rationale for this delegation wasto be found in the view that the key to effective and efficient government lay in delegation byCongress to the President of broad authority to reorganize the departments, agencies, and programadministration, subject only to a "legislative veto." Reorganization was viewed in large measure asa technical, non-political exercise best left to the "experts" in the executive branch. From the early 1960s on, however, questions were raised in congressional deliberations asto the constitutional basis for such authority and processes, and the political wisdom of assigningbroad reorganization authority to the President. Successive reorganization acts, despite changes inprocedures and limitations on what could be included in reorganization plans, remained based onthe concept of permitting the President to submit proposals to Congress that would go into effectunless either house prevented activation by passing a motion of disapproval. This legislative vetoprocess was increasingly criticized as the years passed. Also, the reorganization process began to be questioned as to both its utility and its potentialfor increasing conflict and distrust between the branches. Congress, in successive reorganizationacts, gave the President authority to skirt the regular legislative process, yet when the Presidentinvoked the authority, his actions were criticized by some for violating constitutional procedures. The White House appeared to some observers to be forwarding reorganization plans simply to justifyits request for reorganization authority. Plans were submitted that arguably would not have beenaccepted as legislation using the regular legislative process, thus increasing tensions between thebranches. The process was rigid; that is, no amendments were permitted, even technicalamendments agreed to by all the parties. After each presidential "misuse," Congress responded byadding restrictions and exemptions, gradually circumscribing the power until the reorganization planprocess (as provided in the 1977 Reorganization Act, as amended) was a mere shadow of thebaseline 1949 Reorganization Act. With the 1983 Chadha decision ( Immigration and NaturalizationService v. Chadha ; 462 U.S. 919) striking down the legislative veto, the utility and desirability ofthe Reorganization Act, compared to following the regular legislative process, came in to question. Whereas "fast track" options within the larger legislative process retain their appeal under certaincircumstances (and reorganization of the executive branch may indeed be one of thosecircumstances), no President since 1984 has requested the renewal of the reorganization authority. Origins and Early Use of the President's Reorganization Authority While questions regarding how best to organize the executive branch were raised in theConstitutional Convention, the Constitution itself is nearly silent on organizational matters. (2) The document does reflect,however, the clear intention that Congress is to play a critical role in the organization, design andmanagement of the executive branch. It is Congress, not the President, that establishes departmentsand agencies, and to whatever degree it chooses, the internal organization of agencies. It isCongress, through law, that determines the mission of agencies, personnel systems, confirmation ofexecutive officials, and funding, and ultimately evaluates whether the agency shall continue inexistence. All of which is not to downplay the role of the President as chief manager, but rather toreaffirm the intention of the Framers with respect to the role of Congress as co-manager of theexecutive branch. The co-managership concept has been criticized by proponents of the theory of the dominantPresident that has enjoy ascendency (beginning with the Progressive Movement), throughout mostof the last century. While Secretary of Commerce, President Herbert Hoover (1929-1933) had beena proponent of the idea that Congress should delegate to the President authority to proposereorganizations of the executive branch subject to some form of congressional disapproval. (3) Near the end of his term,Hoover was successful in persuading Congress, when passing the Economy Acts of 1932 and 1933,to include a provision assigning the President reorganization authority. (4) Hoover, a Progressive in his politics, believed that "economy and efficiency" in the executivebranch were possible only if the President could act decisively according to "scientific managementprinciples." (5) From thispoint of view, Congress and the legislative process were viewed as too cumbersome and prone toparticularistic interest group pressures. Support for the reorganization plan concept and process thusrested from the beginning on a negative opinion of congressional processes and Congress' allegedinability to move wisely and expeditiously on issues of organizational management. This criticalview, held by many members of Congress themselves, (6) has been recurrent over the years and continues to this day to be amajor rationale offered for proposals to renew the President's reorganization authority. (7) Although President Franklin Roosevelt had some interest in executive reorganization duringthe New Deal years, he was more focused toward creating new agencies and programs than inconsolidation and retrenchment. The Reorganization Act was rarely used and allowed to lapse in1935. As America faced heightened international pressures, however, Roosevelt indicated renewedinterest in executive reorganization as a tool for increasing presidential authority and for preparingAmerica to meet its wartime responsibilities. (8) One product of this changed political climate was passage of theReorganization Act of 1939. (9) This Act provided that for two years the President could submitreorganization plans that would go into effect unless Congress disapproved by a concurrentresolution of disapproval. As far as Congress was concerned, the objective was for the President touse the authority "to reduce expenditures to the fullest extent consistent with the efficient operationof Government." President Roosevelt, never persuaded that the principal purpose of reorganizingwas saving of money, took the opportunity to successfully propose in Reorganization Plan No. 1 theestablishment of an Executive Office of the President. (10) During World War II, the President was given authority underTitle I of the War Powers Act to make temporary, emergency wartime reorganizations for theduration of the war plus six months. (11) In 1945, Congress again granted the President authority for two years to submitreorganization plans. (59 Stat. 613). This Act was similar in most respects to the 1939 Act in thatit provided for congressional rejection of a plan by a concurrent resolution, (12) and expressly prohibitedthe abolition or transfer of all functions of executive departments and certain designated agencies. Reorganization Act of 1949 Congress next renewed the President's reorganization authority by passing the ReorganizationAct of 1949 (63 Stat. 203), major provisions of which remained in force until 1977. Although theAct was patterned, in the main, after the Reorganization Acts of 1939 and 1945, there were severalimportant differences. (13) At the urging of the first Hoover Commission, whose report appeared in 1949, (14) Congress gave thePresident much greater latitude than he had enjoyed under the earlier Acts because it appeared toauthorize submission of plans to reorganize executive departments and virtually all agencies. Oncea reorganization plan was submitted, Congress could not amend the plan but had either to accept orreject it in toto . A reorganization plan "... is effective at the end of the first period of 60 calendardays of continuous session of Congress after the date on which the plan is transmitted to it unless,between the date of transmittal and the end of the 60 day period, either House passes a resolutionstating in substance that the House does not favor the reorganization plan." The 1949 Act, therefore,established a one-house veto procedure for reorganization plans. In the immediate wake of the Hoover Commission Report and the passage of theReorganization Act, a large number of reorganization proposals were effected by the regularlegislative process, administrative order, and lastly, by reorganization plans. With respect to thelatter, President Truman in 1949 initially submitted eight reorganization plans, of which six becameeffective, while in 1950, 20 of the 27 were allowed to go into effect. These plans included proposalsfor strengthening the Executive Office of the President, broadening the authorities of independentregulatory commission chairmen, and transferring the Public Roads Administration to theDepartment of Commerce. Legislative bills were also enacted, most notably the National SecurityAct Amendments. The ease with which most of the reorganization plans became effective reflectedtwo factors: the existence of a consensus that the President ought to be given deference andassistance by Congress in meeting his managerial responsibilities, and the fact that most of thereorganization plans were pretty straightforward proposals of an organizational character. This highrate of passage, however, was misleading in that it tended to obscure the emergence, even at thisearly date, of opposition to the reorganization process itself. In the 28 years between 1949 and 1977, the Reorganization Act of 1949 was renewed seventimes. As renewals were sought, debated, and granted, amendments were adopted altering theoriginal Act. The thrust of these amendments was toward limiting the President's discretion in whatcould be included in reorganization plans, and what procedures would have to be followed in theapproval process. The limitations included modifications to the effect that only one plan could besubmitted within a 30 day period, and could include only logically consistent subject matter. A plancould not create new legal authority. This latter point was important to Congress as it prevented thereorganization procedures from being used to circumvent congressional authority to legislate. In1964, Congress eliminated the President's authority to submit plans proposing the creation orabolition of new executive departments. (15) Each restrictive limitation could, arguably, be traced to whatthe majority in Congress believed at the time to be an abuse by the White House of the discretionpermitted in the procedures. A good deal of distrust attributable to the reorganization processappeared to emerge between the branches. (16) With considerable regularity throughout this period, many in Congress challenged theReorganization Act on constitutional grounds. The chairman of the House Government OperationsCommittee, Representative Jack Brooks, was both persistent and consistent over the years in voicingobjections to the procedures provided in the Reorganization Act. He argued that the procedureproduced a situation where the President was making law without the constitutionally requiredapproval of both houses of Congress and the subsequent signature of the President. Reorganization Act of 1977 The President's authority to submit Reorganization Plans under the Reorganization Act of1949, as amended, expired on April 1, 1973, and was not renewed by Congress until 1977. Soonafter his inauguration, President Jimmy Carter requested Congress to renew this authority, includingcertain suggested revisions. Hearings were held in both the House and Senate on the President'sproposal, and major amendments were offered. After considerable debate, the bill passed and wassigned by the President on April 6, 1977. (91 Stat. 29; 5 U.S.C. 901-912). As crucial provisions of the 1949 Act were considerably altered, it was decided to redesignatethe law as the Reorganization Act of 1977. Among the changes approved were the following: (1)the President would be allowed to amend a plan within 30 days after sending it to Congress; (2)the prohibition against establishing, abolishing, transferring, or consolidating departmentswas expanded to prohibit also the abolition or consolidation of independent regulatoryagencies; (3)no enforcement function or statutory program could be established by a plan; (4)a resolution of disapproval was required to be introduced in each chamber; and (5)no more than three plans could be pending before Congress at one time. Section 905 of the Reorganization Act of 1977 listed additional limitations on the President'sauthority to submit Reorganization Plans as follows: § 905 Limitations on Powers (a)A reorganization plan may not provide for, and a reorganization under this chapter may nothave the effect of -- (1) creating a new executive department,abolishing or transferring an executive department or independent regulatory agency,or all the functions thereof, or consolidating two or more executive departments, ortwo or more independent regulatory agencies, or all the functionsthereof; (2) continuing an agency beyond theperiod authorized by law for its existence or beyond the time when it would haveterminated if the reorganization had not beenmade; (3) continuing a function beyond theperiod authorized by law for its exercise or beyond the time when it would haveterminated if the reorganization had not beenmade; (4) authorizing an agency to exercise afunction which is not expressly authorized by law at the time the plan is transmittedto Congress; (5) increasing the term of an officebeyond that provided in law for the office; or (6) dealing with more than one logicallyconsistent subject matter. During consideration of legislation to renew the President's authority to submit reorganizationplans in 1977, Chairman Brooks partially achieved his objective of requiring a congressional voteon reorganization plans through an amendment to the bill. (17) As in the ReorganizationAct of 1949, a plan would become effective after 60 days unless either house passed a resolutiondisapproving it. At this point a Brooks-sponsored action-forcing requirement was included. Whenthe President submitted a plan to Congress, a resolution of disapproval had to be introduced at thesame time by the chairmen of the House Government Operations Committee and the SenateGovernmental Affairs Committee. The two committees would be required to makerecommendations to the House or the Senate, respectively, within 45 days, or the committees wouldbe deemed as having been discharged from consideration of the resolution. Since any Member couldmove for consideration of the resolution, it was believed unlikely that any future plan would go intoeffect without Congress having a chance to vote on it. Under the authority of the Reorganization Act of 1977, President Carter submitted tenreorganization plans, all of which Congress permitted to become law, in each instance defeating aresolution of disapproval. None of the plans involved major reorganization proposals. (18) Reorganization authorityunder the 1977 Act was granted to the President for three years, later extended for an additional year. That authority expired on April 7, 1981. Reorganization Act of 1984 The Reorganization Act of 1977 expired on April 7, 1981. Some in the new ReaganAdministration called for the renewal of the authority, although the President never made it a majorpart of his personal agenda. The Administration requested Congress in 1983 to renew the authority,and hearings were held on H.R. 1314 (97th Congress) by the Subcommittee on Legislation andNational Security of the House Government Operations Committee, chaired by RepresentativeBrooks, on April 12, 1983. The bill, which provided a number of substantive alterations to the 1977Reorganization Act, was intended by its sponsors to be a cooperative effort by the President andCongress to expedite reorganizations believed to be needed by the executive branch. Court decisions during this immediate period, especially the Supreme Court's decision in INSv. Chadha (462 U.S., 919 (1983)), had a significant impact on deliberations in Congress. In Chadha ,the Supreme Court ruled that all legislative vetoes, including those attached to the reorganizationauthority, were unconstitutional. In an effort to meet the requirements of the Chadha decision, H.R. 1314 required that a jointresolution be introduced in both the House and Senate upon receipt of a reorganization plan. Affirmative action on this resolution was required for the reorganization to become law. If eitherhouse failed to vote, such inaction would constitute disapproval of a plan. Also, in the unlikely eventthat a President vetoed the plan he had previously submitted, a veto override would require atwo-thirds vote of both houses. Expedited procedures established in the 1977 Act were also significantly altered in H.R.1314. The 1977 Act, included a 60-day time period for congressional consideration of eachreorganization plan, and also provided that no more than three plans might be pending at any time. Brooks and Representative Frank Horton, as congressional sponsors of the legislation, believed thatthe time frame was overly burdensome, and therefore extended the period for congressionalconsideration to 90 days. Within the 90-day time period, other time limitations were extendedproportionately. The 1977 Act allowed 30 days from the date of submission for the President toamend the proposal. H.R. 1314 extended that allowance to 60 days. The time period in which aPresident might withdraw a reorganization plan was extended from 60 to 90 days. Committee action, previously required within 45 calendar days following submission, wasextended to 75 calendar days. If the committee failed to report a resolution within that period, itwould be deemed to have been discharged and the resolution would be placed on the appropriatecalendar. Another significant innovation in H.R. 1314 was the requirement that an implementationsection be included in the President's message accompanying the reorganization plan. Such aprovision was recommended by the General Accounting Office in its report of March 20, 1981entitled: Implementation: The Missing Link in Planning Reorganizations . The GAO had found thatagencies were experiencing considerable problems in implementing reorganization plans: Agencies reorganized under the ReorganizationAct of 1977 experienced substantial startup problems. These included delays in obtaining keyagency officials, inadequate staffing, insufficient funding, inadequate office space, and difficultiesin establishing administrative support functions such as payroll and accounting systems. Solving these startup problems distracted agencyofficials from concentrating on their new missions during the critical first year of operation. Thesestartup problems could be alleviated by including in future reorganization plans front-endimplementation planning objectives. (19) An "implementation provision" was added to Section 903(b) of Title 5: In addition, the President's message shallinclude an implementation section which shall (1) describe in detail (A) the actions necessary orplanned to complete the reorganization, (B) the anticipated nature and substance of any orders,directives, and other administrative and operational actions which are expected to be required forcompleting or implementing the reorganization, and (C) any preliminary actions which have beentaken in the implementation process, and (2) contain a projected timetable for completion of theimplementation process. The President shall also submit such further background or otherinformation as the Congress may require for its consideration of theplan. The intent of the House Committee on Government Operations in including this provisionwas to "assure that during the planning of a reorganization proposal, the Administration gaveappropriate emphasis, in staff time and resources, to studying implementation requirements in orderto reduce, if not eliminate, the substantial problems which have been found to exist in theimplementation of past reorganization plans." (20) The Committee considered, and concluded, that the restrictions in the 1977 ReorganizationAct on the subject matter that may properly be included in reorganization plans submitted toCongress should be continued. The House considered the legislation on April 10, 1984 and the Senate on October 11, 1984. President Ronald Reagan signed the Act ( P.L. 98-614 ) on November 8, 1984. The provisions of theAct were to remain in effect for less than two months, expiring on December 31, 1984. During thisperiod the President did not submit any reorganization plans nor did he subsequently request renewalof the authority. What About the Future? Reorganization of the executive branch has been, and will be, a continuous process. Lawsare passed requiring that new agencies be created or terminated, existing agencies be altered, orprograms initiated or discontinued. Within departments and agencies, reorganizations are conductedunder secretarial direction and usually follow from changes in secretarial priorities or changes inavailable resources. Organizational change is the norm in agency life, not the exceptional action. In this larger context, the President's reorganization authority might be considered a minor element. It has not been used since President Carter's last reorganization plan in 1980. Yet, the reorganizationplan concept retains much of its appeal. When supporters call for a renewal of the President's reorganization authority, what,precisely, are they calling for? Is the call intended to revive the Reorganization Act of 1984 with itsprovisions, or is it for a bill with provisions more closely resembling the 1949 Reorganization Act? In either case, will the executive branch find the reorganization authority worth having without thesimplified process associated with the legislative veto provision? It appears that what most supporters have in mind is the reintroduction of an expeditedprocess similar to the 1984 act, but without a number of the congressional exemptions andlimitations accreted over the years. The principal argument favoring renewing the President'sreorganization authority appears to be that this will encourage the President, through the Office ofManagement and Budget, to take the initiative in organizational management issues, something thathas not been the case in recent years. Critics, on the other hand, argue once again that the regular legislative process is not onlyconstitutional, but tends to contribute to whatever wisdom there may be on the subject by lettingCongress and the interest groups have their say. If a bill, introduced properly, and permitted tofollow normal procedures does not pass, the working assumption ought to be that it did not persuadea majority as to its propriety and efficacy and thus failure is democratically justified. To somedegree, therefore, critics argue that the expedited procedures of the reorganization act areundemocratic. In recent years, executive branch reorganization, per se , has been out-of-fashion. Labeledas "box shuffling" by its critics, greater faith has been placed by would-be management reformersin changing management practices rather than organizational structures. The reinventinggovernment exercise of the Clinton-Gore Administration emphasized performance rather thanpolitical accountability as the primary value for government management. Thus, organizationalissues were subordinated to the values of performance and results. In a sense, therefore, promotersof the reviving the President's reorganization authority are reasserting an earlier set of managementvalues and practices.

Among the initiatives being promoted with the beginning of the Administration of PresidentGeorge W. Bush is that of renewing the President's lapsed authority to submit reorganization plansto Congress. The general rationale offered for renewing this authority is that it would provideadditional flexibility and discretion to the President in organizing the executive branch to promote"economy and efficiency" as well as his political priorities. The regular legislative route forconsidering presidential proposals involving organizational changes is deemed by reorganizationauthority supporters as being unduly slow and cumbersome. Thus, the proposal to permit thePresident to submit reorganization plans subject to mandatory congressional consideration with "fasttrack" procedures is viewed by the reorganization proposal's proponents as a necessary reform forgood government. Critics of the reorganization plan authority reject the arguments and assumptionsbehind the proposal and defend the efficacy and legitimacy of the regular legislative process forexecutive reorganization proposals. This report addresses three specific issues: (1) the historical basis and use of the President'sreorganization authority; (2) the factors contributing to the lapse of the President's reorganizationauthority in 1984, (1) and(3) thoughts on the future of reorganization in the executive branch.

Introduction The increasing costs of health care have focused congressional attention upon both the development and public availability of prescription drugs. Congress has long recognized that the patent system has an important role to play in the pharmaceutical industry in each respect. The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, in part reformed both the patent and food and drug laws in order to balance incentives for inno vation and competition within the pharmaceutical industry. Recently, congressional attention has been directed towards two practices within the pharmaceutical industry. The first pertains to "reverse payment" or "pay-for-delay" settlements of patent litigation. Under this scenario, a generic firm agrees to neither challenge the brand-name company's patents nor sell a generic version of the patented drug for a period of time. In exchange, the brand-name drug company agrees to compensate the generic firm, often with substantial monetary payments over a number of years. Because the payment flows counterintuitively, from the patent owner to the accused infringer, this compensation has been termed a "reverse" payment. Another widely followed practice has been termed "product hopping." The introduction of new medicines ordinarily serves the public interest. However, some stakeholders have accused brand-name firms of releasing new, patent-protected versions of existing drugs—while simultaneously discontinuing an earlier drug that is near patent expiration—with the primary goal of delaying generic entry into the marketplace. Because the Hatch-Waxman Act presupposes the existence of a brand-name drug in order for a generic version to enter the market, product hopping can potentially delay generic competition. Complaints over product hopping are often accompanied by suspicions over the therapeutic benefits of the newly released drug. But they may raise delicate questions over the competing values of public availability of marginally superior drugs versus lower cost medications. Two notable judicial opinions have subjected these practices to antitrust scrutiny. In its 2013 decision in Federal Trade Commission v. Actavis, Inc. , the U.S. Supreme Court held that the legality of reverse payment settlements should be evaluated under the "rule of reason" approach. Under this approach, courts consider whether conduct was reasonable by balancing the anticompetitive consequences of a challenged practice against its business justifications and potentially procompetitive impact. The 2015 decision of the U.S. Court of Appeals for the Second Circuit in New York ex rel. Schneiderman v. Actavis PLC applied the rule of reason to product hopping, concluding that this activity may indeed violate the antitrust laws. In response to these recent judicial developments, this report introduces and analyzes innovation and competition policy issues associated with the pharmaceutical industry. It begins with a review of the Hatch-Waxman Act and its implications upon the availability of generic substitutes for brand-name medications. The report then turns to a basic review of the antitrust law. It then addresses judicial developments with respect to reverse payment settlements and product hopping. The report closes with a summary of congressional issues and possible alternatives. The Hatch-Waxman Act Patent Fundamentals Inventors must prepare and submit applications to the U.S. Patent and Trademark Office (USPTO) if they wish to obtain patent protection. USPTO officials, known as examiners, then assess whether the application merits the award of a patent. A patent application must include a specification that so completely describes the invention that skilled artisans are able to practice it without undue experimentation. Applicants must also draft at least one claim that particularly points out and distinctly claims the subject matter that they regard as their invention. While reviewing a submitted application, the examiner will determine whether the claimed invention fulfills certain substantive standards set by the patent statute. Two of the most important patentability criteria are novelty and nonobviousness. To be judged novel, the claimed invention must not be fully anticipated by a prior patent, publication, or other knowledge within the public domain. The sum of these earlier materials, which document state-of-the-art knowledge that is accessible to the public, is termed the "prior art." To meet the standard of nonobviousness, an invention must not have been readily within the ordinary skills of a competent artisan based upon the teachings of the prior art. If the USPTO allows the application to issue as a granted patent, the owner or owners of the patent obtain the right to exclude others from making, using, selling, offering to sell, or importing into the United States the claimed invention. The term of the patent is ordinarily set at 20 years from the date the patent application was filed. Patent title therefore provides inventors with limited periods of exclusivity in which they may practice their inventions, or license others to do so. The grant of a patent permits inventors to receive a return on the expenditure of resources leading to the discovery, often by charging a higher price than would prevail in a competitive market. In the pharmaceutical industry, for example, the introduction of generic competition often results in the availability of lower-cost substitutes for the innovative product. A patent proprietor bears responsibility for monitoring its competitors to determine whether they are using the patented invention. Patent owners who wish to compel others to observe their intellectual property rights must often commence litigation in the federal district courts. FDA Approval Procedures Although the award of a patent claiming a pharmaceutical provides its owner with a proprietary interest in that product, it does not actually allow the owner to distribute that product to the public. Permission from the Food and Drug Administration (FDA) must first be obtained. In order to obtain FDA marketing approval, the developer of a new drug must demonstrate that the product is safe and effective. This showing typically requires the drug's sponsor to conduct both preclinical and clinical investigations. In deciding whether to issue marketing approval or not, the FDA evaluates the test data that the sponsor submits in a so-called New Drug Application (NDA). Prior to the enactment of the Hatch-Waxman Act, the federal food and drug law contained no separate provisions addressing marketing approval for independent generic versions of drugs that had previously been approved by the FDA. The result was that a would-be generic drug manufacturer had to file its own NDA in order to sell its product. Some generic manufacturers could rely on published scientific literature demonstrating the safety and efficacy of the drug by submitting a so-called paper NDA. Because these sorts of studies were not available for all drugs, however, not all generic firms could file a paper NDA. Further, at times the FDA requested additional studies to address safety and efficacy questions that arose from experience with the drug following its initial approval. The result was that some generic manufacturers were forced to prove once more that a particular drug was safe and effective, even though their products were chemically identical to those of previously approved pharmaceuticals. Some commentators believed that the approval of a generic drug was a needlessly costly, duplicative, and time-consuming process. These observers noted that although patents on important drugs had expired, manufacturers were not moving to introduce generic equivalents for these products due to the level of resource expenditure required to obtain FDA marketing approval. In response to these concerns, Congress enacted the Hatch-Waxman Act, a complex statute that sought compromise between brand-name and generic pharmaceutical companies. Its provisions included the creation of an expedited marketing approval pathway for generic drugs termed an Abbreviated New Drug Application, or ANDA. An ANDA allows an independent generic applicant to obtain marketing approval by demonstrating that the proposed product is bioequivalent to an approved pioneer drug, without providing evidence of safety and effectiveness from clinical data or from the scientific literature. The availability of ANDAs often allows a generic manufacturer to avoid the costs and delays associated with filing a full-fledged NDA. They may also allow an independent generic manufacturer, in many cases, to place its FDA-approved bioequivalent drug on the market as soon as any relevant patents expire. As part of the balance struck between brand-name and generic firms, Congress also provided patent proprietors with a means for restoring a portion of the patent term that had been lost while awaiting FDA approval. The maximum extension period is capped at five years, or a total effective patent term after the extension of not more than 14 years. The scope of rights during the period of extension is generally limited to the use approved for the product that subjected it to regulatory delay. This period of patent term extension is intended to compensate brand-name firms for the generic drug industry's reliance upon the proprietary pre-clinical and clinical data they have generated, most often at considerable expense to themselves. Resolution of Patent Disputes During its development of accelerated marketing approval procedures for generic drugs, Congress recognized that the brand-name pharmaceutical firm may be the proprietor of one or more patents directed towards that drug product. These patents might be infringed by a product described by a generic firm's ANDA or in the event that product is approved by the FDA and sold in the marketplace. The Hatch-Waxman Act therefore established special procedures for resolving patent disputes in connection with applications for marketing generic drugs. In particular, the Hatch-Waxman Act states that each NDA applicant "shall file" a list of patents that the applicant believes would be infringed if a generic drug were marketed prior to the expiration of these patents. The FDA then lists these patents in a publication titled Approved Drug Products with Therapeutic Equivalence Evaluations , which is more commonly known as the "Orange Book." Would-be manufacturers of generic drugs must then engage in a specialized certification procedure with respect to Orange Book-listed patents. An ANDA applicant must state its views with respect to each Orange Book-listed patent associated with the drug it seeks to market. Four possibilities exist: (1) that the brand-name firm has not filed any patent information with respect to that drug; (2) that the patent has already expired; (3) that the generic company agrees not to market until the date on which the patent will expire; or (4) that the patent is invalid or will not be infringed by the manufacture, use, or sale of the drug for which the ANDA is submitted. These certifications are respectively termed paragraph I, II, III, and IV certifications. An ANDA certified under paragraphs I or II is approved immediately after meeting all applicable regulatory and scientific requirements. An independent generic firm that files an ANDA including a paragraph III certification must, even after meeting pertinent regulatory and scientific requirements, wait for approval until the drug's listed patent expires. The filing of an ANDA with a paragraph IV certification constitutes a "somewhat artificial" act of patent infringement under the Hatch-Waxman Act. The act requires the independent generic applicant to notify the proprietor of the patents that are the subject of a paragraph IV certification. The patent owner may then commence patent infringement litigation against that applicant. In order to encourage challenges of pharmaceutical patents, the Hatch-Waxman Act provides prospective manufacturers of generic pharmaceuticals with a potential reward. That reward consists of a 180-day exclusivity period awarded to the first ANDA applicant to file a paragraph IV certification. Once a first ANDA with a paragraph IV certification has been filed, the FDA cannot issue marketing approval to a subsequent ANDA with a paragraph IV certification on the same drug product for 180 days. Because market prices could drop considerably following the entry of additional generic competition, the first paragraph IV ANDA applicant may potentially obtain more handsome profits than subsequent market entrants—thereby stimulating patent challenges in the first instance. Antitrust Fundamentals The primary legal mechanism for addressing conduct alleged to be anti-competitive—including reverse payment settlements and product hopping—consists of the antitrust laws. The antitrust laws consist of the Sherman Act, the Clayton Act, the Federal Trade Commission Act, and other federal and state statutes that prohibit certain kinds of anticompetitive economic conduct. Although a complete review of the antitrust laws exceeds the scope of this report, other sources provide more information for the interested reader. Section 1 of the Sherman Act declares "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade ... to be illegal." The courts have long interpreted this language as applying only to unreasonable restraints of trade. The determination of whether particular conduct amounts to an unreasonable restraint of trade is commonly conducted under the "rule of reason." Under this approach, "the finder of fact must decide whether the questioned practice imposes an unreasonable restraint on competition, taking into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint's history, nature, and effect." The rule of reason essentially calls upon courts to reach a judgment of reasonableness by balancing the anticompetitive consequences of a challenged practice against its business justifications and potentially procompetitive impact. Other sorts of restraints are deemed unlawful per se . Per se illegality is appropriate "[o]nce experience with a particular kind of restraint enables the Court to predict with confidence that the rule of reason will condemn it." The Supreme Court has explained that "there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Among the practices that have been judged per se violations include price fixing, group boycotts, and market division. In some circumstances, courts apply an antitrust standard that falls between the per se illegality standard and the rule of reason. The so-called "quick look" or "truncated rule of reason" approach applies when the plaintiff demonstrates that the defendant has engaged in practices similar to those previously held to be subject to per se treatment. In these circumstances, the defendant must then demonstrate that the practice has pro-competitive justifications in order to avoid liability for an antitrust violation. Reverse Payment Settlements As discussed previously, a generic firm's filing of a paragraph IV ANDA may result in a patent infringement suit brought by a brand-name drug company. In such litigation, if the NDA holder demonstrates that the independent generic firm's proposed product would violate its patents, then the court will ordinarily issue an injunction that prevents the generic drug company from marketing that product. That injunction will expire on the same date as the NDA holder's patents. Independent generic drug companies commonly amend their ANDAs in this event, replacing their paragraph IV certifications with paragraph III certifications. On the other hand, the courts may decide in favor of the independent generic firm. The court may conclude that the generic firm's proposed product does not infringe the asserted patents, or that the asserted patents are invalid or unenforceable. In this circumstance, the independent generic firm may launch its product once the FDA has finally approved its ANDA. In addition to the issuance of final judgment in favor of either the brand-name drug company or generic firm, another resolution of pharmaceutical patent litigation is possible. This legal situation led to a number of cases with varying details, but a common core fact pattern. Upon filing a paragraph IV ANDA, a generic firm would be sued for patent infringement as provided by the Hatch-Waxman Act. The NDA holder and generic applicant would then settle their dispute. The settlement would call for the generic firm to neither challenge the patent nor produce a generic version of the patented drug, for a period of time up to the remaining term of the patent. In exchange, the NDA holder would agree to compensate the ANDA applicant, often with substantial monetary payments over a number of years. This compensation has been termed an "exclusion" or "exit" payment or, because the payment flows counterintuitively, from the patent proprietor to the accused infringer, a "reverse" payment. Notice of Payment Settlements Congress initially addressed reverse payment settlements in 2003 with the Medicare Prescription Drug, Improvement, and Modernization Act (MMA). That legislation mandated that the Department of Justice (DOJ) and Federal Trade Commission (FTC) receive copies of certain patent- or exclusivity-based settlement agreements in the pharmaceutical field. Section 1112 of the MMA sets out two sorts of agreements that are subject to this notice requirement: Section 1112(a) agreements between a brand-name drug company and a paragraph IV ANDA applicant, and Section 1112(b) agreements between two paragraph IV ANDA applicants. Section 1112(a) agreements must occur between an ANDA applicant, on one hand, and either the NDA holder or an owner of an Orange Book-listed patent, on the other. Such agreements are subject to the MMA's notification requirement if their subject matter relates to one of three topics: (1)The manufacture, marketing, or sale of the brand-name drug that is listed in the ANDA; (2)The manufacture, marketing, or sale of the generic drug for which the ANDA was submitted; or (3)The 180-day generic exclusivity period as it applies to that ANDA, or to another ANDA filed with respect to the same brand-name drug. In turn, Section 1112(b) requires that agreements between two paragraph IV ANDA applicants relating to the 180-day generic exclusivity provision be submitted to the DOJ and FTC. The MMA stipulates that certain agreements are not subject to this filing requirement. In particular, agreements that solely consist of purchase orders for raw materials, equipment and facility contracts, employment or consulting contracts, or packaging and labeling contracts need not be submitted to the DOJ or FTC. Failure to file in keeping with MMA requirements exposes a contracting party to a civil penalty, compliance order, and other equitable relief. FTC v. Actavis Although the MMA required pharmaceutical firms to inform the government concerning reverse payment settlements, that legislation did not impose substantive standards concerning antitrust oversight of these arrangements. The courts were left to develop the appropriate level of antitrust oversight of these settlements. Facing somewhat different facts, they developed varying approaches to the issue. However, these distinctions were laid to rest by the 2013 Supreme Court opinion in Federal Trade Commission v. Actavis, Inc. In Actavis , the Supreme Court held that the legality of reverse payment settlements should be evaluated under the "rule of reason" approach. However, the Court declined to hold that such settlements should be presumptively illegal under a "quick look" analysis. The Actavis opinion resolves a long-standing split among the lower courts regarding the approach that should be taken toward settlement of pharmaceutical patent cases under the antitrust laws. The lower courts now face the potentially complex task of applying the rule of reason to reverse payment settlements going forward. The patent proprietor in the Actavis litigation was Solvay Pharmaceuticals, the NDA holder of the testosterone-replacement drug AndroGel. When generic firms Actavis and Paddock Laboratories filed paragraph IV ANDAs, Solvay brought charges of patent infringement in keeping with the Hatch-Waxman Act. The parties ultimately settled the case, with the generic firms receiving cash payments in exchange for the promise not to market their products until August 31, 2015, 65 months before Solvay's patent expired. The FTC subsequently charged the settling parties with a violation of Section 5 of the Federal Trade Commission Act, in that they unlawfully agreed "to share in Solvay's monopoly profits, abandon their patent challenges, and refrain from launching their low-cost generic products to compete with AndroGel for nine years." The District Court for the Northern District of Georgia rejected the FTC's claims, and on appeal the Eleventh Circuit affirmed. Applying the "scope of the patent" standard that had been developed in earlier cases, the Court of Appeals explained that "absent sham litigation or fraud in obtaining a patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the exclusionary potential of the patent." The Supreme Court subsequently agreed to hear the case. In a 5-3 ruling, the Supreme Court reversed the judgment of the Eleventh Circuit and remanded. Writing for the majority, Justice Breyer accepted that the anticompetitive effects of the agreement between Solvay and the generic firms fell with the scope of its patent. However, this fact by itself did not immunize the agreement from antitrust scrutiny. The majority explained that while the holder of a valid patent may be exempt from antitrust liability when enforcing the exclusionary right, litigation under the Hatch-Waxman Act involves assertions of patent invalidity or noninfringement. If the generic firm successfully makes either case, the patent proprietor would not enjoy the right to exclude the proposed generic product from the marketplace. As a result, such agreements may have significant adverse effects on competition. Justice Breyer therefore reasoned that "it would be incongruous to determine antitrust legality by measuring the settlement's anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well." Observing that its precedent had held that certain patent-related settlements can violate the antitrust laws, the Court summarized its patent-antitrust case law as follows: [R]ather than measure the length or amount of a restriction solely against the length of the patent's term or its earning potential, as the Court of Appeals apparently did here, this Court answered the antitrust question by considering traditional antitrust factors such as likely anticompetitive effects, redeeming virtues, market power, and potentially offsetting legal considerations present in the circumstances, such as here those related to patents. The Court also concluded that the structure of the Hatch-Waxman Act—including its patent challenge provisions, requirement of notification of settlements to the antitrust authorities, and its "general procompetitive thrust"—was consistent with subjecting reverse payment settlements to antitrust scrutiny. Justice Breyer acknowledged that the strong judicial policy favoring the settlement of disputes supported the holding of the Eleventh Circuit. But he cited five considerations in support of a contrary result: [A] reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects; one who makes such a payment may be unable to explain and to justify it; such a firm or individual may well possess market power derived from the patent; a court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent; and parties may well find ways to settle patent disputes without the use of reverse payments. In our view, these considerations, taken together, outweigh the single strong consideration—the desirability of settlements—that led the Eleventh Circuit to provide near-automatic antitrust immunity to reverse payment settlements. Finally, Justice Breyer declined to adopt the Commission's suggestion that reverse payment settlements should be presumptively unlawful and subject to a "quick-look approach." According to the majority, this approach was appropriate only where "an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets." This treatment was inappropriate in this case because the likelihood of a reverse payment bringing about anticompetitive effects depends upon a number of factors, including the size of the payment, its scale in relation to the payor's anticipated litigation costs, its independence from other consideration within the settlement, and the lack of any other convincing justification. Instead, the Court concluded that the FTC must establish antitrust liability using the traditional rule of reason analysis. Chief Justice Roberts contributed a dissent that was joined by Justices Scalia and Thomas. The dissenters would have held that a reverse payment settlement violates antitrust law only when it exceeds the scope of the patent, the patents were obtained by fraud, or the patentee engages in sham litigation. The dissenters feared that the majority holding would dissuade generic firms from challenging patents in the first place, discourage settlement of patent litigation, and weaken the protection afforded to innovators by patents. Commentators have viewed the ruling in Actavis as making a significant change to patent-antitrust practice. Although the Supreme Court's opinion does not eliminate the ability of pharmaceutical firms to settle litigation under the Hatch-Waxman Act, the contracting parties will have to structure and explain their agreements with greater care. Parties may also be more willing to litigate their pharmaceutical patent cases to a final conclusion. With respect to existing agreements, the lower courts have been assigned the potentially complex task of giving substance to the rule of reason in Hatch-Waxman cases. Post-Actavis Developments Although commentators initially expected that reverse payment settlements would be subject to more severe antitrust scrutiny in the future, several district court opinions issued shortly after Actavis continued to uphold the settlements as lawful. However, as suggested by the 2015 decision of the U.S. Court of Appeals for the Third Circuit in King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp. , lower court response to Actavis continues to evolve. King Drug v. Smithkline Beecham addressed two important issues: (1) whether the Actavis holding was limited to cash payments, as compared to other forms of contractual consideration; and (2) whether Actavis dictated the substantive terms of the rule of reason analysis the lower courts were meant to apply. As to the first issue, reverse payment settlements have often involved a cash payment made by the brand-name firm to the generic firm. However, the facts of litigated cases reveal that many such settlements have involved non-cash consideration instead. Possible non-cash consideration includes payment for unrelated generic services, such as backup manufacturing capacity or the promise to supply a raw material used to make the pharmaceutical. Shortly after the Supreme Court issued Actavis , at least two district courts held that its ruling was limited to settlements where the brand-name firm paid cash to the generic firm. These courts observed that the Actavis opinion frequently focused upon the form of consideration that was relevant to that case, namely, cash. They further concluded that the rule of reason analysis compelled by Actavis could reasonably be accomplished with respect to a cash payment. However, non-cash consideration was deemed to be difficult to quantify numerically. As a result, these courts limited Actavis to its specific facts and upheld settlements that did not involve the transfer of cash. However, the U.S. Court of Appeals for the Third Circuit rejected this analysis in King Drug v. Smithkline Beecham . Writing for the Court of Appeals, Judge Scirica concluded that non-cash agreements potentially transferred considerable wealth from the brand-name firm to the generic firm. Judge Scirica also explained that simply because the patent laws generally allow patent proprietors to license their patents does not immunize a particular license with anticompetitive effects from antitrust scrutiny. Rejecting the argument that the Supreme Court intended to draw a formal line between cash and non-cash consideration in Actavis , the Third Circuit held that an unusual, unexplained transfer of value from the patent proprietor to the alleged infringer is subject to the rule of reason. Judge Scirica's reasoning in King Drug potentially applies to any transfer of value between parties settling a patent case. Because brand-name firms are typically uninterested in obtaining the services of generic firms outside the context of a patent settlement, King Drug v. Smithkline Beecham considerably buttresses the Actavis ruling and extends its logic to a wide swath of commercial arrangements. Whether the other courts of appeal will adopt the logic of the Third Circuit remains to be seen. Some disagreement among commentators has also arisen about the substantive scope of the rule of reason analysis. A staple of antitrust law, the rule of reason analysis requires courts to consider whether the parties to the reverse payment settlement had market power and exercised it, whether the restraint had anti-competitive consequences, and whether these consequences are otherwise justified. In an attempt to apply these basic principles within the context of reverse payments settlements, certain lower courts made considerable use of the "five sets of considerations" on which Justice Breyer relied to overcome the strong judicial preference for private settlement of disputes. In particular, Justice Breyer explained that "a reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects; one who makes such a payment may be unable to explain and to justify it; such a firm or individual may well possess market power derived from the patent; a court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent; and parties may well find ways to settle patent disputes without the use of reverse payments." Most readers of the Actavis opinion viewed these five factors as expressing the Supreme Court's rationales for adopting a rule of reason approach for analyzing the antitrust implications of reverse payment settlements. However, some district courts instead believed these factors were intended "to guide district courts in applying the rule of reason in this context.... " Put differently, factors that the Supreme Court seemingly provided as a justification for its holding were viewed as defining standards for conducting the rule of reason analysis itself. Under this approach, the lower courts would essentially analyze whether a particular reverse payment settlement should be governed by the rule of reason on a case-by-case basis. However, the Supreme Court already concluded that they should, and therefore this sort of analysis is unnecessary. The U.S. Court of Appeals for the Third Circuit recognized this problem and attempted to restore order to the rule of reason analysis in King Drug v. Smithkline Beecham . The Third Circuit there explained that district courts should not view the five justifications that the Supreme Court offered in Actavis as an expression of the rule of reason itself. Rather, the district courts should proceed immediately to the rule of reason analysis when reviewing reverse payment settlements. This reading of Actavis will prevent courts from imposing a more difficult burden upon antitrust plaintiffs in reverse payment settlement cases than in other categories of litigation. Product Hopping Congress intended both the patent laws, on one hand, and the food and drug laws, on the other, to promote the development of new drugs. FDA approval of a new medication would therefore appear to promote the public interest. Antitrust enforcers have become increasingly concerned, however, that new drugs may be developed and marketed for the principal purpose of delaying generic entry. In particular, some stakeholders have accused brand-name drug companies of introducing new, patented drugs while contemporaneously removing off-patent drugs from the marketplace. This practice has been termed "product hopping," at least by its detractors. The reasons that product hopping deters generic competition are more subtle than may first appear. Merely because a brand-name firm withdraws its products from the market, accompanied by removal of the drug from the Orange Book, would not prevent a generic firm from filing an ANDA rather than an NDA. The FDA has expressly concluded that an ANDA "that refers to ... a listed drug that has been voluntarily withdrawn from sale in the United States must be accompanied by a petition seeking a determination whether the listed drug was withdrawn for safety or effectiveness reasons." Put differently, an ANDA applicant need only demonstrate that a withdrawn reference product was not removed from the market for safety or effectiveness reasons in order to obtain marketing approval. The principal reason that product hopping is a potentially effective generic exclusion strategy has more to do with state drug substitution laws. Under the laws of all 50 states and the District of Columbia, pharmacists are either permitted or required to dispense a therapeutically equivalent generic drug in place of a brand-name drug unless the prescribing physician has stipulated otherwise. Most states and the District of Columbia have adopted the FDA's definition of "therapeutically equivalent"—namely, a generic drug must be designated as "AB"-rated within the Orange Book to be deemed therapeutically equivalent to a brand-name drug. Generic drug companies commonly compete with brand-name firms through state drug substitution laws. As a result of this situation, when a brand-name firm "product hops" by withdrawing an off-patent drug and introducing a new, patented medication, generic firms may not be deemed therapeutically equivalent to the new drug under state law and therefore will not be substituted for brand-name prescriptions. Until 2015, judicial precedent addressing product hopping was sparse and limited to decisions of the federal district courts. The watershed decision of the U.S. Court of Appeals for the Second Circuit in New York ex rel. Schneiderman v. Actavis PLC considerably altered the judicial landscape, providing that product hopping may indeed violate the antitrust laws. For sake of clarity, this report will refer to the Second Circuit's effort as the Namenda decision. Issued two years after the Supreme Court groundbreaking decision in Actavis , the Namenda opinion will likely embolden both government enforcers and the private plaintiffs' bar to pursue additional product hopping cases. Namenda involved two versions of the Alzheimer's drug, Namenda IR and Namenda XR. Namenda IR is a twice-daily drug that neared the end of patent protection during July 2015. As a result, Actavis introduced a new, once-daily extended release version called Namenda XR. According to the Attorney General of New York, Actavis initially embarked upon a "soft switch" strategy by continuing to market both drugs but actively promoting Namenda XR. By early 2014, Actavis shifted to a "hard switch" approach by notifying the FDA it would discontinue Namenda IR, with one limited exception. Actavis also requested that the Centers for Medicare and Medicaid Services remove Namenda IR from their formularies, with the result that Medicare health plans would not cover it. The New York Attorney General responded by bringing an antitrust suit against Actavis, asserting that it had violated state and federal antitrust laws. The U.S. District Court for the Southern District of New York issued a preliminary injunction requiring that Actavis continue to market Namenda IR until 30 days after July 11, 2015, the date of generic entry. Actavis then appealed to the Second Circuit, which affirmed the grant of the injunction. Writing for a three-judge panel, Judge Walker acknowledged that innovation generally benefits consumers. However, he concluded that the Namenda product hop was both anticompetitive and exclusionary. In particular, the Second Circuit found that Actavis had crossed the line from permissible "soft switch" persuasion to impermissible "hard switch" coercion. The Court of Appeals also believed that the removal of Namenda IR would substantially reduce competition. Judge Walker found that withdrawal of Namenda IR would necessarily convert patients to Namenda XR with little probability of their switching back to Namenda IR once a generic version became available. Judge Walker also found little evidence of procompetitive justifications for withdrawing Namenda IR from the market. He cited evidence that Actavis intended to delay generic competition and further found no evidence that antitrust scrutiny would meaningfully deter innovation. The Second Circuit concluded "that the combination of withdrawing a successful drug [IR] from the market and introducing a reformulated version of that drug [XR], which has the dual effect of forcing patients to switch to the new version and impeding generic competition, without a legitimate business justification, violates §2 of the Sherman Act." The Namenda decision leaves open a number of issues that future litigation might resolve. First, the Second Circuit seems to imply that a "soft switch" approach of aggressive marketing, but maintaining the older product on the market, would not run afoul of the antitrust laws. The sorts of activities that, in the words of the Court of Appeals, "crosses the line" to impermissible conduct remains to be seen. Second, many critics of product hopping have suggested that newly introduced products do not provide much of an improvement over the old. In circumstances where the new medicine is superior to its predecessor, perhaps the courts will prove more sympathetic to product hopping. Finally, the extent to which brand-name firms must actively support their generic competitors by keeping older products on the market may prove a divisive issue. Issues and Observations In the absence of explicit congressional guidance, the federal courts have applied general principles of antitrust law to address reverse payment settlements and product hopping. Several options are available for Congress. One possibility is to await further judicial developments in view of the Actavis and Namenda decisions. Another option is to regulate the settlement of pharmaceutical patent litigation in some manner. In the 114 th Congress, the Fair and Immediate Release of Generics Act ( S. 131 ), introduced by Senator Bingaman, would make a number of changes to the Hatch-Waxman Act in order to discourage reverse payments settlements. In particular, S. 131 would grant any generic firm the right to share the 180-day regulatory exclusivity if it wins a patent challenge in the district court or is not sued for patent infringement by the brand company. The legislation would also oblige generic firms to abide by any deferred entry date agreed to in their settlements with brand-name firms, even if relevant patents were struck down previously. Finally, brand-name firms would be required to make a decision to enforce their patents within 45 days of being notified of a patent challenge by a generic firm under the Hatch-Waxman Act. In addition, the Preserve Access to Affordable Generics Act ( S. 2019 ), introduced by Senator Klobuchar, would declare that certain reverse payment settlements constitute acts of unfair competition. In particular, that bill would amend the Federal Trade Commission Act to provide that an agreement "shall be presumed to have anticompetitive effects and be unlawful if—(i) an ANDA filer receives anything of value; and (ii) the ANDA filer agrees to limit or forego research, development, manufacturing, marketing, or sales of the ANDA product for any period of time." Certain exceptions apply—for example, the payment of reasonable litigation expenses not exceeding $7.5 million is not unlawful. That "quick look" presumption would not apply if the parties to the agreement demonstrated by clear and convincing evidence that the procompetitive benefits of the agreement outweighed the anticompetitive effects of the agreement. S. 2019 includes a list of factors to be weighed by the courts in such circumstances. A third bill, S. 2023 , the Prescription Drug Affordability Act of 2015, was introduced by Senator Sanders. Title IV of this legislation would act similarly to S. 2019 . It would also create a presumption that reverse payment settlements violated the Federal Trade Commission Act, subject to certain exceptions. However, unlike S. 2019 , the parties to the agreement cannot overcome this presumption by showing that its procompetitive benefits outweighed the anticompetitive harms. Congress has yet to consider legislation with respect to product hopping. If the current situation is deemed satisfactory, then no action need be taken. Another alternative is to encourage more active antitrust enforcement in this area in view of the Namenda decision. And although the rules governing generic substitution are currently a matter of state law, federal oversight of these principles could also discourage product hopping. The interaction between brand-name and generic firms forms an important component of the public health system of the United States. The U.S. patient population relies upon brand-name drug companies to develop new medicines, but it also relies upon generic firms to increase access to such medications once they have been developed. The Hatch-Waxman Act provides for patent litigation between these two traditional rivals, as well as generic substitution, as the mechanisms through which these competing demands are mediated. When concluded in a manner that comports with antitrust principles, these practices may further the public policy goals of encouraging the labors that lead to medical innovation, but also distributing the fruits of those labors to consumers.

Congressional attention has recently been directed towards two practices within the pharmaceutical industry. The first pertains to "reverse payment" or "pay-for-delay" settlements of patent litigation. Under this scenario, a generic firm agrees to neither challenge the brand-name company's patents nor sell a generic version of the patented drug for a period of time. In exchange, the brand-name drug company agrees to compensate the generic firm, sometimes with substantial monetary payments over a number of years. Because the payment flows counterintuitively, from the patent owner to the accused infringer, this compensation has been termed a "reverse" payment. Although the private settlement of disputes is usually encouraged, some observers believe that these arrangements are anticompetitive. Another widely followed practice has been termed "product hopping." Most observers would agree that the introduction of new medicines lies in the public interest. However, some stakeholders have accused brand-name firms of releasing new, patent-protected versions of existing drugs—while simultaneously discontinuing an earlier drug that is near patent expiration—with the primary goal of delaying generic entry into the marketplace. Because the Hatch-Waxman Act presupposes the existence of a brand-name drug in order for a generic version to enter the market, product hopping can potentially delay generic competition. Two notable judicial opinions have subjected these practices to antitrust scrutiny. In its 2013 decision in Federal Trade Commission v. Actavis, Inc., the U.S. Supreme Court held that the legality of reverse payment settlements should be evaluated under the "rule of reason" approach. Under this approach, courts consider whether conduct was reasonable by balancing the anticompetitive consequences of a challenged practice against its business justifications and potentially procompetitive impact. The 2015 decision of the U.S. Court of Appeals for the Second Circuit in New York ex rel. Schneiderman v. Actavis PLC applied the rule of reason to product hopping, concluding that this activity may indeed violate the antitrust laws. Congress possesses a number of alternatives for addressing reverse payment settlements and product hopping. One possibility is to await further judicial developments. Another option is to stipulate antitrust standards that courts and antitrust enforcement agencies would follow in the future. Congress could also alter incentives for generic firms to settle with brand-name firms under the food and drug laws.

Who Earns Pass-Through Business Income? Approximately 28.7 million (or one in five) taxpayers reported pass-through business income (or loss) totaling more than $687 billion in 2011. Among those earning pass-through income, the average amount reported was $26,011. These figures exclude capital gains income from pass-throughs and farming income. This section analyzes the distribution of pass-through income by adjusted gross income (AGI). When useful and possible, the analysis also distinguishes between sole proprietorship, partnership, and S corporation income, as well as active and passive income. Figure 1 shows the distribution of pass-through income by several AGI groups. A more detailed distribution, along with the distribution of tax returns reporting pass-through income, may be found in Table A-1 of the Appendix . Taxpayers with an AGI of $100,000 or greater earned 84% of pass-through income, while accounting for roughly 23% of returns reporting pass-through income. Conversely, taxpayers with AGI less than $100,000 earned about 16% of pass-through income, but accounted for 77% of returns with pass-through income. A significant proportion of pass-through income was concentrated among upper-income earners. Taxpayers with an AGI over $250,000, for example, received 63% of pass-through income, but accounted for just over 6% of returns reporting such income. Those with an AGI in excess of $1 million earned about 32% of pass-through income, while filing roughly 1% of all returns reporting pass-through income. Table 1 displays the distribution of pass-through income by business type. The distribution shows that sole proprietorship income was more evenly distributed across income groups than partnership and S corporation income. Partnership net income was more concentrated among upper income individuals with nearly all of it accruing to taxpayers with AGI in excess of $100,000, including nearly 48% accruing to those with AGI over $1 million. Nearly all of S corporation income was also earned by taxpayers with an AGI over $100,000, but a greater share of S corporation income than partnership income was earned by those with an AGI over $1 million—about 52%. Table 1 also shows a concentration of net losses for partnerships and S corporations at the lower end of the income distribution. Pass-through income and losses are one component of AGI. Thus, if a taxpayer relies primarily on a partnership or S corporation for income, and the business realizes losses, the taxpayer's AGI will likely be negative. There are several scenarios which could explain the losses. A portion of these losses may be due to start-up businesses that are experiencing losses. It is also possible that a portion of these losses are due to failing businesses, both new and old. Lastly, some of the losses may be attributable to temporary business disruptions experienced at particular firms. Without more detailed data on the businesses associated with these losses, however, it is difficult to know for certain. Partnership and S corporation income can be separated into active and passive income. The distinction between the two can be important because passive activity loss rules generally prevent passive losses from offsetting active income. Additionally, active income is exempt from the 3.8% net investment tax that was enacted as part of health care reform, but not imposed until the 2013 tax year. Active income is income resulting from active participation in a business, whereas passive income is income from a business in which the taxpayer did not materially participate. A business partner involved in the day to day management and operations of the business, for example, would earn active income, while a silent partner who has no involvement in the business outside of possibly financial commitments would earn passive income. Sole proprietorship income is not distinguished in the data used in this analysis. Most sole proprietors, however, will be actively involved in their business (since they are sole owner) suggesting that the overwhelming majority of sole proprietor income is active. Figure 2 displays the distribution of active and passive income for partnerships and S corporations. Active income accounts for 76% of partnership income and 90% of S corporation income. Conversely, 24% of partnership income and 10% of S corporation income is passive. A significant share of passive income from either business type is concentrated among higher income individuals (see Table A-2 in the Appendix ). Tax Reform Considerations Recent tax reform discussions have included lowering the tax rates and tax burden on pass-through income. Most recently, the majority party leaders of the House and Senate, along with the Trump Administration, issued the "Unified Framework for Fixing Our Broken Tax Code" on September 27, 2017, which proposes limiting the maximum tax rate on pass-through income to 25%. The House Republican Conference's "Better Way" tax reform blueprint, released on June 24, 2016, also proposes limiting the tax rate to 25%, but indicates that the lower rate will only apply to active pass-through income. Both proposals also include other changes that could potentially affect pass-throughs, such as the tax treatment of depreciable assets and business interest, as well as the restriction or repeal of other business deductions and credits. Because there is a great deal of uncertainty over exactly how these other changes may be implemented, the considerations presented below are reviewed within the context of reducing the tax rates and the general tax burden on pass-through income. Economic Implications Attention thus far appears to be primarily focused on the effect reducing taxes on pass-through income could have on the economy's performance, both in the short-run and long-run, the progressivity of the tax system, and small businesses. However, tax experts have also pointed out that the rate reduction could change the incentive for individuals to characterize labor income as business income. Additionally, there is the longer standing question of why the tax code treats businesses differently based on whether they are organized as a pass-through or C corporation, and what effect that has on the complexity of the tax system. This section discusses each of these issues in turn. Lowering the maximum statutory tax rate on pass-through income would likely stimulate investment in the short-run. The rate reduction, however, may not stimulate as much new investment as other changes that have been discussed as part of tax reform. For example, both the Unified Framework and the Better Way propose allowing businesses to expense new investments. Expensing may be more stimulative, or at least better targeted, than a rate reduction since expensing would benefit new investments relatively more than rate reductions. A rate reduction would benefit all pass-through income and thus provide a windfall gain for old investments. The longer-run effect on the economy from a rate reduction is less clear. This is particularly true if deficits are predicted to increase. Increased deficits may lead to higher future interest rates as the government competes with the private sector for financing. Additionally, policymakers in the future may grow concerned over the sustainability of deficits and raise taxes in response. A rise in interest rates or taxes could curtail or offset any positive effect from a tax rate reduction for pass-throughs or tax reform more generally. Still, without more details about the overall reform, it is difficult to determine more precisely what the impact would be in the short-run or the long-run from any changes. While lowering the tax burden on pass-through income could potentially stimulate the economy, particularly in the short-run, it may also reduce the progressivity of the tax code. As previously stated, 62% of pass-through income was earned by taxpayers with an AGI over $250,000, and 32% was earned by individuals with an AGI in excess of $1 million. The distributions of partnership and S corporation income were more heavily skewed to the upper end of the income distribution. As a result, the benefit from lowering taxes on pass-through income is likely to accrue predominately to upper-income individuals. This would cause the tax system to become less progressive, all else equal. Reducing the tax burden on pass-throughs seems to be partly driven by the assumption that pass-throughs and small business are synonymous. The data show that this is not the case; the majority of all businesses are small. For example, in 2011, more than 99% of both pass-throughs and C corporations had less than 500 employees, which is the most common employment-based threshold used by the Small Business Administration. Additionally, large firms are responsible for a non-trivial share of pass-through employment. About 24% of employees at pass-throughs worked at firms with more than 500 employees in 2011, which is more than the share who were employed at firms with 10 or fewer employees. If the goal of a particular tax policy is to assist small businesses, then basing the policy on a measure of firm size rather than legal form of organization may enhance its effectiveness. Tax professionals have expressed concern that lowering the tax rate on pass-through business income may encourage some individuals to recharacterize the nature of their income to reduce their taxes. The Unified Framework and the Better Way both propose a maximum tax rate of 25% on pass-through business income. However, the Unified Framework would tax labor income at a maximum rate of at least 35%, and the Better Way would tax labor income at rate up to 33%. By taxing business income at a lower rate than labor income, employee-owners of pass-throughs may characterize labor income as business income to take advantage of the lower tax rate. Additionally, some individuals may create pass-through businesses through which to direct their compensation so as to benefit from the lower tax rate. The Unified Framework and Better Way plan recognize this potential challenge but do not lay out detailed steps that would be taken to prevent the recharacterization of income. Arguably, a comprehensive tax reform would address the discrepancy that exists in the taxation of corporate and non-corporate businesses. It is well known that this is not an easy task, but reducing the tax burden on pass-through income alone would not address this discrepancy or the inequity and inefficiencies that exist because two otherwise identical businesses are taxed differently because of their legal structure. Additionally, a rate reduction on pass-through (or corporate) income by itself does little to simplify the tax treatment of businesses. The majority of the complexity in the tax system is the result of special tax incentives such as exclusions, credits, and deductions. While policymakers have expressed a desire to pare back business tax incentives in exchange for a rate reduction there have not been any detailed proposals to do so during the most recent round of tax reform debates. Budgetary and Revenue Impacts The Joint Committee on Taxation (JCT) has not provided official revenue estimates for the Unified Framework or Better Way proposals as of the date of this writing. The Tax Policy Center (TPC), however, has conducted a preliminary analysis of the Unified Framework. The TPC has estimated that the proposal to limit the tax rate on pass-through income to 25% would generate a revenue loss of $769.6 billion over ten years. The TPC has also estimated that the rate reduction contained in the Better Way proposal would lose $412.8 billion over ten years. The difference in estimates is explained in part by the fact that the TPC assumed that under the Better Way proposal, characterization of labor income as pass-through income would not occur, whereas it did not make such an assumption for their analysis of the Unified Framework. The Tax Foundation also analyzed the Better Way plan and found that the rate reduction on pass-through income would cost $515 billion over ten years using a "static" modeling approach, and $388 billion over ten years using a "dynamic" modeling approach. Dynamic revenue estimates incorporate economic feedback effects that can result in a portion of a tax rate reduction's static cost being offset by greater economic activity and thus greater tax revenues. The TPC also constructed a dynamic estimate for the Better Way plan, but not for individual provisions. As the date of this writing the Tax Foundation had not estimated the cost of the Unified Framework nor has the TPC conducted a dynamic analysis. It is important to emphasize that with any estimates made thus far by outside groups they must be interpreted with caution. Because detailed legislative language has not been released, estimators made assumptions about missing details needed to estimate the draft proposals. Changing these assumptions to reflect currently unavailable plan details would likely change revenue estimates, perhaps significantly. Appendix. Detailed Distributions

Pass-through businesses—sole proprietorships, partnerships, and S corporations—generate more than half of all business income in the United States. Pass-through income is, in general, taxed only once at the individual income tax rates when it is distributed to its owners. In contrast, the income of C corporations is taxed twice; once at the corporate level according to corporate tax rates, and then a second time at the individual tax rates when shareholders receive dividend payments or realize capital gains. This leads to the so-called "double taxation" of corporate profits. This report analyzes individual tax return data to determine who earns pass-through business income. The analysis finds that in 2011 over 82% of net pass-through income was earned by individuals with an adjusted gross income (AGI) over $100,000, although these taxpayers accounted for just 23% of individual returns with pass-through income. A significant fraction of pass-through income is concentrated among upper-income earners. Taxpayers with an AGI over $250,000, for example, received 62% of pass-through income, but accounted for just over 6% of returns with pass-through income. Individuals with an AGI in excess of $1 million earned about 32% of pass-through income, while filing roughly 1% of all returns with pass-through income The findings change slightly when the data for each organizational type are analyzed separately. Nearly half of sole proprietorship income was earned by individuals with an AGI of $100,000 or less. Taxpayers with an AGI between $100,000 and $500,000 earned 39% of sole proprietor income. Individuals with an AGI in excess of $1 million earned 6% of sole proprietor income. Partnership net income was more concentrated among upper-income individuals with nearly all of it accruing to taxpayers with AGI in excess of $100,000, including nearly 48% accruing to those with an AGI over $1 million. Nearly all of S corporation income was also earned by taxpayers with an AGI over $100,000, but a greater share of S corporation income than partnership income was earned by those with an AGI over $1 million—about 52%. Who earns pass-through income may have important implications for tax reform. Recent tax reform discussions have included taxing pass-through income at a lower rate than the current rate. While lowering the tax burden on pass-through income could potentially stimulate the economy, particularly in the short-run, it could also reduce the progressivity of the tax code given the share of pass-through income that is attributable to the upper end of the income distribution. Tax reform could also result in pass-through income being taxed at lower rates than labor income. This could lead some taxpayers to characterize labor income as business income to minimize taxes. Additionally, a tax rate reduction on pass-through (or corporate) income does little to simplify the tax treatment of businesses. The majority of the complexity in the tax system is the result of special tax incentives such as exclusions, credits, and deductions, formally known as "tax expenditures." Finally, reducing taxes on pass-through businesses could have important budgetary and revenue impacts.

Introduction Certain socioeconomic activities are vital to the day-to-day functioning and security of the country; for example, transportation of goods and people, communications, banking and finance, and the supply and distribution of electricity and water. Domestic security and our ability to monitor, deter, and respond to hostile acts also depend on some of these activities as well as other more specialized activities like intelligence gathering and command and control of police and military forces. A serious disruption in these activities and capabilities could have a major impact on the country's well-being. These activities and capabilities are supported by an array of physical assets, functions, information, people, and systems, forming what has been called the nation's critical infrastructures. These infrastructures have grown complex and interconnected, meaning that a disruption in one may lead to disruptions in others. Any number of factors can cause disruptions: poor design, operator error, physical destruction due to natural causes, (earthquakes, lightning strikes, etc.) or physical destruction due to intentional human actions (theft, arson, terrorist attack, etc.). Over the years, operators of these infrastructures have taken measures to guard against, and to quickly respond to, many of these threats, primarily to improve reliability and safety. However, the terrorist attacks of September 11 in 2001, and the subsequent anthrax attacks, demonstrated the need to reexamine protections in light of the terrorist threat, as part of an overall critical infrastructure protection policy. This report provides an historical background and tracks the evolution of such an overall policy and its implementation. However, specific protections associated with individual infrastructures is beyond the scope of this report. For CRS products related to specific infrastructure protection efforts, the reader is encouraged to visit the CRS Issues Before Congress webpage, click on Homeland Security and Terrorism, then Homeland Security, then Critical Infrastructure and Transportation Security. Federal Critical Infrastructure Protection Policy: In Brief As discussed further below, a number of federal executive documents and federal legislation lay out a basic policy and strategy for protecting the nation's critical infrastructure. According to Presidential Policy Directive/PPD-21, "it is the policy of the United States to strengthen the security and resilience of its critical infrastructure against both physical and cyber threats." Critical infrastructure is defined in the USA PATRIOT Act as systems and assets, physical or virtual, so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on security, national economic security, national public health and safety, or any combination of those matters. The federal government works with states, localities, and the owners and operators of critical infrastructure (in both the private and public sector) to identify those specific assets and systems that constitute the nation's critical infrastructure. Together, these entities assess those assets' vulnerabilities to the threats facing the nation (natural or manmade, i.e., all hazards), determine the level of risk associated with possible attacks or the impacts of natural events on those assets, and identify and prioritize a set of measures that can be taken to reduce those risks. Primary responsibility for protection, response, and recovery lies with the owners and operators. However, the federal government holds open the possibility of intervening in those areas where owners and operators are unable (or unwilling) to provide what it, the federal government, may assess to be adequate protection or response. The reader who is not interested in the evolution of this policy and the organizational structures that have evolved to implement it can proceed to the " Policy Implementation " and/or " Issues and Discussion " sections of this report. The President's Commission on Critical Infrastructure Protection This report takes as its starting point the establishment of the President's Commission on Critical Infrastructure Protection (PCCIP) in July 1996. Its tasks were to: report to the President the scope and nature of the vulnerabilities and threats to the nation's critical infrastructures (focusing primarily on cyber threats); recommend a comprehensive national policy and implementation plan for protecting critical infrastructures; determine legal and policy issues raised by proposals to increase protections; and propose statutory and regulatory changes necessary to effect recommendations. The PCCIP released its report to President Clinton in October 1997. Examining both the physical and cyber vulnerabilities, the Commission found no immediate crisis threatening the nation's infrastructures. However, it did find reason to take action, especially in the area of cybersecurity. The rapid growth of a computer-literate population (implying a greater pool of potential hackers), the inherent vulnerabilities of common protocols in computer networks, the easy availability of hacker "tools" (available on many websites), and the fact that the basic tools of the hacker (computer, modem, telephone line) are the same essential technologies used by the general population indicated to the Commission that both threat and vulnerability exist. The Commission generally recommended that greater cooperation and communication between the private sector and government was needed. The private sector owns and operates much of the nation's critical infrastructure. As seen by the Commission, the government's primary role (aside from protecting its own infrastructures) is to collect and disseminate the latest information on intrusion techniques, threat analysis, and ways to defend against hackers. The Commission also proposed a strategy for action: facilitate greater cooperation and communication between the private sector and appropriate government agencies by: setting a top level policy-making office in the White House; establishing a council that includes corporate executives, state and local government officials, and cabinet secretaries; and setting up information clearinghouses; develop a real-time capability of attack warning; establish and promote a comprehensive awareness and education program; streamline and clarify elements of the legal structure to support assurance measures (including clearing jurisdictional barriers to pursuing hackers electronically); and expand research and development in technologies and techniques, especially technologies that allow for greater detection of intrusions. The Commission's report underwent interagency review to determine how to respond. That review led to a Presidential Decision Directive released in May 1998. Presidential Decision Directive No. 63 Presidential Decision Directive No. 63 (PDD-63) set as a national goal the ability to protect the nation's critical infrastructure from intentional attacks (both physical and cyber) by the year 2003. According to the PDD, any interruptions in the ability of these infrastructures to provide their goods and services must be "brief, infrequent, manageable, geographically isolated, and minimally detrimental to the welfare of the United States." PDD-63 identified the following activities whose critical infrastructures should be protected: information and communications; banking and finance; water supply; aviation, highways, mass transit, pipelines, rail, and waterborne commerce; emergency and law enforcement services; emergency, fire, and continuity of government services; public health services; electric power, oil and gas production, and storage. In addition, the PDD identified four activities where the federal government controls the critical infrastructure: internal security and federal law enforcement; foreign intelligence; foreign affairs; and national defense. A lead agency was assigned to each of these "sectors" (see Table 1 ). Each lead agency was directed to appoint a Sector Liaison Official to interact with appropriate private sector organizations. The private sector was encouraged to select a Sector Coordinator to work with the agency's sector liaison official. Together, the liaison official, sector coordinator, and all affected parties were to contribute to a sectoral security plan which was to be integrated into a National Infrastructure Assurance Plan. Each of the activities performed primarily by the federal government also were assigned a lead agency who was to appoint a Functional Coordinator to coordinate efforts similar to those made by the Sector Liaisons. The PDD also assigned duties to the National Coordinator for Security, Infrastructure Protection, and Counter-terrorism. The National Coordinator reported to the President through the Assistant to the President for National Security Affairs. Among his many duties outlined in PDD-63, the National Coordinator chaired the Critical Infrastructure Coordination Group. This Group was the primary interagency working group for developing and implementing policy and for coordinating the federal government's own internal security measures. The Group included high level representatives from the lead agencies (including the Sector Liaisons), the National Economic Council, and all other relevant agencies. Each federal agency was made responsible for securing its own critical infrastructure and was to designate a Critical Infrastructure Assurance Officer (CIAO) to assume that responsibility. The agency's current Chief Information Officer (CIO) could double in that capacity. In those cases where the CIO and the CIAO were different, the CIO was responsible for assuring the agency's information assets (databases, software, computers), while the CIAO was responsible for any other assets that make up that agency's critical infrastructure. Agencies were given 180 days from the signing of the Directive to develop their plans. Those plans were to be fully implemented within two years and updated every two years. The PDD set up a National Infrastructure Assurance Council. The Council was to be a panel that included private operators of infrastructure assets and officials from state and local government officials and relevant federal agencies. The Council was to meet periodically and provide reports to the President as appropriate. The National Coordinator was to act as the Executive Director of the Council. The PDD also called for a National Infrastructure Assurance Plan. The Plan was to integrate the plans from each of the sectors mentioned above and should consider the following: a vulnerability assessment, including the minimum essential capability required of the sector's infrastructure to meet its purpose; remedial plans to reduce the sector's vulnerability; warning requirements and procedures; response strategies; reconstitution of services; education and awareness programs; research and development needs; intelligence strategies; needs and opportunities for international cooperation; and legislative and budgetary requirements. The PDD also set up a National Plan Coordination Staff to support the plan's development. Subsequently, the Critical Infrastructure Assurance Office (CIAO, not to be confused with the agencies' Critical Infrastructure Assurance Officers) was established to serve this function and was placed in the Department of Commerce's Export Administration. CIAO supported the National Coordinator's efforts to integrate the sectoral plans into a National Plan, supported individual agencies in developing their internal plans, helped coordinate national education and awareness programs, and provided legislative and public affairs support. Coordinating the development of and maintaining the National Plan is now part of the Department of Homeland Security Infrastructure Protection and Information Security (IPIS) program. Most of the Directive established policy-making and oversight bodies making use of existing agency authorities and expertise. However, the PDD also addressed operational concerns. These dealt primarily with cybersecurity. The Directive called for a national capability to detect and respond to cyberattacks while they are in progress. Although not specifically identified in the Directive, the Clinton Administration proposed establishing a Federal Intrusion Detection Network (FIDNET) that would, together with the Federal Computer Intrusion Response Capability (FedCIRC), established just prior to PDD-63, meet this goal. The Directive explicitly gave the Federal Bureau of Investigation the authority to expand its computer crime capabilities into a National Infrastructure Protection Center (NIPC). The Directive called for the NIPC to be the focal point for federal threat assessment, vulnerability analysis, early warning capability, law enforcement investigations, and response coordination. All agencies were required to forward to the NIPC information about threats and actual attacks on their infrastructure as well as attacks made on private sector infrastructures of which they become aware. Presumably, FIDNET and FedCIRC would feed into the NIPC. According to the Directive, the NIPC would be linked electronically to the rest of the federal government and use warning and response expertise located throughout the federal government. The Directive also made the NIPC the conduit for information sharing with the private sector through an equivalent Information Sharing and Analysis Center(s) operated by the private sector, which PDD-63 encouraged the private sector to establish. These functions have been transferred to and greatly expanded upon at the Department of Homeland Security. The U.S. Computer Emergency Response Team (U.S. CERT) now handles the computer security incidents occurring on non-national security federal systems and the National Operations Center (NOC) provides all hazard situation awareness. Quite independent of PDD-63 in its origin, but clearly complimentary in its purpose, the FBI established a program called INFRAGARD to interact with private sector firms. The program facilitates information exchange between FBI field offices and the surrounding business communities. Its initial focus was network security. After September 11, its focus included both cyber and physical security. INFRAGARD is geographically oriented rather than sector-oriented. Each FBI field office has a Special Agent Coordinator who gathers interested companies of various sizes from all industries to form a chapter. Any company can join INFRAGARD. Local executive boards govern and share information within the membership. Chapters hold regular meetings to discuss issues, threats, and other matters that impact their companies. Chapters may also engage in contingency planning for using alternative systems in the event of a successful large scale attack on the information infrastructure. The program was transferred to the NIPC, before it was absorbed by the Department of Homeland Security. The program is now managed by the FBI's Cyber Division. It should also be noted that the FBI had, since the 1980s, a program called the Key Assets Initiative (KAI). The objective of the KAI was to develop a database of information on "key assets" within the jurisdiction of each FBI field office, establish lines of communications with asset owners and operators to improve physical and cyber protection, and to coordinate with other federal, state, and local authorities to ensure their involvement in the protection of those assets. The program was initially begun to allow for contingency planning against physical terrorist attacks. According to testimony by a former Director of the NIPC, the program was "reinvigorated" by the NIPC and expanded to include the cyber dimension. The Department of Homeland Security is now responsible for creating a data base of critical assets. Restructuring by the Bush Administration Pre-September 11 As part of its overall redesign of White House organization and assignment of responsibilities, the incoming Bush Administration spent the first eight months reviewing its options for coordinating and overseeing critical infrastructure protection. During this time, the Bush Administration continued to support the infrastructure protection activities begun by the Clinton Administration. The Bush Administration review was influenced by three parallel debates. First, the National Security Council (NSC) underwent a major streamlining. All groups within the Council established during previous Administrations were abolished. Their responsibilities and functions were consolidated into 17 Policy Coordination Committees (PCCs). The activities associated with critical infrastructure protection were assumed by the Counter-Terrorism and National Preparedness PCC. At the time, whether, or to what extent, the NSC should remain the focal point for coordinating critical infrastructure protection (i.e., the National Coordinator came from the NSC) was unclear. Richard Clarke, himself, wrote a memorandum to the incoming Bush Administration advocating that the function be transferred directly to the White House. Second, there was a continuing debate about the merits of establishing a government-wide Chief Information Officer (CIO), whose responsibilities would include protection of all federal non-national security-related computer systems and coordination with the private sector on the protection of privately owned computer systems. Shortly after assuming office, the Bush Administration announced its desire not to create a separate federal CIO position, but to recruit a Deputy Director of the Office of Management and Budget that would assume an oversight role of agency CIOs. One of the reasons cited for this was a desire to keep agencies responsible for their own computer security. Third, there was the continuing debate about how best to defend the country against terrorism, in general. The U.S. Commission on National Security/21 st Century (the Hart-Rudman Commission) proposed a new National Homeland Security Agency. The recommendation built upon the current Federal Emergency Management Agency (FEMA) by adding to it the Coast Guard, the Border Patrol, Customs Service, and other agencies. The Commission recommended that the new organization include a directorate responsible for critical infrastructure protection. While both the Clinton and Bush Administration remained cool to this idea, bills were introduced in Congress to establish such an agency. As discussed below, the Bush Administration changed its position in June 2002, and proposed a new department along the lines of that proposed by the Hart/Rudman Commission and Congress. Post-September 11 Executive Orders Soon after the September 11 terrorist attacks, President Bush signed two Executive Orders relevant to critical infrastructure protection. These have since been amended to reflect changes brought about by the establishment of the " Department of Homeland Security " (see below). The following is a brief discussion of the original E.O.s and how they have changed. E.O. 13228, signed October 8, 2001, established the Office of Homeland Security, headed by the Assistant to the President for Homeland Security. Its mission was to "develop and coordinate the implementation of a comprehensive national strategy to secure the United States from terrorist threats and attacks." Among its functions was the coordination of efforts to protect the United States and its critical infrastructure from the consequences of terrorist attacks. This included strengthening measures for protecting energy production, transmission, and distribution; telecommunications; public and privately owned information systems; transportation systems; and the provision of food and water for human use. Another function of the Office was to coordinate efforts to ensure rapid restoration of these critical infrastructures after a disruption by a terrorist threat or attack. Many of the functions of the Office of Homeland Security were transferred to the Department of Homeland Security when the latter was established (see below). The EO also established the Homeland Security Council. The Council is made up of the President, Vice-President, Secretaries of Treasury, Defense, Health and Human Services, and Transportation, the Attorney General, the Directors of FEMA, FBI, and CIA and the Assistant to the President for Homeland Security. The EO was later amended to add the Secretary of Homeland Security. Other White House and departmental officials could be invited to attend Council meetings. The Council advises and assists the President with respect to all aspects of homeland security. The agenda for those meetings are set by the Assistant to President for Homeland Security, at the direction of the President. The Assistant is also the official recorder of Council actions and Presidential decisions. In January and February 2003, this E.O. was amended (by Executive Orders 13284 and 13286). The Office of Homeland Security, the Assistant to the President, and the Homeland Security Council were all retained. However, the Secretary of Homeland Security was added to the Council. The duties of the Assistant to the President for Homeland Security remained the same, recognizing the statutory duties assigned to the Secretary of Homeland Security as a result of the Homeland Security Act of 2002 (see below). The second Executive Order (E.O. 13231) signed October 16, 2001, stated that it is U.S. policy "to protect against the disruption of the operation of information systems for critical infrastructure ... and to ensure that any disruptions that occur are infrequent, of minimal duration, and manageable, and cause the least damage possible." This Order also established the President's Critical Infrastructure Protection Board. The Board, consisting of federal officials, was authorized to "recommend policies and coordinate programs for protecting information systems for critical infrastructure." The Board also was directed to propose a National Plan on issues within its purview on a periodic basis, and in coordination with the Office of Homeland Security, review and make recommendations on that part of agency budgets that fall within the purview of the Board. The Board was chaired by a Special Advisor to the President for Cyberspace Security. The Special Advisor reported to both the Assistant to the President for National Security and the Assistant to the President for Homeland Security. Besides presiding over Board meetings, the Special Advisor, in consultation with the Board, proposed policies and programs to appropriate officials to ensure protection of the nation's information infrastructure and to coordinate with the Director of OMB on issues relating to budgets and the security of computer networks. The E.O. 13231 also established the National Infrastructure Advisory Council. The Council provides advice to the President on the security of information systems for critical infrastructure. The Council's functions include enhancing public-private partnerships, monitoring the development of ISACs, and encouraging the private sector to perform periodic vulnerability assessments of critical information and telecommunication systems. Subsequent amendments to this E.O. (by E.O. 13286) abolished the President's Board and the position of Special Advisor. The Advisory Council was retained, but now reports to the President through the Secretary of Homeland Security. National Strategy for Homeland Security In July 2002, the Office of Homeland Security released a National Strategy for Homeland Security . The Strategy covered all government efforts to protect the nation against terrorist attacks of all kinds. It identified protecting the nation's critical infrastructures and key assets (a new term, different as implied above by the FBI's key asset program) as one of six critical mission areas. The Strategy expanded upon the list of sectors considered to possess critical infrastructure to include public health, the chemical industry and hazardous materials, postal and shipping, the defense industrial base, and agriculture and food. The Strategy also added continuity of government and continuity of operations to the list, although it is difficult to see how the latter would be a considered sector. It also combined emergency fire service, emergency law enforcement, and emergency medicine as emergency services, and it dropped those functions that primarily belonged to the federal governments (e.g., defense, intelligence, law enforcement). It also reassigned some of the sectors to different agencies, including making the then proposed Department of Homeland Security lead agency for a number of sectors—postal and shipping services, and the defense industrial base. It also introduced a new class of assets, called key assets, which was defined as potential targets whose destruction may not endanger vital systems, but could create a local disaster or profoundly affect national morale. Such assets were defined later to include national monuments and other historic attractions, dams, nuclear facilities, and large commercial centers, including office buildings and sport stadiums, where large numbers of people congregate to conduct business, personal transactions, or enjoy recreational activities. The Strategy reiterated many of the same policy-related activities as mentioned above: working with the private sector and other non-federal entities, naming those agencies that should act as liaison with the private sector, assessing vulnerabilities, and developing a national plan to deal with those vulnerabilities. The Strategy also mentioned the need to set priorities, acknowledging that not all assets are equally critical, and that the costs associated with protecting assets must be balanced against the benefits of increased security according to the threat. The Strategy did not create any new organizations, but assumed that a Department of Homeland Security would be established (see below). The Strategy was updated in October 2007. With the exception of a somewhat greater recognition of the role improving resilience can play in reducing the nation's risk, the strategy related to critical infrastructure saw little change. HSPD-7 On December 17, 2003, the Bush Administration released Homeland Security Presidential Directive 7 (HSPD-7). HSPD essentially updated the policy of the United States and the roles and responsibilities of various agencies in regard to critical infrastructure protection as outlined in previous documents, national strategies, and the Homeland Security Act of 2002 (see below). For example, the Directive reiterated the Secretary of Homeland Security's role in coordinating the overall national effort to protect critical infrastructure. It also reiterated the role of Sector-Specific Agencies (i.e., Lead Agencies) to work with their sectors to identify, prioritize, and coordinate protective measures. The Directive captured the expanded set of critical infrastructures and key assets and Sector-Specific Agencies assignments made in the National Strategy for Homeland Security . The Directive also reiterated the relationship between the Department of Homeland Security and other agencies in certain areas. For example, while the Department of Homeland Security will maintain a cybersecurity unit, the Directive stated that the Director of the Office of Management remains responsible for overseeing government-wide information security programs and for ensuring the operation of a federal cyber incident response center within the Department of Homeland Security. Also, while the Department of Homeland Security is responsible for transportation security, including airline security, the Department of Transportation remains responsible for control of the national air space system. The only organizational change made by the Directive was the establishment of the Critical Infrastructure Protection Policy Coordinating Committee to advise the Homeland Security Council on interagency policy related to physical and cyber infrastructure security. The Directive made a few other noticeable changes or additions. For example, the Department of Homeland Security was assigned as Lead Agency for the chemical and hazardous materials sector (it had been the Environmental Protection Agency). The Directive required Lead Agencies to report annually to the Secretary of Homeland Security on their efforts in working with the private sector. The Directive also reiterated that all federal agencies must develop plans to protect their own critical infrastructure and submit those plans for approval to the Director of the Office of Management and Budget by July 2004. In February 2013, the Obama Administration released Presidential Policy Directive 21 (PPD-21), Critical Infrastructure Security and Resilience , which superseded HSPD-7. For a discussion of PDD-21, see below. The Bush Administration policy and approach regarding critical infrastructure protection can be described as an evolutionary expansion of the policies and approaches laid out in PDD-63. The fundamental policy statements were essentially the same: the protection of infrastructures critical to the people, economy, essential government services, and national security. National morale was added to that list. Also, the stated goal of the government's efforts is to ensure that any disruption of the services provided by these infrastructures be infrequent, of minimal duration, and manageable. The infrastructures identified as critical were essentially the same (although expanded and with an emphasis placed on targets that would result in large numbers of casualties). Finally, the primary effort was directed at working collaboratively and voluntarily with the private sector owners and operators of critical infrastructure to identify critical assets and provide appropriate protection. Organizationally, there remained an interagency group for coordinating policy across departments and for informing the White House (Homeland Security Council, supported by the Critical Infrastructure Protection Coordinating Committee). Certain agencies were assigned certain sectors with which to work. Sectors were asked to organize themselves to assist in coordination of effort and information sharing. A Council made up of private sector executives, academics, and State and local officials was established to advise the President. Certain operational units (e.g., the Critical Infrastructure Assurance Office (CIAO) and elements of the National Infrastructure Protection Center (at the FBI)) were initially left in place, though later moved to and restructured within the Department of Homeland Security (DHS), where, now, the Undersecretary for National Protection and Programs is responsible for coordinating the implementation of policies and programs (see below). However, DHS takes a much more active role in identifying critical assets, assessing vulnerabilities, and recommending and supporting protective measures than did these earlier operational units. Also, the manpower and resources devoted to these activities have greatly increased. One major difference between PDD-63 and the Bush Administration's efforts was a shift in focus. PDD-63 focused on cybersecurity. While the post-September 11 effort is still concerned with cybersecurity, its focus on physical threats, especially those that might cause mass casualties, is greater than the pre-September 11 effort. This led to some debate and organizational instability initially. The early executive orders discussed above segregated cybersecurity from the physical security mission with the formation of the Office of Homeland Security and the President's Critical Infrastructure Protection Board. Dissolution of the Board and the subsequent establishment of the Critical Infrastructure Protection Policy Coordinating Committee, responsible for advising the Homeland Security Council on both physical and cybersecurity issues, appears to have reunited these two concerns within a single White House group. The Obama Administration Initial Efforts The Obama Administration has, to date, kept in place much of the policy and organization of the Bush Administration. In February 2009, President Obama ordered a review of the homeland security and counterterrorism structures within the White House (Presidential Security Directive 1). Debate centered on the merging of the Homeland Security Council and the National Security Council. In May, the President directed that the staff of the two councils be merged into the National Security Staff, while retaining the independence of the two councils. President Obama also ordered a review of the federal government's policies and activities on cybersecurity. The results of that review were released on May 29, 2009. One result of the cybersecurity policy review was to recommend the appointment of a White House official to coordinate cybersecurity policies and activities across the federal government. The recommendation and subsequent appointment reestablished a cybersecurity coordinating function within the White House. Cybersecurity Legislation and Executive Orders In May 2012, the Obama administration released proposed legislation aimed to strengthen cybersecurity. Among the provisions was a proposed regulatory framework to enhance the cybersecurity at those infrastructures sites considered by the Secretary of Homeland Security to be critical to the nation. Owners and operators of designated infrastructure assets would be required to develop cybersecurity plans, have those plans evaluated by accredited outside evaluators, and to report to the Securities and Exchange Commission. The 112 th Congress considered elements of the Obama Administration's proposal in a number of bills. The Senate debated a comprehensive bill ( S. 3414 ), the House passed four more narrowly designed bills ( H.R. 2096 , H.R. 3523 , H.R. 3834 , and H.R. 4257 ). However, neither the Administration's proposal nor any of the Congressional bills became law. In the absence of new legislation, the Obama Administration issued Executive Order 13636, Improving Critical Infrastructure Cybersecurity , in February 2013. The Executive Order focused primarily on information sharing and the development of a cybersecurity framework for critical infrastructure. In regard to information sharing, the Executive Order instructed the Attorney General, the Secretary of Homeland Security, and the Director of National Intelligence to "ensure the timely production of unclassified reports of cyber threats to the U.S. homeland that identify specific targeted entities," and to rapidly disseminate those reports to the targeted entity. The Executive Order also expanded the Enhanced Cybersecurity Services program to all critical infrastructure sectors. The Enhanced Cybersecurity Services program shares federal classified cybersecurity threat and technical information with infrastructure network service providers which the service providers can use when monitoring the network traffic of their critical infrastructure customers. The Executive Order defined the cybersecurity framework to be a set of standards, methodologies, procedures, and processes that critical infrastructure owners and operators could use to reduce their cybersecurity risks. The Executive Order instructed the Director of the National Institute of Standards and Technology to lead a voluntary consensus-making effort to develop the framework. The Secretary of Homeland Security was instructed to establish a set of incentives to promote participation in a Voluntary Critical Infrastructure Cybersecurity Program designed to implement the framework. Agencies that have the responsibility of regulating the security of critical infrastructure were instructed to review the sufficiency of their current cybersecurity regulations and consider the adoption or tailored modification of the framework's set of standards. For a more thorough analysis of President Obama's Executive Order 13636, see CRS Report R42984, The 2013 Cybersecurity Executive Order: Overview and Considerations for Congress , by [author name scrubbed] et al.. Bills addressing cybersecurity issues were again introduced in the 113 th Congress and three passed as the 113 th Congress came to an end. P.L. 113-283 amended the Federal Information Security Management Act (FISMA) which governs cybersecurity in the federal government. P.L. 113-282 formally established in statute the National Cybersecurity and Communications Integration Center (NCCIC). P.L. 113-274 , among its many provisions related to cybersecurity, amended the National Institute of Standards and Technology Act, to include authorization to carry out the voluntary standards activities mentioned above. These bills, however, left unresolved the more problematic issues associated with greater information sharing between the government and the private sector which many observers argue is still necessary. In an effort to again address the issue of greater sharing of cybersecurity information, the Obama Administration, in February 2015, put forth another executive order, E.O. 13691, Promoting Private Sector Cybersecurity Information Sharing . This E.O. assigns the Secretary of DHS the responsibility of encouraging and supporting the establishment of Information Sharing and Analysis Organizations (ISAOs). ISAOs are defined in the Homeland Security Act and are similar to the ISACs that have evolved out of PDD-63. The E.O. also authorized the establishment of an ISAO Standards Organization that would work with all stakeholders to develop voluntary standards and guidelines for establishing and operating ISAOs. The E.O. also designated the NCCIC, mentioned above, as a critical infrastructure protection program, which allows it to receive and transmit cybersecurity information between the federal government and the ISAOs as protected critical infrastructure information. Bills meant to deal with issues perceived as legal barriers to greater information sharing have been introduced again in the 114 th Congress. PPD-21 In February 2013, the Obama Administration issued PPD-21. PPD-21, Critical Infrastructu r e Security and Resilience , superseded HSPD-7 issued during the George W. Bush Administration (see above). PPD-21 made no major changes in policy, roles and responsibilities, or programs, but did order an evaluation of the existing public-private partnership model, the identification of baseline data and system requirements for efficient information exchange, the development of a situational awareness capability (a continuous policy objective since President Clinton's PDD-63). PPD-21 also called for an update of the National Infrastructure Protection Plan, and a new Research and Development Plan for Critical Infrastructure, to be updated every four years (HSPD-7 also required and led to the development of a research and development plan). While not yet making any changes in policy, roles and responsibilities, and programs, the text of PPD-21 did reflect the increased interest in resilience and the all-hazard approach that has evolved in critical infrastructure policy over the last few years. It also updated sector designations, but made no major changes in Lead Agency designations (see " Government-Sector Coordination ," below). However, PPD-21 did give the energy and communications sectors a higher profile, due to the Administration's assessment of their importance to the operations of the other infrastructures. The directive also required the updated National Infrastructure Protection Plan to include a focus on the reliance of other sectors on energy and communications infrastructure and ways to mitigate the associated risks. In all, the Obama Administration essentially has kept or slowly expanded the policies, organizational structures, and programs governing physical security of critical infrastructure assets. This included greater integration of resilience and all-hazard into its policy and strategy documents. It has focused much of its efforts on expanding the cybersecurity policies and programs associated with critical infrastructure protection. Department of Homeland Security Initial Establishment In November 2002, Congress passed the Homeland Security Act ( P.L. 107-296 ), establishing a Department of Homeland Security (DHS). The act assigned to the new Department the mission of preventing terrorist attacks, reducing the vulnerability of the nation to such attacks, and responding rapidly should such an attack occur. The act essentially consolidated within one department a number of agencies that had, as part of their missions, homeland security-like functions (e.g., Border Patrol, Customs, Transportation Security Administration). The following discussion focuses on those provisions relating to critical infrastructure protection. In regard to critical infrastructure protection the act transferred the following agencies and offices to the new department: the NIPC (except for the Computer Investigations and Operations Section), CIAO, FedCIRC, the National Simulation and Analysis Center (NISAC), other energy security and assurance activities within DOE, and the National Communication System (NCS). These agencies and offices were integrated within the Directorate of Information Analysis and Infrastructure Protection (IA/IP) (one of four operational Directorates established by the act). Notably, the Transportation Security Administration (TSA), which is responsible for securing all modes of the nation's transportation system, was not made part of this Directorate (it was placed within the Border and Transportation Security Directorate); nor was the Coast Guard, which is responsible for port security. The act assigned the rank of Undersecretary to the head of each Directorate. Furthermore, the act designated that within the Directorate of Information Analysis and Infrastructure Protection, there were to be both an Assistant Secretary for Information Analysis, and an Assistant Secretary for Infrastructure Protection. Among the responsibilities assigned the IA/IP Directorate were to access, receive, analyze, and integrate information from a variety of sources in order to identify and assess the nature and scope of the terrorist threat; to carry out comprehensive assessments of the vulnerabilities of key resources and critical infrastructure of the United States, including risk assessments to determine risks posed by particular types of attacks; to integrate relevant information, analyses, and vulnerability assessments in order to identify priorities for protective and support measures; to develop a comprehensive national plan for securing key resources and critical infrastructures; to administer the Homeland Security Advisory System; to work with the intelligence community to establish collection priorities; and to establish a secure communication system for receiving and disseminating information. In addition, the act provided a number of protections for certain information (defined as critical infrastructure information) that non-federal entities, especially private firms or ISACs formed by the private sector, voluntarily provide the Department. Those protections included exempting it from the Freedom of Information Act, precluding the information from being used in any civil action, exempting it from any agency rules regarding ex parte communication, and exempting it from requirements of the Federal Advisory Committee Act. The act basically built upon existing policy and activities. Many of the policies, objectives, missions, and responsibilities complement those already established (e.g., vulnerability assessments, national planning, communication between government and private sector, and improving protections). Second Stage Review Reorganization Secretary Chertoff (the second Secretary of Homeland Security), as one of his Second Stage Review recommendations, proposed restructuring the IA/IP Directorate and renaming it the Directorate of Preparedness. The IA function was merged into a new Office of Intelligence and Analysis. The IP function, with the same missions as outlined in the Homeland Security Act, remained, but was joined by other existing and new entities. The renamed Directorate included elements from Office of State and Local Government Coordination and Preparedness, including its principal grant-making functions and some of the preparedness functions of the Federal Emergency Management Agency (FEMA). A new position of Chief Medical Officer was created within the Directorate and the U.S. Fire Administration and the Office of National Capital Region Coordination were transferred into the Directorate. In addition, the restructuring called for an Assistant Secretary for Cyber Security and Telecommunications (a position sought by many within the cybersecurity community following the termination of the position of Special Advisor to the President for Cyberspace Security) and an Assistant Secretary for Infrastructure Protection. According to the DHS press release, the mission of the restructured Directorate was to "facilitate grants and oversee nationwide preparedness efforts supporting first responder training, citizen awareness, public health, infrastructure and cyber security, and [to] ensure proper steps are taken to protect high-risk targets." Other recommendations resulting from the review that impacted infrastructure protection included moving the Homeland Security Operations Center, now called the National Operations Center, out of the old IA/IP Directorate and placing it within a new Office of Operations Coordination; and a new Directorate of Policy, which is described as serving as the primary Department-wide coordinator of policies, regulations, and other initiatives. The conference committee report on the Department's FY2006 appropriations ( H.Rept. 109-241 ) approved these changes. Post-Katrina Emergency Management Reform Act of 2006 The Post-Katrina Emergency Management Reform Act of 2006 (referred hereon as the Post-Katrina Act) was passed as Title VI of the Department of Homeland Security Appropriations Act, 2007 ( P.L. 109-295 ). The Post-Katrina Act reunited the Department's preparedness activities with its response and recovery activities within a restructured Federal Emergency Management Agency (FEMA). The Post-Katrina Act explicitly preserved the restructured FEMA as a distinct entity within the Department. The Post-Katrina Act also transferred the Preparedness Directorate's Office of Grants and Training to the restructured FEMA. The Post-Katrina Act left the remaining activities, including those associated with the Office of the Chief Medical Officer and the critical infrastructure protection activities associated with the Assistant Secretary of Infrastructure Protection and the Assistant Secretary for Cyber Security and Telecommunications, in the Preparedness Directorate. The Post-Katrina Act also established the Office of Emergency Communications and required that it report to the Assistant Secretary for Cyber Security and Telecommunications. The Office of Emergency Communications has within its responsibilities a number of activities associated with assisting interoperable communications among first responders. On January 18, 2007, Secretary Chertoff submitted to Congress a description of the Department's reorganization pursuant to the Post-Katrina Act, and additional changes made pursuant to the Secretary's authority provided in the Homeland Security Act ( P.L. 107-296 , Section 872). Under this latter authority, the Secretary renamed the Preparedness Directorate the National Protection and Programs Directorate (NPPD), still to be headed by someone of Undersecretary rank. The NPPD included the Office of the Undersecretary, the Office of Cybersecurity and Communications (including the new Office of Emergency Communications), the Office of Infrastructure Protection, the Office of Risk Management and Analysis (formerly a division of the Office of Infrastructure Protection), and the Office of Intergovernmental Programs. In addition, the Secretary moved the U.S.-VISIT program into the NPPD. The Secretary also, pursuant to his Section 872 authority, transferred the Chief Medical Officer to head a new Office of Health Affairs. This new Office reports to the Secretary through the Deputy Secretary. This reorganization consolidated activities associated with the Department's bio-defense efforts, including the transfer of the Biosurveillance program, formerly part of the Infrastructure Protection and Information Security (IPIS) Program (see the Appendix ). Except for the transfer of the Biosurveillance program, the IPIS program, which represents the core of the Department's effort to coordinate the nation's critical infrastructure protection activities, remained in the National Protection and Programs Directorate. Continued Organizational Evolution The organizational structure within DHS responsible for critical infrastructure continues to evolve. In 2010, the Federal Protective Service moved into NPPD from Immigration and Custom Enforcement. In 2013, the Office of Risk Management and Analysis was eliminated and its responsibilities moved into the Office of Policy, reporting directly to the Secretary. In 2013, the U.S.-VISIT program evolved into the Office of Biometric Identify Management, but the latter remained in NPPD. In 2014, in response to PPD-21, elements from the Office of Infrastructure Protection were reorganized into the Office of Cyber and Infrastructure Analysis. The following components currently make up the NPPD: Federal Protective Service; Office of Biometric Identify Management; Office of Cyber and Infrastructure Analysis; Office of Cybersecurity and Communications; and Office of Infrastructure Protection. Policy Implementation Government-Sector Coordination The number and breakdown of sectors and lead, or sector specific agencies, have expanded and changed since the assignments made by PDD-63 (see Table 1 ). As mentioned above, the Bush Administration expanded the number of sectors considered to possess critical infrastructure and made some changes in assignments, and PPD-21 made some additional modifications. In March 2008, DHS announced that it was designating what would be an 18 th critical infrastructure sector, Critical Manufacturing. The sector includes certain sub-groups from the primary metal, machinery, electrical equipment, and transportation equipment manufacturing industries. The designation was made by the Secretary under the authority granted him in HSPD-7, and represented the first exercise of that authority. PPD-21 also made some adjustments to sector designations: National Monuments and Icons was designated as a subsector of Government Facilities; Postal and Shipping was designated as a subsector of Transportation; Banking and Finance was renamed Financial Services; and Drinking Water and Water Treatment was renamed Water and Waste Water Systems. Table 2 , below, shows the current list of sectors and their lead agencies. PDD-63 called for the selection, by each Lead Agency, of a Sector Liaison Official (representing the Lead Agency) and a Sector Coordinator (representing the owners/operators of each sector). While most agencies quickly identified their Sector Liaison Official, it took more time to identify Sector Coordinators. Different sectors present different challenges for coordination. Some sectors are more diverse than others (e.g., transportation includes rail, air, waterways, and highways; information and communications include computers, software, wire and wireless communications) and raised the issue of how to have all the relevant players represented. Other sectors are fragmented, consisting of small or local entities. Some sectors, such as banking, telecommunications, and energy have more experience than others in working with the federal government and/or working collectively to assure the performance of their systems. In addition to such structural issues were ones related to competition. Inherent in trying to promote coordination is asking competitors to cooperate. In some cases it is asking competing industries to cooperate. This cooperation not only raised issues of trust among firms, but also concerns regarding anti-trust rules. Over time, Sector Coordinators were selected for most of the sectors identified under PDD-63. Typically, a representative from a relevant trade organizations was chosen to act as sector coordinator. For example, the Environmental Protection Agency selected the Executive Director of the Association of Metropolitan Water Agencies to act as Sector Coordinator for the water sector. In the case of the law enforcement sector (no longer identified as a separate sector), the National Infrastructure Protection Center helped create a Emergency Law Enforcement Services Forum, consisting of senior state, local, and non-FBI law enforcement officials. In the case of banking and finance, the Sector Coordinator was chosen from a major banking/finance institution, who doubled as the Chairperson of the Financial Services Sector Coordinating Council, an organization specifically set up by the industry to coordinate critical infrastructure protection activities with the federal government. In December 1999, a number of the sectors formed a Partnership for Critical Infrastructure Security to share information and strategies and to identify interdependencies across sectoral lines. The Partnership was a private sector initiative. The federal government was not officially part of the Partnership, but the Department of Homeland Security (and CIAO before that) acted as a liaison and provided administrative support for meetings. Sector Liaisons from lead agencies were considered ex officio members. The Partnership helped coordinate its members input to a number of the national strategies released to date and were to provide input into the National Plan called for in PDD-63. While initially working with this organizational structure, the Bush Administration promoted a new Critical Infrastructure Protection Partnership Model. Resembling the Financial Services Sector Coordinating Council approach, this newer Model expanded the sector liaison and sector coordinator model of PDD-63 into Government Coordinating Councils and Sector Coordinating Councils for each sector. The primary objective was to expand both owner/operator and government representation within all sectors. For example, the Water Sector Coordinating Council expanded to include two owner/operator representatives, along with one non-voting association staff member from each of the following participating organizations: the Association of Metropolitan Water Agencies, the American Water Works Association, the American Water Works Association Research Foundation, the National Association of Clean Water Agencies, the National Association of Water Companies, the National Rural Water Association, the Water Environment Federation, and the Water Environment Research Foundation. The Water Government Coordinating Council is chaired by the Environmental Protection Agency, the Lead Agency, but also includes the Department of Homeland Security, the Food and Drug Administration, the Department of Interior, and the Center for Disease Control. Government Coordinating Councils can also include state, local, and tribal government entities. The Sector Coordinating Councils are to establish their own organizational structures and leadership and act independently from the federal government. Also, under this model, the Partnership for Critical Infrastructure Security has been designated the Private Sector Cross-Sector Council. The Sector Coordinating Councils are to provide input into both the National Infrastructure Protection Plan and the individual Sector Specific Plans (see below). Many of the issues governing the progress made in identifying and working with the sector coordinators model of PDD-63 continue with the sector coordinating councils. In March 2006, the Department of Homeland Security used its authority under the Homeland Security Act ( P.L. 107-296 , Section 871) to form advisory committees that are exempt from the Federal Advisory Committee Act (P.L. 92-463) to establish the Critical Infrastructure Partnership Advisory Council (CIPAC). The Federal Advisory Committee Act requires advisory committees generally to meet in open session and make written materials available to the public. The purpose of waiving this act for the CIPAC is to facilitate more open discussion between the sector coordinating councils and the government coordinating councils (if not with the public). DHS acts as the Executive Secretariat. Members include owner/operators that are members of their respective sector coordinating councils or belong to an association that is a member of the coordinating council. Members also include federal, state, local, and tribal government entities that belong to their respective government coordinating councils. While the CIPAC is exempt from the Federal Advisory Committee Act, DHS stated in its public notice that it will make meeting dates and appropriate agendas available. There is a CIPAC webpage on the DHS website. National Critical Infrastructure Plan PDD-63 called for a National Infrastructure Assurance Plan that would be informed by sector-level plans and would include an assessment of minimal operating requirements, vulnerabilities, remediation plans, reconstitution plans, warning requirements, etc. The National Strategy for Homeland Security, and the Homeland Security Act each have called for the development of a comprehensive national infrastructure protection plan, as well, although without specifying deadlines and what that plan should include. HSPD-7 called for a comprehensive National Plan for Critical Infrastructure and Key Resources Protection by the end of 2004. According to HSPD-7, the National Plan should include (a) a strategy to identify, prioritize, and coordinate the protection of critical infrastructure and key resources, including how the Department will work with other stakeholders; (b) a summary of activities to be undertaken in order to carry out the strategy; (c) a summary of initiatives for sharing critical infrastructure information and threat warnings with other stakeholders; and (d) coordination with other federal emergency management activities. In January 2000, the Clinton Administration released Version 1.0 of a National Plan for Information Systems Protection . In keeping with the original focus of PDD-63, the Plan focused primarily on cyber-related efforts within the federal government. The Bush Administration, through the President's Critical Infrastructure Protection Board, released The National Strategy to Secure Cyberspace in February 2003, which could be considered Version 2.0 of the Clinton-released Plan. It addressed all stakeholders in the nation's information infrastructure, from home users to the international community, and included input from the private sector, the academic community, and state and local governments. Also in February 2003, the Office of Homeland Security released The National Strategy for the Physical Protection of Critical Infrastructures and Key Assets . This strategy took a broad perspective of the issues and needs associated with organizing the nation's efforts to protect its critical infrastructure; identifying roles and responsibilities, actions that need to be taken, and guiding principles. The Department of Homeland Security missed the December 2004 deadline for releasing the National Infrastructure Protection Plan called for in HSPD-7. It did publish an Interim National Infrastructure Protection Plan in February 2005. According to media reports, some in the private sector complained they were not adequately consulted. The Department subsequently released for public comment a "draft" National Infrastructure Protection Plan in November 2005. A final version of the National Infrastructure Protection Plan (NIPP) was approved June 30, 2006. The NIPP was revised in early 2009 to reflect the evolution and maturation of the process, including expanded integration of all-hazard and resiliency concepts. The changes did not appear to represent major shifts in policy or programs. The 2006 NIPP identified and integrated specific processes to guide an integrated national risk management effort. For example, it defined and standardized, across all sectors, the process for identifying and selecting assets for further analysis, identifying threats and conducting threat assessments, assessing vulnerabilities to those threats, analyzing consequences, determining risks, identifying potential risk mitigation activities, and prioritizing those activities based on cost-effectiveness. The 2006 NIPP also called for implementation plans for these risk reduction activities, with timelines and responsibilities identified, and tied to resources. Each lead agency was to work with its sector to generate Sector Specific Plans, utilizing the processes outlined in the NIPP. DHS was to use these same processes to integrate the sector specific plans into a national plan that identifies those assets and risk reduction plans that require national level attention because of the risk the incapacitation of those assets pose to the nation as a whole. According to the 2006 NIPP, Sector Specific Plans (SSPs) were due 180 days after release of the NIPP (i.e., the end of 2006). Apparently, all 17 sectors met that deadline. However, they went through a DHS review process before being released in May 2007. Of the 17 plans submitted, 7 were made available to the public, the rest were designated For Official Use Only. The Government Accountability Office (GAO) reviewed 9 of the SSPs and found that while all complied, more or less, with the NIPP process, some plans were more developed and comprehensive than others. As a result, GAO was unable to assess how far along each sector actually is in identifying assets, setting priorities, and protecting key assets. DHS viewed these SSPs as a first step in the process, and planned to review the sectors' annual progress reports, as required by HSPD-7. Following the 2009 update, some of the SSP's were also updated. In 2010, DHS and its sector partners decided that a four-year cycle was sufficient for updating the NIPP and SSPs. The NIPP was updated again in 2013, as called for in PPD-21. The 2013 NIPP retains much of what was contained in the two previous NIPPs, with some refinements such as more explicit integration of resiliency and the all-hazard approach. Retained are the basic partnership model and the risk management framework. While discussed to various degrees in the previous NIPPs, the 2013 NIPP highlights seven core tenets and twelve action items to guide the national effort over the next four years. See Table 3 . Information Sharing and Analysis Center (ISAC) PDD-63 envisaged a single ISAC to be the private sector counterpart to the FBI's National Infrastructure Protection Center (NIPC), collecting, analyzing, and sharing incident and response information among its members and facilitating information exchange between government and the private sector. The idea of a single ISAC evolved into each sector having its own center. ISACs differ somewhat from sector coordinating councils in that ISACs were to be 24/7/365 operations, where incidents experienced by owner/operators, as well as threat information from the government, could be reported, analyzed, and shared. Many were conceived originally as concentrating on cybersecurity issues, and some still function with that emphasis. However, others have incorporated physical security into their missions. ISACs were formed around two primary models. One model involved ISAC members legally incorporating and establishing either their own ISAC operations or contracting operations out to a security firm. The banking, information, water, oil and gas, railroad, and mass transit sectors followed this approach. The other model involved utilizing an existing industry or government-industry coordinating group and adding critical infrastructure protection to the mission of that group. The electric power (which uses North American Electricity Reliability Council [NERC]) and the telecommunications sector (which uses the National Coordinating Center [NCC]) followed this model. The emergency fire services sector incorporated ISAC functions into the existing operations of the U.S. Fire Administration, which has interacted with local fire departments for years. Different federal financial support models were developed for ISACs, too. In some cases, ISACs received startup funding from their Lead Agency (e.g., drinking water received funding from EPA). In some cases, that support continues, in some cases the support has not continued (e.g., DOE no longer supports the energy ISAC). Other ISACs have always been self-supporting. The individual ISACs have formed a group called the ISAC Council. Their formation and function experience some of the same variation as the coordinating councils, for some of the same reasons. While PDD-63 envisioned ISACs to be a primary conduit for exchanging critical infrastructure information between the federal government and specific sectors, the Department of Homeland Security has developed a number of other information sharing systems and mechanism. In addition to the Sector Coordinating Councils discussed above, US-CERT (the U.S. Computer Emergency Readiness Team, which took over many of the NIPC functions) publishes information on the latest computer-related vulnerabilities and threats and information on how to respond to a specific incident. U.S.-CERT also accepts incidents reports. It also manages the National Cyber Alert System, to which any organization or individual can subscribe. The Department also has developed a Homeland Security Information Network (HSIN). HSIN initially served as the primary communication network for communicating and analyzing threat information between government law enforcement agencies at the federal, state, and local levels. The HSIN now provides real-time connectivity between all 50 states, 5 territories, and 50 urban areas and the National Operations Center at DHS. The HSIN is being expanded to include each critical infrastructure sector (dubbed HSIN-CI) as part of the Critical Infrastructure Protection Partnership Model (i.e., through each sector and government coordinating council). Shortly after September 11, 2001, the Department established what is now called the Infrastructure Protection Executive Notification Service (ENS), which connects DHS directly with the Chief Executive Officers of major industrial firms. The ENS is used to alert partners to infrastructure incidents, to disseminate warning products, and to conduct teleconferences. The Department is also responsible for operating the Critical Infrastructure Warning Network (CWIN), which provides secure communications between DHS and other federal, state, and local agencies, the private sector, and international agencies. CWIN does not rely on the Public Switch Network or the internet. As mentioned earlier, the Homeland Security Act defined Information Sharing and Analysis Organizations (ISAOs) as formal or informal entities created or employed by public or private sector organizations for purposes of gathering and analyzing critical infrastructure information and communicating or disclosing that information "to help prevent, detect, mitigate, or recover from the effects of a … compromise … of a critical infrastructure…." While the ISACs that evolved out of PDD-63 are sector-oriented, the ISAOs, as defined by the Homeland Security Act, are not characterized as such. The Obama Administration's E.O. 13691 instructed the Secretary of Homeland Security to support the expansion of these organizations to help facilitate cybersecurity information sharing. Identifying Critical Assets, Assessing Vulnerability and Risk, and Prioritizing Protective Measures The Homeland Security Act of 2002 assigned to the Information Analysis and Infrastructure Protection Directorate the following activities: access, receive, analyze, and integrate information from a variety of sources in order to identify and assess the nature and scope of the terrorist threat; carry out comprehensive assessments of the vulnerabilities of key resources and critical infrastructure, of the United States including risk assessments to determine risks posed by particular types of attacks; integrate relevant information, analyses, and vulnerability assessments in order to identify priorities for protective and support measures. Furthermore, according to the National Strategy for the Physical Protection of Critical Infrastructures and Key Assets , the Department of Homeland Security: (a) "in collaboration with other key stakeholders, will develop a uniform methodology for identifying facilities, systems, and functions with national-level criticality to help establish protection priorities;" (b) "will build a comprehensive database to catalog these critical facilities, systems, and functions;" and (c) "will also maintain a comprehensive, up-to-date assessment of vulnerabilities and preparedness across critical sectors." Furthermore, these efforts "will help guide near-term protective actions and provide a basis for long-term leadership focus and informed resource investment." PDD-21 reiterated these responsibilities which are now carried out by the National Protection and Programs Directorate. DHS through various mechanisms, including through state homeland security officials and lead agency officials, seeks to identify infrastructure assets that fit the definition of critical infrastructure. The National Critical Infrastructure Prioritization Program and the Critical Foreign Dependencies Initiative, supported with analysis from the National Infrastructure Simulation and Analysis Center and the Office of Infrastructure Analysis, identify those assets (both within the country and abroad) most critical to the nation as a whole, based on the hazards/threats to which the asset is exposed, its vulnerabilities to those hazards/threats, and the potential consequences that might result, including impacts that might cascade to other infrastructure assets. The results of this analysis help populate a classified two-tiered data base of critical infrastructure assets. DHS reaches out to the owner/operators of these assets and offers assistance in conducting more detailed vulnerability/resilience assessments and makes recommendations on how to reduce those risks. In addition, DHS will conduct regional resiliency assessments. The Regional Resiliency Assessment Program (RRAP) expands the vulnerability assessments to consider clusters of critical infrastructures and key resources within a given geographic region. The results of the assessments are shared with participants. Participation of owners/operators, state and local governments, in these assessments is voluntary. Adopting the risk-reducing recommendations is also voluntary. However, DHS does make an effort to track those recommendations that have been adopted. In addition to its selection of high-priority sites and subsequent site visits, vulnerability/resiliency assessments, and risk-reduction recommendations, DHS, through the Federal Emergency Management Agency's (FEMA), also has been supporting infrastructure protection at the state and local level through its State and Local Grant Programs. Specific grant programs include the State Homeland Security Formula-based Grants, the Urban Area Security Initiative (UASI) Grants (both of which primarily support first responder needs, but include certain infrastructure protection expenditures), Port Security Grants, Rail and Transit Security Grants, Intercity Bus Security Grants, and Highway (Trucking) Security Grants. Before receiving funds, grants recipients must identify specific critical infrastructure assets, conduct threat and vulnerabilities assessments, and develop a plan for how they intend to use grant funds to reduce those vulnerabilities through eligible expenditures. Cybersecurity Framework As discussed above, President Obama's EO 13636 gave NIST the responsibility for developing a Cybersecurity Framework. The framework is to form the basis for a Voluntary Critical Infrastructure Cybersecurity Program that would encourage critical infrastructure owners and operators to improve the security of their information networks. Also, those agencies that have regulatory authority over certain critical infrastructure owner and operators are to consider using or modifying the Framework in any regulatory action. NIST released Version 1.0 of the Framework February 12, 2014. Issues and Discussion Over the last few years, Congressional interest in critical infrastructure protection has focused, principally, on reviewing the progress and effectiveness of DHS's efforts. However, two policy issues remain in debate: how to improve information sharing to the mutual benefit of the federal government and the owner/operators while maintaining privacy protections; and, the need for further regulations. Congress continues to debate these issues primarily in the context of cybersecurity. For a more detailed discussion of these efforts, see CRS Report R42114, Federal Laws Relating to Cybersecurity: Overview of Major Issues, Current Laws, and Proposed Legislation , by [author name scrubbed]. Information Sharing Information sharing in the context of homeland security encompasses a very complex web of proposed connections. There is information sharing between federal agencies, especially between intelligence agencies, and between intelligence, law enforcement, defense, and other civilian agencies. There is information sharing between federal agencies and their state and local counterparts. There is information sharing between federal, state, and local agencies and the private sector. There is information sharing within and between the private sectors. And there is information sharing between all of these entities and the public. A multitude of mechanisms have been established to facilitate all of this information sharing. While the multitude of mechanism may cause some concern about inefficiencies, a highly connected, in some cases redundant, network may not be a bad thing. A primary concern is if these mechanisms are being used and are effective. In the past, information flow between all of these stakeholders had been restrained, or non-existent, for at least three reasons: a natural bureaucratic reluctance to share information, difficulties associated with information and technical compatibility, and legal restraints designed to prevent the misuse of information for unintended purposes. However, in the wake of September 11, given the apparent lack of information sharing that was exposed in reviewing events leading up to that day, many of these restraints were reexamined and there appears to be a general consensus to change them. Some changes have resulted from the USA PATRIOT Act (including easing the restrictions on sharing of information between national law enforcement agencies and those agencies tasked with gaining intelligence on foreign agents). The legislation establishing the Department of Homeland Security also authorizes efforts to improve the ability of agencies within the federal government to share information between themselves and other entities at the state and local level. The Intelligence Reform and Terrorism Prevention Act ( P.L. 108-458 ) reorganized the entire intelligence community, in part to improve the level of communication and coordination between the various intelligence organizations. The legislation also required the President to establish an information sharing environment (ISE) for the sharing of terrorism information among all appropriate federal, state, local, and tribal entities, and the private sector. As mentioned above, recent executive orders and legislative efforts deal with sharing cybersecurity information and how to improve and incentivize sharing cybersecurity information between the federal government and the owner/operators in the private sector, while protecting the privacy of average citizens and providing some liability protection for the companies providing the information. It should be noted that the exchange of cybersecurity information may tend to introduce issues of privacy more so than the exchange of information related to physical security. This is because the exchange of cybersecurity information meant to assist in analyzing attack modes, software vulnerabilities, etc. may involve the content of electronic messages in which malware is embedded and which are held by, or transit through, third parties. For an analysis of legislative activity in the 114 th Congress related to sharing cybersecurity information see CRS Report R43996, Cybersecurity and Information Sharing: Comparison of H.R. 1560 and H.R. 1731 as Passed by the House , by [author name scrubbed], and CRS Report R43941, Cybersecurity and Information Sharing: Legal Challenges and Solutions , by [author name scrubbed]. While the federal government is trying to increase the amount of information shared among appropriate stakeholders, it is also trying to maintain a tight control (short of classification) on who gets to see what information. A variety of designations have been given to information the federal government wishes to control (critical infrastructure information [see below], homeland security information, terrorism information, sensitive security information). A catch-all term for these and other designations of controlled information is "sensitive but unclassified." Since much of what is considered to be critical infrastructure is owned and operated by the private sector, critical infrastructure protection relies to a large extent on the ability of the private sector and the federal government to share information. However, it is unclear how open the private sector and the government have been in sharing information. The private sector primarily wants information from the government on specific threats whereas the government may want to protect that information in order not to compromise sources or investigations. In fact, much of the threat assessment done by the federal government is considered classified. For its part, the government wants specific information from industry on vulnerabilities and incidents whereas companies may want to protect that information to prevent adverse publicity or to keep company practices confidential. The private sector, too, is concerned about whether providing this information might lead to future regulatory action or other liabilities. Successful information sharing will depend on the ability of each side to demonstrate it can hold in confidence the information exchanged. Sharing information between government and the private sector is made more complex by the question of how the information will be handled within the context of the Freedom of Information Act (FOIA). In particular, the private sector is reluctant to share the kind of information the government wants without it being exempt from public disclosure under the existing FOIA statute. The Homeland Security Act ( P.L. 107-296 , Sec. 214) exempts information defined as critical infrastructure information from FOIA (as well as providing other protections). Similar FOIA exemptions are offered in other legislation. For example, the Public Health Security and Bioterrorism Preparedness Act ( P.L. 107-188 , Sec. 401, see below) exempts certain security-related information from FOIA. Even with these protections in statute, it is uncertain how much information on assets, vulnerabilities, incidents, etc. is being shared with DHS, or how useful it is. The FOIA exemptions for critical infrastructure information (CII) and other types of sensitive but unclassified information is not without its critics. The non-government-organizations that actively oppose government secrecy are reluctant to expand the government's ability to hold more information as classified or sensitive. These critics, and others, feel that the protections offered to CII and other types of sensitive but unclassified information is too broad and believe that controls are stifling public debate and oversight, as well as impeding technological advances that could benefit both security and the economy. Regulation As a general statement of policy, owners and operators of critical infrastructure are to work with the federal government on a voluntary basis. Sharing information with the federal government about vulnerability assessments, risk assessments, and the taking of additional protective actions is meant to be voluntary. However, the degree to which some of the activities are mandated varies across sectors. In some cases, sectors are quite regulated. Nuclear power plants must meet very specific standards for assessing their vulnerabilities to very specific types of attacks and to take the necessary actions to address those vulnerabilities. The Nuclear Regulatory Commission enforces these regulations. The Maritime Transportation Security Act ( P.L. 107-295 ) requires facilities at ports, and certain vessels, to conduct vulnerability assessments and to develop and implement security plans (including naming a security officer who is responsible for developing and implementing these plans). The vulnerability assessments and security plans are reviewed by the Coast Guard. The Public Health Security and Bioterrorism Preparedness Act ( P.L. 107-188 ) requires community drinking water systems to conduct vulnerability assessments and to incorporate the results of those assessments into their emergency response plans. The vulnerability assessments must be submitted to the Environmental Protection Agency (EPA). The EPA must also receive certification that the emergency response plans have been appropriately modified to reflect the vulnerability assessments. This same Act also amended the Federal Food, Drug, and Cosmetic Act to require all facilities engaged in manufacturing, processing, packing, or holding food for consumption to register with the Department of Health and Human Services. In addition, the Food and Drug Act was amended to require regulations specifying the types of information these facilities need to keep on record for a specified amount of time to assist the Secretary in determining if a food product has been adulterated and represents a public health problem. The FY2006 DHS appropriation bill ( P.L. 109-295 , Sec. 550), authorized the Secretary of Homeland Security to issue interim final regulations requiring vulnerability assessments and security plans for certain chemical facilities, except those covered by the Maritime Transportation and Security Act, other relevant acts affecting drinking water authorities, or those operated by the Department of Energy, the Department of Defense, or the Nuclear Regulatory Commission. At the other end of the spectrum are sectors such as information and telecommunication, oil and gas, and commercial (i.e., malls and office buildings) where similar activities (i.e., vulnerability assessments, etc.) are encouraged but not mandated. As mentioned above, the security community, the Obama administration, industry, and Congress have debated the need to regulate more comprehensively the cybersecurity of critical infrastructure assets. However, it has proven difficult to pass additional regulations. Some in the security community suggest that strategic national needs are market externalities that require regulation to encourage more owner/operators (in particular, those who may not be at the forefront in cybersecurity capabilities or practices) to take the type of action that the security community considers necessary. Industry groups are concerned about the costs and benefits and the potential for duplicative reporting requirements associated with additional regulations. Appendix. Funding for Critical Infrastructure Federal Funding for Critical Infrastructure Protection It is difficult to determine how much funding the federal government devotes to the protection of critical infrastructure. The Homeland Security Act requires the President's Budget to include a budget analysis of homeland security activities across the federal government. This analysis appears in Chapter 3 of the Analytical Perspectives volume of the President's Budget. However, beginning with the FY2010 budget request, the Administration changed the way homeland security activities are accounted for, making the estimate of how much is spent on critical infrastructure less clear. During the Bush Administration, OMB defined six categories of homeland security activities that paralleled the mission areas defined in the National Strategy for Homeland Security. These were: intelligence and warning; border and transportation security; domestic counter-terrorism; critical infrastructure and key asset protection; defending against catastrophic events; and emergency preparedness and response. The "critical infrastructure and key resources protection" category included funding spent by agencies to protect their own critical infrastructure. It also included funds that agencies may have spent working with states, local governments, and private owners/operators to reduce their respective vulnerabilities. DHS activities included both of these, as well as activities associated with coordinating the national effort. Other mission areas included activities that could also be considered part of the effort to protect critical infrastructure. For instance, the intelligence and warning mission area includes threat analysis, risk analysis, and the sharing of that information with other stakeholders, including states, localities, and the private sector, each of which factor into critical infrastructure protection. Border and transportation security includes activities associated with protecting airports, sea ports, and other transportation modes. Therefore, previous estimates for "critical infrastructure and key resources protection" probably represented a minimum estimate of the total amount of federal funding spent on critical infrastructure protection. For FY2010, OMB reformulated the categories for tracking homeland security activity, rearranging them into three new categories: prevent and disrupt terrorist attacks; protect the American people, our critical infrastructure, and key resources; and respond to and recover from incidents. As a result, it is not possible to compare the FY2010 figures with those from prior budgets. The category "protect the American people, our critical infrastructure, and key resources" now includes more activities than were counted in the "critical infrastructure and key resources protection" category in FY2009 and before. These additional activities include ones that were previously counted in the "defending against catastrophic events" category. The latter represents a significant addition in funding, and includes activities meant to protect the general population from weapons of mass destruction and not necessarily focused on infrastructure protection. Since this report does not cover many of the activities associated with defending against or responding to catastrophic events, the OMB accounting is no longer representative of the activities covered in this report. FY2016 DHS Budget Request and Prior Year Appropriations for Infrastructure Protection and Information Security Program and Other Relevant DHS Budget Activities Just as it is difficult to account for all the federal activities associated with critical infrastructure protection in the federal government, it is also difficult to track the critical infrastructure protection activities within the Department of Homeland Security. Funding for activities related to critical infrastructure protection is found in numerous places within the Department, including the National Protection and Programs Directorate, the Transportation Security Administration, the Coast Guard, Secret Service, the Science and Technology Directorate, FEMA, and U.S. Customs and Border Protection. However, much of the funding for the organizations and activities discussed in the body of this report can be found in the Infrastructure Protection and Information Security (IPIS) Program. See Table A-1 , below. IPIS The Infrastructure Protection and Information Security Program (IPIS) supports the activities of the Office of Infrastructure Protection (OIP), the Office of Cybersecurity and Communications (OCS&C), and the Office of Cyber and Infrastructure Analysis (OCIA). OIP coordinates the national effort to reduce the risks associated with the loss or damage to the nation's critical infrastructure due to terrorist attack or natural events. This effort is a cooperative one between the federal government; state, local, and tribal governments; and the private sector, to identify critical elements of the nation's infrastructure, their vulnerabilities, the potential consequences of their loss or damage, and ways to mitigate those losses. The OCS&C performs a similar function, but specifically focuses on the nation's information and communications networks, including the communications systems and programs that ensure the President can communicate with selected federal agencies, state, local, and tribal governments, and certain private sector entities during times of national emergencies. OCIA provides analytic support to OIP and OCS&C. Funding is aligned with this organizational structure and provided in a set of program/project activities (PPAs) as noted in the table below. The Administration requested $1,312 million for the IPIS program for FY2016, a net increase of $123 million above the amount enacted for FY2015. For further discussion of the IPIS budgets, see CRS Report R43796, Department of Homeland Security: FY2015 Appropriations , coordinated by [author name scrubbed]. Other Infrastructure Related Programs In addition to the IPIS program within the National Protection and Programs Directorate, other areas in DHS support infrastructure protection. For example, the Federal Emergency Management Agency (FEMA) manages a number of grant programs, some of which allow for protecting or mitigating the risks to critical infrastructure assets. These grants include the State Homeland Security Grant Program, the Urban Area Security Initiative, Public Transportation Security Assistance and Railroad Security Assistance (which includes the Intercity Passenger Rail-AMTRAK Program and the Intercity Bus Security Grant Program), and the Port Security Grant Program. The State Homeland Security grants and the Urban Areas Security Initiative grants primarily support first responder capabilities, but funding can also be spent on critical infrastructure protection expenses (such as the purchase of cameras, sensors, etc.). The port, transit, and intercity bus and rail security grants focus primarily on protecting infrastructure assets and passengers. For the last three fiscal years, the Administration has been requesting that these grants be aggregated into a single National Preparedness Grant Program. Congress has chosen not to agree and continues to appropriate funding for them individually. Table A-2 shows the amount of funding appropriated for these programs in FY2015. The Administration requested $1,043 million for its proposed National Preparedness Grant Program for FY2016. The Transportation Security Administration (TSA) oversees the security of the nation's transportation sectors (as directed by the Aviation and Transportation Security Act, P.L. 107-71 ). Aviation security consumes a large fraction of the TSA budget, including support for: passenger and baggage screening; the purchase, installation, and operation of explosive detection equipment; and airport perimeter security; air marshals; crew vetting; etc. Congress appropriated $5,639 million for TSA aviation security activities in FY2015. TSA also receives funds for surface transportation security and security-related support activities. For FY2015 Congress provided $917 million. For FY2016 the Administration requested $7,092 million in direct appropriations (not counting offsetting receipts and capital fund accounts), which included $931 million for transportation security support. For more information on issues associated with transportation security, see CRS Report RL33512, Transportation Security: Issues for the 114 th Congress , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. The Coast Guard, too, receives funding for its role in protecting U.S. ports. However, funding for these functions cannot be found in a single line item. The Science and Technology Directorate budget supports research and development in a number of areas relevant to critical infrastructure protection. This includes research and development in cybersecurity, risk analysis, explosive detection, blast protection, modeling and simulation, safe cargo containers, and more. The Directorate also works with the Office of Infrastructure Protection to develop and maintain a National Critical Infrastructure Protection R&D Plan. It is difficult to determine how much funding is devoted overall to critical infrastructure protection-related research, given the budget structure of the programs. For additional information regarding DHS's Science and Technology program, including legislation calling for a critical infrastructure research and development plan, see CRS Report R43064, The DHS S&T Directorate: Selected Issues for Congress , by [author name scrubbed].

The nation's health, wealth, and security rely on the production and distribution of certain goods and services. The array of physical assets, functions, and systems across which these goods and services move are called critical infrastructures (e.g., electricity, the power plants that generate it, and the electric grid upon which it is distributed). The national security community has been concerned for some time about the vulnerability of critical infrastructure to both physical and cyberattack. In May 1998, President Clinton released Presidential Decision Directive No. 63. The Directive set up groups within the federal government to develop and implement plans that would protect government-operated infrastructures and called for a dialogue between government and the private sector to develop a National Infrastructure Assurance Plan that would protect all of the nation's critical infrastructures by the year 2003. While the Directive called for both physical and cyber protection from both man-made and natural events, implementation focused on cyber protection against man-made cyber events (i.e., computer hackers). Following the destruction and disruptions caused by the September 11 terrorist attacks in 2001, the nation directed increased attention toward physical protection of critical infrastructures. Over the intervening years, policy, programs, and legislation related to physical security of critical infrastructure have stabilized to a large extent. However, current legislative activity has refocused on cybersecurity of critical infrastructure. This report discusses in more detail the evolution of a national critical infrastructure policy and the institutional structures established to implement it. The report highlights two primary issues confronting Congress going forward, both in the context of cybersecurity: information sharing and regulation.

Background Veterans' employment outcomes in the civilian sector are an issue of ongoing congressional interest. A number of programs currently exist to assist veterans in obtaining or training for civilian employment. There is regular congressional debate about expanding or otherwise amending these programs to better serve veterans. This report discusses veterans' employment trends and programs. The first section presents data on veterans' employment outcomes, recent trends, and issues to consider when interpreting veterans' employment data. The subsequent sections present brief discussions of existing programs that provide employment-related services to veterans. These services are divided into (1) general programs that are broadly available to veterans, (2) programs that target veterans with service-connected disabilities, and (3) competitive grant programs that provide additional employment-related services to veterans but may not be available to all veterans. Notably, this report does not attempt to provide an exhaustive list of all programs that may assist veterans in the labor market, nor does it attempt to provide comprehensive information on the programs it discusses. Instead, it aims to provide a broad overview of the largest employment-related programs as well as other initiatives that may inform future policy. For detailed information on each program, readers are encouraged to refer to the CRS reports or other sources that are referenced in each section. Employment Trends Among Veterans2 Estimates of veterans' employment and unemployment are published by the Bureau of Labor Statistics (BLS). The estimates are derived from the Current Population Survey (CPS), a monthly household survey in which respondents may self-identify as veterans. Veterans' employment outcomes are frequently compared to the employment outcomes of nonveterans to establish veterans' relative performance in the labor market. This section will divide workers into three groups: (1) Gulf War Era II (GWII) veterans who served at any point after September 2001, (2) veterans from prior service periods, and (3) nonveterans. Since these populations vary in many characteristics other than veteran status, comparisons of employment outcomes between these groups should be conducted with caution. Recent employment outcomes for veterans and nonveterans are presented in Table 1 . As the table shows, the unemployment rate for GWII veterans is higher than the unemployment rates of both veterans from other service periods and nonveterans. GWII veterans, however, constitute less than one-quarter of the veteran labor force (about 2.5 million of just about 10.7 million). Several factors that are not observable in Table 1 should also be considered when interpreting the employment data in the table. The GWII veteran labor force is younger than the nonveteran labor force. About 55% of GWII veterans in the labor force are under the age of 35, compared to about 36% of nonveterans in the labor force. Since younger workers generally have higher unemployment rates than older workers, GWII veterans' relative youth may influence their unemployment rate. Veterans have a different educational distribution than nonveterans. Among those in the labor force, 1% of GWII veterans and 3% of other veterans have less than a high school education, compared to 8% of nonveterans. Conversely, the proportions of college graduates among the labor forces of GWII veterans (33%) and other veterans (31%) are slightly lower than nonveterans (38%). The effect of this different educational distribution on veterans' employment outcomes is unclear. Disability issues. Approximately 16% of all veterans and 29% of GWII veterans reported service-connected disabilities. Among veterans of all service periods, there was little difference between veterans with service-connected disabilities and veterans without service-connected disabilities in their respective labor force participation rates (45% v. 50%) and unemployment rates (5.9% for each group). Among GWII veterans, veterans with service-connected disabilities were less likely to participate in the labor force (75% v. 87%), though GWII veterans with service-connected disabilities had a lower unemployment rate than veterans from the same era who did not report service-connected disabilities (5.9% v. 6.6%). Comparable data on employment outcomes for nonveterans with disabilities were not available. Categorization of post-military transition period . Recent veterans who have not yet secured post-service employment are categorized as unemployed and entitled to unemployment insurance. The classification of this transition period may influence GWII veterans' unemployment rate. Figure 1 presents recent historical data on unemployment rates for GWII veterans, other veterans, and nonveterans. Several trends emerge over the six-year reference period: The unemployment rate for GWII veterans is typically above that of nonveterans, while the unemployment rate for other veterans is below that of nonveterans . The average unemployment rate for the period in the graph was 9.8% among GWII veterans, 6.9% among veterans from other periods of service, and 8.0% among nonveterans. As noted previously, differences in the characteristics of each population may influence their respective unemployment rates. The unemployment rate for GWII veterans is more dynamic than the unemployment rate for other populations . While using a 12-month moving average somewhat controls for large variations in monthly estimates, changes in GWII veterans' unemployment rate is still more dynamic than the changes for other populations. This dynamism is likely due to small sample sizes of GWII veterans in the surveys rather than abrupt changes in this population's unemployment rate. The unemployment rate for each group trends similarly over the reference period. While the dynamic nature of the GWII veterans' unemployment rate somewhat masks this trend, each group's unemployment rate followed a generally upward trend early in the period covered by the graph and then declined during the later period. The similarity of these trends underscores the influence of the broader labor market on veterans' employment outcomes. Employment-Related Programs for Veterans This report highlights the primary employment and training services programs that are authorized to improve veterans' employment outcomes. It does not, however, attempt to present a comprehensive list of employment-related programs for veterans. This report emphasizes programs available to veterans of active duty and generally omits discussion of programs that target former members of the military reserve. It also omits discussions of programs or program components that provide benefits to eligible family members of veterans. The final section of this report describes the Work Opportunity Tax Credit, a credit that is currently lapsed but may be reauthorized. The veteran-targeted programs in this report are presented in Table 2 . Each is discussed in greater detail in the subsequent text. These programs are grouped into three categories: Programs that are broadly available to veterans . While they may have some eligibility limitations, these programs are generally available to veterans in all geographic locations, with or without service-connected disabilities; Programs that target veterans with service-connected disabilities . These programs include the Vocational Rehabilitation and Employment program as well specialized versions of some generally available veterans programs; and Competitive grant programs. These programs fund employment-related services for veterans but may be limited in scope or geographic availability. General Veterans' Employment and Training Programs The programs discussed in this section are available to most veterans of active duty. In the interest of simplicity, this report generally does not present detailed eligibility criteria for each program and benefit, though it does attempt to note eligibility requirements that categorically exclude large numbers of veterans (such as the eligibility window following discharge for GI Bill benefits). This report may omit requirements that would exclude relatively few veterans, such as most programs' exclusion of veterans who were dishonorably discharged. The specific eligibility criteria for each program will usually be available in the external sources that are referenced in the report section that discusses the program. Transition Programs for Separating Members of the Armed Forces13 In 1990, as the post–Cold War drawdown was beginning, Congress authorized a set of benefits and services to assist military personnel in the transition to civilian life. Some of these authorities continued in effect after the drawdown was complete and formed the basis of the Transition Assistance Program (TAP). TAP underwent substantial modification in 2012 and 2013, with the introduction of a revamped curriculum known as Transition GPS. TAP and the new Transition GPS curriculum are both described below. Transition Assistance Program (TAP) TAP provides pre-separation services and counseling on a number of transition-related topics to separating members of the Armed Forces. In addition to guidance on broader transition issues such as financial management and health care, TAP includes information on the following employment issues as they relate to veterans: the correlation between military skills and civilian occupations; professional certifications, including licensing and apprenticeships; public and community service opportunities, including federal employment opportunities and veterans' hiring preferences (described in a subsequent section of this report); self-employment and entrepreneurship, including veterans' small business and entrepreneurship programs; and education and training assistance, including use of veterans' educational benefits and other job training opportunities. TAP services are provided at many military installations, often found in the military installation's career or family support offices. The Department of Defense (DOD), Department of Labor (DOL), Department of Veterans Affairs (VA), and the Department of Homeland Security (DHS) are each involved in conducting TAP. The curriculum for TAP underwent major revision in 2012. The redesigned curriculum is called Transition GPS, discussed below. Transition GPS Transition GPS is the name of the redesigned TAP curriculum brought about by the work of the executive branch's Veterans' Employment Initiative Task Force and intended to conform with the Veterans Opportunity to Work (VOW) to Hire Heroes Act of 2011. Among other changes, the VOW Act made participation in TAP mandatory for nearly all separating military personnel and required that all TAP participants receive "an individualized assessment of the various positions of civilian employment in the private sector for which such member may be qualified" as a result of their military training. These statutory changes took effect on November 21, 2012, one year after the enactment of the VOW Act. DOD introduced the Transition GPS pilot program at seven military bases in the summer of 2012, and it is now conducted at major military installations across the country and overseas. It includes a five-day core program that incorporates the elements of TAP described above into a redesigned curriculum that is intended to ensure that servicemembers are "career ready" when they leave military service. The core curriculum includes the following modules: pre-separation counseling (4 hours), VA benefits (6 hours), employment workshop (24 hours), financial planning (4 hours), resilient transition (1 hour), and a crosswalk between military and civilian skills that includes a "skills gap" analysis (2 hours). Servicemembers are also required to develop an individual transition plan and participate in a "capstone event." The capstone event verifies that the servicemember meets career readiness standards and has a viable individual transition plan. Some of the key differences between the "legacy" TAP curriculum and the new Transition GPS curriculum include the following: The five-day core curriculum is mandatory, not optional, for nearly all separating servicemembers. Class sizes are smaller than under the previous curriculum to provide individual attention. The required individual transition plan is standardized and tied to the servicemember's personal goals. Successful completion is based on achieving "career readiness standards," not simply attendance. The program concludes with a capstone event that verifies that each servicemember meets career readiness standards and has a viable individual transition plan. In addition to the core curriculum, servicemembers are able to participate in optional tracks for higher education, entrepreneurship, and technical training, each of which last two days. Servicemembers can participate in all three optional tracks if they so desire. The "core" Transition GPS curriculum was implemented in November 2012. Implementation of the optional tracks began in 2013. Credentialing of Servicemembers and Transfer of Military Skills There are ongoing efforts to align military training and experience with civilian credentials and licenses. These efforts can enable members of the Armed Forces to obtain civilian credentials while enlisted or apply military experience to civilian licensing requirements after discharge. The armed forces have several initiatives to increase enlisted personnel's access to civilian credentials. Section 548 of P.L. 112-81 , the FY2012 National Defense Authorization Act, (as amended by Section 543 of P.L. 112-239 , FY2013 NDAA), required the Secretary of Defense: [T]o carry out a pilot program to assess the feasibility and advisability of permitting enlisted members of the Armed Forces to obtain civilian credentialing or licensing for skills required for military occupational specialties (MOS) or qualification for duty specialty codes. DOD selected five civilian occupational areas for inclusion in the pilot program: aircraft mechanics, automotive mechanics, health care support, logistics and supply, and truck driving. These occupational specialties were selected, in part, because of the size of the labor forces in each group, as well as the projected outlook for both medium to high wages and a projected need. The interim and final reports on the Pilot program were issued in 2013. The Armed Forces are building on the pilot program to develop credentialing opportunities for other military occupational specialties. Credentials aligned with military service can include (1) non-DOD government licenses, such as a commercial drivers' license (CDL) issued by a state government or (2) certification from an independent, industry-recognized agency, such as the American Welding Society. Recently, the Army issued Army Directive 2015-12, which provides guidance on implementing a credentialing program and a Career Skills Program. There have also been efforts to translate military training and skills to civilian credentials after a member separates from the Armed Forces. Most occupational licenses are issued at the state level. State programs that consider military training and experience in the context of licensing requirements are at various stages of development. In the case of licenses that are issued by the federal government, the Veterans Skills to Jobs Act ( P.L. 112-147 ) specifies that federal licensing authorities shall consider and may accept "any relevant training received by [a veteran] while serving as a member of the armed forces, for the purpose of satisfying the requirements for such license." GI Bill Educational Assistance Programs26 The VA administers several educational assistance programs for veterans (commonly known as GI Bills) that are intended to avert unemployment, adjust veterans to civilian life, reward military service, encourage recruitment and retention in the military, and make education affordable. VA educational assistance payments are available for approved programs of education as well as living expenses while enrolled. While there are several GI Bill programs, the vast majority of veterans who utilize education benefits do so under the Post-9/11 GI Bill or the Montgomery GI Bill-Active Duty (MGIB-AD). Both programs provide benefits for 36 months of full-time schooling or the equivalent in part-time attendance. The Post-9/11 GI Bill provides separate payments for tuition and fees, supplies, housing, and other costs. The maximum benefit for tuition and fees at a public institution of higher learning is equal to in-state tuition and fees for that program of education. As of August 1, 2014, the maximum benefit for tuition and fees at a private or foreign institution is $20,235 per academic year. The monthly housing allowances under the Post-9/11 GI Bill varies by geographical location and range from about $800 to about $3,700. MGIB-AD provides a single monthly payment to the veteran to cover both education and living expenses. As of October 1, 2014, the maximum benefit under MGIB-AD is $1,717 per month. Post 9/11 GI Bill benefits are typically available within 15 years of discharge or release from active duty. MGIB-AD benefits (and most other GI Bill benefits) are generally available within 10 years. Notably, GI Bill benefits are not considered when calculating a student's eligibility for need-based Pell Grants, meaning that a veteran who meets Pell Grant criteria may receive both Pell Grants and GI Bill benefits. As an additional benefit, educational assistance received under a VA education program (including subsistence or housing allowances for enrolled veterans) is not subject to federal income tax. In its FY2016 budget, the VA estimated that total FY2015 benefits for the Post-9/11 GI Bill and MGIB-AD would be $13.0 billion. Services Through the American Job Center Network Most federal employment programs are administered through a network of approximately 2,500 local American Job Centers (AJCs, also known as One-Stop Career Centers). Most AJC partner programs are administered at the federal level by the DOL. Federal law requires that veterans receive priority of service in all DOL programs for which they are qualified. In practice, this means that veterans have ready access to most AJC-administered programs, including job search assistance, case management, and subsidized training. In 2011, DOL further operationalized veterans' priority of service in the AJC system by launching a Gold Card initiative directed at post-9/11 veterans. In addition to priority in all training programs, the initiative also provides veterans with specific intensive employment services such as job readiness assessments, career guidance, and referral to training through federal or state programs. Qualified veterans may also receive six months of follow-up services from a case manager. Jobs for Veterans State Grants The Jobs for Veterans State Grants (JVSG) program provides formula grants to states to fund two types of personnel positions that work in conjunction within the AJC system to assist veterans. 1. Local Veterans Employment Representatives (LVER) conduct outreach to employers on behalf of veterans and facilitate employment, training, and placement services through the state workforce system. LVER staff may provide referral to other benefits and services (such as the GI Bill) and may assist other AJC personnel in developing strategies to assist veterans. 2. Disabled Veterans Outreach Program (DVOP) personnel provide intensive employment services (such as case management) to veterans with barriers to employment. Disabled veterans receive the highest priority in services, though other veteran populations with significant barriers to employment (such as homelessness or a lack of high school diploma or equivalent) may also be served by DVOP personnel. In FY2015, $175 million was appropriated for JVSG activities. Online Veterans Employment Center In April 2014, President Obama announced the launch of a Veterans Employment Center on the VA website. The site provides online tools that can assist veterans in searching for local jobs, building a resume, and identifying civilian jobs that correspond with their military skills and specialties. The site also provides referrals to many of the federal services and benefits described in this report. Federal Employment38 There are several programs and policies that provide a preference for veterans in obtaining employment in the federal government. These policies and programs can either give veterans an advantage in the competitive hiring process or, in some cases, allow a veteran to be appointed without going through the competitive process. Preference in Competitive Hiring In the federal hiring process for competitive positions, veterans may receive preference in the assessment of their applications. The specifics of the preference depends on the process through which the application is assessed and the specifics of the veteran applicant's service. In instances where applications are assessed a numerical score based on the applicant's qualifications, veterans may receive points in addition to their assessed score. A five point-preference is available to veterans who served during a war or in specified campaigns. A 10-point preference is available to veterans who either (1) have a service-connected disability or (2) received a Purple Heart. The 10-point preference is available to these veterans regardless of their period or location of service. Typically, the maximum numerical score of an application is 100 points, though veterans' preference can raise a veteran applicant's score over 100. In other instances, the application assessment process may forgo the points system and instead evaluate applicants using a category rating system in which applicants are assigned to categories based on their qualifications (e.g., not qualified, qualified, or highly qualified). In these instances, veterans' preference is operationalized by listing preference-eligible veterans ahead of all non-preference-eligible in the same qualification category. In this process, veterans with service-connected disabilities are listed ahead of veterans without service-connected disabilities. Special Hiring Authorities There are several hiring programs that allow qualified veterans to be appointed to what would otherwise be competitive federal positions without having to compete with the general public. Typically, these programs allow an agency to hire a veteran in a shorter period of time than it would take to fill the position through the competitive service process. To be eligible for these special hiring authorities, a veteran must have been separated from the Armed Forces for less than three years, have served in a qualified combat mission, or be disabled. Other Initiatives In 2009, President Barack Obama issued Executive Order 13518, which aimed to "enhance recruitment of and promote employment opportunities for veterans within the executive branch." The program established a Council on Veterans Employment that included 24 agencies and required each agency to develop an agency-specific plan and designate an office or officer for promoting employment opportunities for veterans within the agency. The order also established a website that offered veteran-specific information on obtaining federal employment as well as contact information for the individual or office in each agency responsible for promoting veterans' employment within the agency. Small Business Administration Programs44 The Small Business Administration (SBA) has a variety of programs to assist veterans with developing and managing a small business, financing a small business, and acquiring federal contracts. Congressional interest in these programs has increased in recent years primarily due to reports by veteran organizations that veterans were experiencing difficulty accessing the SBA's programs, as well as general interest in facilitating the transition of veterans from military to civilian life. In an effort to assist veteran entrepreneurs, the SBA has either provided or supported management and technical assistance training for veteran-owned small businesses since its formation as an agency. In FY2014, the SBA provided management and technical assistance training services to more than 100,000 veterans through its various management and technical assistance training partners (e.g., Small Business Development Centers, Women's Business Centers, SCORE (Service Corps of Retired Executives), and Veterans Business Outreach Centers (VBOCs)). In addition, the SBA's Office of Veterans Business Development administers several programs to assist veteran-owned businesses, including the Boots to Business program, which is an elective track within the Department of Defense's Transition Goals, Plans, Success (Transition GPS) program. Also, in an effort to enhance small business owners' access to capital, since October 1, 2013, the SBA has waived the up-front, one-time loan guaranty fee on all SBA 7(a) loans of $150,000 or less (benefitting both veteran and non-veteran small business owners). Since January 1, 2014, the SBA has also waived the upfront, one-time loan guaranty fee for all veteran loans under the SBAExpress program (called the Veterans Advantage Program). The Obama Administration announced that the SBAExpress veteran fee waiver is part "of SBA's broader efforts to make sure that veterans have the tools they need to start and grow a business." The SBAExpress program is designed to increase the availability of credit to small businesses by permitting lenders to use their existing documentation and procedures in return for receiving a reduced SBA guaranty on loans. It provides a 50% loan guaranty on loan amounts up to $350,000, which is less than the guaranty of up to 85% of loans of $150,000 or less and up to 75% of loans of $150,001 to the statutory limit of $5 million provided by the SBA's main 7(a) loan guaranty program. Since October 1, 2014, the SBA has also provided veterans a 50% discount of the upfront, one-time loan guaranty fee for all non-SBAExpress 7(a) loans above $150,000. The Obama Administration has indicated that it plans to extend all three of these fee waivers through FY2016. The SBA also assists veterans through its Military Reservist Economic Injury Disaster Loan Program (MREIDL), which supplements its general, direct-loan disaster lending program. MREIDL provides disaster assistance in the form of direct loans of up to $2 million to help small business owners who are not able to obtain credit elsewhere to meet ordinary and necessary operating expenses that they could have met but are not able to meet because an essential employee has been called up to active duty in his or her role as a military reservist or member of the National Guard due to a period of military conflict. The SBA also assists small businesses, including service-disabled veteran-owned small businesses, in acquiring federal contracts through its management and oversight of the federal government's procurement goals for small businesses. Under the goaling program, at least 3% of the total value of all small-business-eligible prime contract awards and subcontract awards are supposed to be awarded to small businesses owned and controlled by service-disabled-veteran-owned small businesses. Programs for Veterans with Service-Connected Disabilities Additional employment services exist for veterans with service-connected disabilities. The Vocational Rehabilitation and Employment (VR&E) program provides comprehensive services for veterans with a service-connected disability and does not have an analogue among general veterans' programs. Other programs for disabled veterans are specialized variations of general programs that were discussed previously. Vocational Rehabilitation and Employment (VR&E)56 VR&E provides job training and employment services to veterans who have service-connected disabilities. To be entitled to VR&E services, a veteran with a service-connected disability must also demonstrate an employment handicap that hinders the veteran's ability to prepare for, obtain, or retain employment consistent with his or her abilities, aptitudes, and interests. VR&E offers several tracks of services, depending on the veteran's employment objective and needs. Veterans who already have the necessary job skills or seek to return to previous employment can receive short-term services such as resume assistance and job accommodations. Veterans who need job skills are eligible for education and training benefits as well as employment services once they complete training. The VA has reported that long-term services, including education and training, is the most-utilized VR&E track. In FY2015, mandatory VR&E benefits are estimated to be approximately $1.2 billion. FY2015 discretionary expenditures in support of the VR&E program (primarily counseling and support services) are estimated to be $313 million. Disabled Veterans Outreach Program (DVOP) Employment Services59 DVOP provides formula grants to states to hire staff to provide a range of intensive services to veterans with service-connected disabilities as well as other veterans with multiple barriers to employment. Services include case management, referral to other service providers (e.g., the VA's VR&E program discussed in the prior subsection), employment counseling, and job search assistance. DVOP is part of DOL's JVSG program, which also funds the previously discussed LVER program. In FY2015, JVSG's budget authority was approximately $175 million. JVSG is funded out of the Employment Security Administration Account in the Unemployment Trust Fund. Components of General Programs That Target Disabled Veterans Several of the broader veterans' programs described previously in this report have specialized components for disabled veterans. Additional detail can be found in the sources referenced in each program's primary section of this report. Transition Assistance Program . TAP and the Transition GPS curriculum provide specialized services for exiting servicemembers with service-connected disabilities. Federal Employment. As discussed in the section above, veterans with service-connected disabilities are eligible for the highest preference in competitively hired federal positions. Disabled veterans are also eligible for special hiring authorities, including noncompetitive appointments for qualified veterans with a disability rating of 30% or more from the VA. Work Opportunity Tax Credit (currently lapsed; see WOTC section for full details). Some WOTCs were available for businesses that hired veterans who were eligible for disability compensation from the VA. The largest available tax credits were for hiring a veteran who was eligible for disability compensation and who was unemployed for at least six of the 12 months prior to hire. Veteran-Targeted Competitive Grant Programs Additional programs provide competitive grants for entities that provide services to veterans. Since the programs are competitive grants, they may be available only in certain areas, may have limited capacity, or may serve only a targeted veteran population. Homeless Veterans Reintegration Program (HVRP)63 HVRP is a competitive grant program administered by DOL. The HVRP program has two goals: (1) assisting veterans in achieving meaningful employment, and (2) assisting in the development of a service delivery system to address the problems facing homeless veterans. HVRP grantee organizations provide services that include outreach, assistance in drafting a resume and preparing for interviews, job search assistance, subsidized trial employment, job training, and follow-up assistance after placement. Recipients of HVRP grants also provide supportive services not directly related to employment such as transportation, provision of assistance in finding housing, and referral for mental health treatment or substance abuse counseling. FY2015 appropriations for HVRP were $38.1 million. TRIO Veterans Upward Bound (VUB)64 The TRIO Veterans Upward Bound (VUB) program provides services to assist veterans in preparing for programs of postsecondary education. VUB projects provide academic instruction, tutoring, assistance in completing secondary school, assistance with college admissions and applications, and assistance applying for financial assistance. It is administered by the Department of Education (ED). To be eligible for participation, veterans must be in need of academic support to pursue education beyond secondary school successfully. At least two-thirds of program participants must be low-income, potential first-generation college students. The remaining one-third of participants must be either low-income, potential first-generation college students, or otherwise be at risk of academic failure. The program defines a veteran who is at risk for academic failure as an individual who has been out of high school or dropped out of a program of postsecondary education for five or more years, has scored on standardized tests below the level that demonstrates a likelihood of success in a program of postsecondary education, or meets the definition of an individual with a disability. Final data on the portion of FY2015 TRIO funding that was allocated to VUB projects are not available. In FY2014, ED allocated $13.7 million of the $838 million in TRIO appropriation to VUB projects. Programs that are Currently Lapsed Work Opportunity Tax Credit (WOTC) for Employers66 The WOTC provided a tax credit for employers who hired qualified veterans. In cases where the eligible hire worked at least 400 hours, the credit was equal to 40% of the wages paid to the eligible veteran, up to a certain level. Authorization for WOTC expired after December 31, 2014. In the past, WOTC has expired and then been retroactively reauthorized with other tax provisions ("tax extenders"). DOL issued guidance on January 7, 2015, noting that state agencies may continue to accept new WOTC applications, but that they must postpone final processing of the applications. These applications may be processed if Congress enacts the WOTC for 2015. Under the most recent authorization (which expired after December 31, 2014), the criteria and credit amounts for veterans were: a maximum credit of $2,400 for hiring a veteran who was receiving Supplemental Nutrition Assistance Program (SNAP; formerly food stamps) benefits for at least three months during the year prior to hire; a maximum credit of $2,400 for hiring a veteran who had been unemployed for a total of at least four weeks but less than six months in the year prior to hire; a maximum credit of $4,800 for hiring a veteran who was eligible for disability compensation from the VA and was within one year of discharge or release from military duty; a maximum credit of $5,600 for hiring a veteran who had been unemployed for a total of at least six months in the year prior to hire; and a maximum credit of $9,600 for hiring a veteran who was eligible for disability compensation from the VA and who had been unemployed for a total of six months in the year prior to hire.

Veterans' employment outcomes in the civilian labor market are an issue of ongoing congressional interest. This report offers introductory data on veterans' performance in the civilian labor market as well as a discussion of veteran-targeted federal programs that provide employment-related benefits and services. According to federal data, the unemployment rate for veterans who served after September 2001 is higher than the unemployment rate for nonveterans. Conversely, the unemployment rate for veterans from prior service periods (a much larger population than post-9/11 veterans) is lower than the nonveteran unemployment rate. The varied demographic factors of each of these populations likely contribute to variations in employment outcomes, though their degree of influence is unclear. There are a number of federal programs to assist veterans in developing job skills and securing civilian employment. Broadly speaking, these programs can be divided into (1) general veterans' programs, (2) programs that target veterans with service-connected disabilities, and (3) competitive grant programs that offer supplemental services but may not be available to veterans in all areas. General veterans' programs begin with transition programs that are provided to exiting members of the Armed Forces. These transition programs cover a variety of topics, including information on identifying occupations that align with military skills and specializations, conducting job searches, applying for employment, and navigating veterans' benefits. One of the most common veterans' benefits is educational funding through the GI Bill. The GI Bill programs typically provide funding for tuition, fees, books, housing, and other educational costs while the veteran is enrolled. Veterans who are seeking employment without obtaining additional education receive priority of service at local federally funded American Job Center (AJC) locations and may receive assistance from dedicated state personnel. Veterans who wish to pursue employment in the federal government are assisted by several policies that give them preference in the competitive hiring process or, in some cases, allow them to forgo the competitive process and be appointed directly. Veterans who wish to start a small business may receive loans and technical assistance from the Small Business Administration (SBA). Veterans with service-connected disabilities who have obstacles to employment may be assisted by the Vocational Rehabilitation and Employment (VR&E) program. This program provides assistance in identifying an occupation that is consistent with the veteran's skills and interests and providing services (including educational services) to achieve that outcome. Disabled veterans and other veterans with substantial barriers to employment can receive assistance from the Disabled Veterans Outreach Program (DVOP), which funds personnel positions that provide assistance in local labor markets as part of the AJC network. In addition to these nationwide programs, the federal government also funds competitive grant programs for state, local, and private entities to provide employment-oriented services to veterans. These include the Homeless Veterans Reintegration Program, which provides employment services in conjunction with other supportive services.

Introduction The Constitution establishes that the President "shall nominate, and by and with the advice and consent of the Senate, shall appoint ambassadors, other public ministers and counsels, judges of the Supreme Court, and all other officers of the United States, whose appointments are not herein otherwise provided for and which shall be established by law." As a corollary to this general maxim, the Constitution provides further that "[t]he President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session." The Recess Appointments Clause was adopted by the Constitutional Convention without dissent and without debate regarding the intent and scope of its terms. In Federalist No. 67, Alexander Hamilton refers to the recess appointment power as "nothing more than a supplement...for the purpose of establishing an auxiliary method of appointment, in cases to which the general method was inadequate." It is generally accepted that the clause was designed to enable the President to ensure the unfettered operation of the government during periods when the Senate was not in session and therefore unable to perform its advice and consent function. In addition to fostering administrative continuity, Presidents have exercised authority under the Recess Appointments Clause for political purposes, appointing officials who might have difficulty securing Senate conformation. While the President's exercise of the recess appointment power in any context may give rise to controversy, the use of the Recess Appointments Clause to appoint judges to temporary positions on Article III courts has emerged as a particularly contentious political issue. Additionally, while the text of the Recess Appointments Clause does not differentiate between the appointment of judges and non-judges, the unique status of Article III judges gives rise to an inherent constitutional tension between the President's recess appointment authority and traditional notions of judicial independence, and has been the subject of recent litigation. Textual Issues Two fundamental textual issues inhere to any consideration of the Recess Appointments Clause. The first point of inquiry in this regard is what constitutes a vacancy "that may happen during the Recess of the Senate." If the term "happen" is interpreted as referring only to vacancies that occur during a recess, it necessarily follows that the President would lack authority to make a recess appointment to a vacancy that existed prior to the recess. Conversely, if "happen" is construed more broadly to encompass vacancies that exist during a recess, the President would be empowered to make a recess appointment to any vacant position, irrespective of whether the position became vacant prior to or during "the Recess of the Senate." While this issue was a source of controversy in the late eighteenth and early nineteenth centuries, a long line of Attorney General opinions and judicial decisions have adopted the broader interpretation of the clause. Attorney General William Wirt, serving under President Monroe, concluded that the phrase encompassed all vacancies that happen to exist during "the Recess," declaring that "[t]his seems to me the only construction of the Constitution which is compatible with its spirit, reason, and purpose." This interpretation was first adopted by a federal court in the 1880 decision In re Farrow , and has adhered in judicial opinions on the issue in the modern era. Similar interpretive difficulties adhere to the meaning of the phrase "the Recess of the Senate." An opinion issued by Attorney General Knox in 1901 concluded that the phrase applied only to adjournments between sessions of Congress (commonly referred to as "intersession" recesses). In reaching this determination, Knox placed significant weight on the use of the definite article "the" in the Recess Appointments Clause, emphasizing that "[i]t will be observed that the phrase is ' the recess.'" The opinion further concluded that if recess appointments were allowed during periods other than an intersession recess, nothing would prevent an appointment from being made "during any adjournment, as from Thursday or Friday until the following Monday." This position was abandoned in 1921 in an opinion issued by Attorney General Daugherty that declared that an appointment made during a 29 day recess was constitutional. The Daugherty opinion focused on the practical aspects of the recess appointment dynamic, stating that "[i]f the President's power of appointment is to be defeated because the Senate takes an adjournment to a specified date, the painful and inevitable result will be measurably to prevent the exercise of governmental functions." Further emphasizing this functional approach, the Daugherty opinion rejected the notion that this broader interpretation would authorize intrasession appointments during brief adjournments, declaring that "an adjournment for 5 or even 10 days [cannot] be said to constitute the recess intended by the Constitution. The opinion concluded by emphasizing that while "[e]very presumption is to be indulged in favor of the validity of whatever action [the President] may take..., there is a point, necessarily hard of definition, where palpable abuse of discretion might subject his appointment to review." Subsequent Attorney General and Department of Justice Office of Legal Counsel opinions have continued to support the constitutionality of intrasession recess appointments, with more recent pronouncements on the issue asserting that the clause encompasses all recesses in excess of three days. Congressional Action Since the early history of the Republic, Congress has established a statutory framework designed to protect the Senate's constitutional role in the confirmation process. For instance, the Federal Vacancies Reform Act of 1998 (which governs the filling of vacancies falling outside the scope of the Recess Appointments Clause) establishes which individuals may be designated by the President to temporarily perform the duties and functions of a vacant office and the length of time a designee may serve. The original version of the Vacancies Act was enacted in 1868, and the legislative roots of such provisions can be traced back to a 1795 enactment limiting the time a temporary assignee could hold office to six months. Regarding recess appointments specifically, 5 U.S.C. §5503, a successor to a provision originally enacted in 1863, establishes that if a vacancy existed while the Senate was in session a person subsequently appointed to that position during a recess may not receive his salary until he is confirmed by the Senate. Exceptions to this payment prohibition are provided (1) for appointees to vacancies that arise within 30 days of the recess; (2) for appointees to an office for which a nomination was pending at the time of the recess, so long as the nomination is not of an individual appointed during the preceding recess of the Senate; and (3) for appointees selected to an office where a nomination had been made but rejected by the Senate within 30 days of the recess, and the appointee was not the individual so rejected. Section 5503(b) provides that a nomination to fill a vacancy falling within any of the aforementioned exceptions must be submitted to the Senate not later than 40 days after the beginning of the next session of the Senate. Additionally, a provision has been included in all Treasury and General Governmental Appropriations Acts for over 60 years that prohibits the payment of the salary of any recess appointee whose nomination has been voted down by the Senate. The provisions governing recess appointments are designed to protect the Senate's advice and consent function by confining the recess appointment power of the President. By targeting the compensation of appointees as opposed to the President's recess appointment power itself, these limitations act as indirect controls on recess appointments, and their constitutionality has not been adjudicated. The court in Staebler v. Carter noted in dicta that "if any and all restrictions on the President's recess appointment power, however limited, are prohibited by the Constitution, 5 U.S.C. §5503...might also be invalid." Additional constitutional concerns might arise from the application of these provisions to judicial recess appointees. Article III Issues Presidents have made over 300 recess appointments to the federal judiciary, including twelve to the Supreme Court, since the first Administration of George Washington. The practice of making such appointments lessened considerably after the Eisenhower Administration, with only four judicial recess appointments having occurred since 1960. Despite the controversy attendant to judicial recess appointments, the President's authority to make such appointments has been challenged only in a handful of cases, and the Supreme Court has consistently declined the opportunity to hear the issue. United States v. Allocco The first legal challenge in this context arose from President Eisenhower's intersession recess appointment on August 17, 1955, of John M. Cashin as a U.S. district judge for the Southern District of New York. During his service as a recess appointee, Judge Cashin presided over the trial and conviction by jury of Dominic Allocco. On appeal, Alloco argued that his conviction and sentence should be set aside, on the basis that Judge Cashin was not constitutionally empowered to preside over the trial. In particular, Allocco argued that (a) the President lacks authority to appoint "temporary" judges; (b) if such appointments are permissible, "temporary" judges may not preside over criminal trials; and (c) the President lacks authority to fill vacancies in the judiciary that arise when the Senate is in session. Addressing these arguments in United States v. Allocco , the Court of Appeals for the Second Circuit began its analysis by stating that "[t]he recess power given to the President in Article II, Section 2, is expressly made applicable to 'all' vacancies; and the 'vacancies' are clearly vacancies in the offices described in the [Appointments Clause], which could otherwise be filled only with the advice and consent of the Senate." Based upon this construction, the court rejected the notion that judicial vacancies were implicitly excluded from the Recess Appointments Clause by virtue of the tenure and salary protections conferred upon judges in Article III. Accordingly, the court held that since the Recess Appointments Clause empowers the President to make recess appointments of judges, "it necessarily follows that such judicial officers may exercise the power granted to Article III courts." The court likewise rejected the argument that the President's recess appointment power does not extend to offices that become vacant while the Senate is in session, declaring that such an interpretation "would create Executive paralysis and do violence to the orderly functioning of our complex government." United States v. Woodley In United States v. Woodley , the Court of Appeals for the Ninth Circuit considered a challenge to the constitutionality of President Carter's intersession recess appointment of Walter Heen as a U.S. District judge for the District of Hawaii on December 30, 1980. Noting that "[s]trong arguments can be marshaled both for and against application of the recess appointment clause to the judiciary," the panel weighed the provisions of Article II in relation to "the institutional protections of article III that the Framers considered essential to judicial independence," ultimately holding that "only those judges enjoying article III protections may exercise the judicial power of the United States." In reaching this conclusion, the panel concluded that the "very specific language of article III" took precedence over the "general language of article II," particularly in light of declarations from the Framers and the Supreme Court emphasizing the need for judicial independence. The panel also rejected the argument that the long history of acceptance of judicial recess appointments by both Congress and the Executive ameliorated any constitutional infirmities adhering to the practice, stating that "[w]hile the members of both the legislative and executive branches are sworn to uphold the Constitution, the courts alone are the final arbiters of its meaning." The panel went on to note that a long line of Supreme Court authority indicated that "great weight was to be given to historical practice," but declared that such reasoning "no longer, however, represents the thinking of the Court." The panel cited the Supreme Court's then recent decision in INS v. Chadha (striking down the legislative veto) for the proposition that "any practice, no matter how fully accepted or efficient, is 'subject to the demands of the Constitution which defines powers and...sets out just how they are to be exercised.'" Accordingly, the panel held that while judicial recess appointments were widely accepted and could be seen as contributing to judicial efficiency, they were nonetheless unconstitutional, as "[s]uch appointments...offend the explicit and unambiguous command of article III that the judicial power be exercised only by those enjoying life tenure and protection against diminution of compensation." The Ninth Circuit voted to rehear the case en banc , ultimately rejecting the determinations made by the panel in a 7-4 decision. Addressing the panel's conclusion that the specific language of Article III governs the general language of the Recess Appointments Clause, the court espoused the Supreme Court's declaration that all provisions of the Constitution "are to be deemed of equal validity," and further noted that "while article III speaks specifically about the tenure of federal judges, article II is equally specific in addressing the manner of their appointment." Accordingly, the court concluded that "[t]here is no reason...to favor one Article over the other." In support of this holding, the court explained that Article II "explicitly provides that the President has the power to fill all vacancies during the recess of the Senate," stating that "there is no basis upon which to carve out an exception from the recess power for federal judges." Additionally, the court gave significant weight to the fact that "[a]pproximately 300 judicial recess appointments have been made in our nation's history," as well as the fact that "[t]he Legislative Branch has consistently confirmed judicial recess appointees without dissent." The court likewise rejected the panel's conclusion that the decision in INS v. Chadha rendered reliance on historical practice inappropriate. The court specifically noted that the legislative veto was "a recent practice, barely 50 years old," the use of which "does not reach back to the days of the Framers such as the practice at issue." The court further stated that the legislative veto is an "impermissible statutory methodology, unsupported by an express grant of constitutional authority." The court acknowledged that lack of life tenure and protection from diminution of salary subjects a judicial recess appointee "in theory...to greater political pressure than a judge whose nomination has been confirmed," but concluded that the power bestowed upon the President by Article II compelled it to "therefore view the recess appointee not as a danger to the independence of the judiciary, but as the extraordinary exception to the prescriptions of article III." The decision in Woodley was accompanied by a vigorous four judge dissent that closely mirrored the panel decision in arguing that "the direct conflict" between the Recess Appointments Clause and the tenure and salary provisions of Article III should be resolved in favor of "the fundamental constitutional values of judicial independence and separation of powers," stating that such principles "must prevail over a peripheral concern for governmental efficiency," and "uncritical acceptance of historical practice." The Supreme Court denied certiorari in Woodley , putting an end to formal legal proceedings. Judge Heen's recess appointment expired at the end of the first session of the 97 th Congress, and he was not re-nominated for appointment by President Reagan. The next judicial recess appointment did not occur for 20 years, when President Clinton installed Roger L. Gregory as a recess appointee to the Fourth Circuit on December 27, 2000, during an intersession recess. While this appointment gave rise to disapprobation in the Senate, it was not the subject of litigation. Gregory was re-nominated by President George W. Bush and was confirmed by the Senate on July 20, 2001. Evans v. Stephens President George W. Bush made two judicial recess appointments in 2004, selecting Charles W. Pickering to serve on the Fifth Circuit on January 16, 2001 during an intersession recess, and appointing William H. Pryor to the Eleventh Circuit on February 20, 2004 on the seventh day of a ten day intrasession recess. In statements accompanying the appointments, the President noted that the selections would fill vacancies that had been designated as "judicial emergenc[ies]," and further pronounced that the appointments were justified in light of "unprecedented obstructionist tactics" in the Senate that were, in the view of the President, "inconsistent with the Senate's constitutional responsibility," and injurious "to our judicial system." While both appointments gave rise to criticism, the Pryor appointment was particularly controversial, having occurred during a brief intrasession recess. While there have been over 300 recess appointments to Article III courts, only fourteen have been intrasession, with the eleven day recess giving rise to the Pryor appointment constituting the shortest period of time in which an intrasession judicial recess appointment has been made. Intrasession recess appointments were rare prior to 1943, when recesses during congressional sessions became more common. It appears that Presidents made intrasession appointments only three times prior to 1943: in 1867 during a 73 day recess, in 1921 during a 27 day recess, and in 1928 during a 13 day recess. Of these, the only intrasession judicial recess appointment occurred during the 1867 recess. While the appointment of Pickering did not give rise to any litigation, the constitutionality of Judge Pryor's appointment was considered en banc by the Eleventh Circuit in Evans v. Stephens . The court began its analysis by analyzing the structure of the Recess Appointments Clause, determining that "[t]he text of the United States Constitution authorizes recess appointments of judges to Article III courts." As in Woodley , the court gave weight to the long history of such appointments, stating that while historical evidence alone "might not" render them constitutional, "this historical practice—looked at in light of the text of the Constitution—supports our conclusion in favor of the constitutionality of recess appointments to the federal judiciary." As in Woodley , the court acknowledged that there is "some tension between Article III and the recess appointment of judges to Article III courts," but rejected the argument that the tenure and salary protections of Article III trump the Recess Appointments Clause, stating that "[t]he conflict between these equally important constitutional provisions is not irreconcilable: the temporary judges appointed under the Recess Appointments Clause are an exception to the general rule of Article III." The court buttressed this determination with a consideration of the purpose of the Recess Appointments Clause, stating that "it was the intent of the Framers to keep important offices filled and government functioning." Accordingly, the court declared that while judicial recess appointees lacked the protections enjoyed by confirmed Article III judges, "we accept the Framers thought that what might be intolerable, if prolonged, was acceptable for a relatively short while." The court next turned to the question of whether intrasession recess appointments are constitutionally permissible. Declaring that it focused first on the language of the Constitution and then on historical precedent and the purpose of the clause, the court held that "President Bush appointed Judge Pryor during a legitimate Senate recess, that is, during a 'Recess' within the meaning of the Recess Appointments Clause." Acknowledging that historical and textual arguments could be made to the contrary, the court stated that such arguments were not strong enough to persuade it that the President's interpretation was incorrect, and pronounced that it instead "accept[ed] that 'the Recess,' originally and through today, could just as properly refer generically to any one—intrasession or intersession—of the Senate's acts of recessing, that is, taking a break." The court was further persuaded by historical precedent establishing that "[t]welve Presidents have made more than 285 intrasession recess appointments," and by its determination that "[t]he purpose of the Clause is no less satisfied during an intrasession recess than during a recess of potentially even shorter duration that comes as an intersession break." The court was likewise untroubled by the brief duration of the intrasession recess giving rise to the Pryor appointment: The Constitution, on its face, does not establish a minimum time that an authorized break in the Senate must last to give legal force to the President's appointment power under the Recess Appointments Clause. And we do not set that limit today. Although a President has not before appointed a judge to an Article III court during an intrasession recess as short as the one in this case, appointments to other offices—offices ordinarily requiring Senate confirmation—have been made during intrasession recesses of about this length or shorter. Furthermore, several times in the past, fairly short intrasession recesses have given rise to presidential appointments of judges to Article III courts. Having determined that the clause allowed for recess appointments to the federal judiciary, even during an intrasession recess, the court concluded its opinion by declaring that it was "not persuaded that the President exceeded his constitutional authority in any way that causes Judge Pryor's judicial appointment to be invalid. We conclude that Judge Pryor may sit with this court lawfully and act with all the powers of a United States Circuit Judge during his term of office." The decision in Evans was accompanied by a dissent from Judge Barkett arguing that the plain meaning of the Recess Appointments Clause mandates a restrictive interpretation of the term "happen." Analyzing the text of the clause and surveying a series of eighteenth-century dictionaries, Judge Barkett argued that "the question of when a vacancy must occur admits of very little ambiguity. Accordingly, the plain meaning rule compels the conclusion that the Constitution means what it says: the recess appointment power of Article II is good only for those vacancies that happen while the Senate is in recess." Judge Barkett went on to assert that the text of the clause, viewed in light of the purpose of the recess appointment power and separation of powers principles mandated further that the President only be empowered to make appointments during the recess in which they occur. The dissent's position in Evans rendered it unnecessary for it to address the constitutionality of judicial recess appointments or the validity of intrasession recess appointments, given that the vacancy filled by Pryor did not occur during the recess in which he was appointed. While Judge Barkett's dissent does not specifically consider Article III or intrasession appointments, the rationale underlying his dissent is applicable to both contexts. According to Judge Barkett, a literal interpretation of the Recess Appointments Clause was necessitated by the "real, concrete concern that the understanding of the recess appointment power embraced by the majority will allow the President to repeatedly bypass the role the Framers intended the Senate to play in reviewing presidential nominees." The potential for such injury to the Senate's prerogatives in this regard is arguably magnified by judicial acceptance of intrasession appointments. Specifically, the broad interpretation of the President's authority under the Recess Appointments Clause adopted by the Eleventh Circuit could be seen as lending credence to the proposition that congressional restrictions on the President's recess appointment power are constitutionally impermissible. This determination would arguably be particularly applicable in the judicial recess appointment context in light of Article III's prohibition on diminution of judicial salary. If such an interpretation adheres, it could give rise to a dynamic whereby the President would have a legal and constitutional basis upon which to completely bypass the Senate Confirmation process. Specifically, the authority to make intersession or intrasession recess appointments to any position, coupled with the invalidity of the statutory restrictions discussed above, would enable the President to make successive recess appointments during short recesses with the practical effect of enabling an appointee to serve throughout the course of an Administration without submitting to the Senate confirmation process. Such a prospect might be viewed as particularly problematic for Article III purposes, as it would allow successive recess appointments of judges, arguably beyond the "relatively short" period of service deemed appropriate for such appointees by the court in Evans . Accordingly, the holding in Evans could be seen as implicitly approving the Department of Justice's assertion that the recess appointment power extends to "all vacancies and all recesses (with the single arguable exception of de minimis breaks of three days or less)." Such an interpretation builds upon the maxims delineated in Allocco and Woodley , and arguably transforms the Recess Appointments Clause from the supplementary and auxiliary mechanism discussed by Hamilton into more significant grant of presidential power. The Supreme Court denied the petitioner's motion for certiorari in Evans on March 21, 2005. The denial was accompanied by an opinion by Justice Stevens emphasizing that "a denial is not a ruling on the merits of any issue raised by the petition." While stating that there were "valid prudential concerns supporting the decision to deny certiorari," Justice Stevens declared that "[t]his is a case that raises significant constitutional questions regarding the President's intrasession appointment of [Judge Pryor]." Accordingly, Justice Stevens stressed that "it would be a mistake" to assume that the denial of certiorari constituted a decision on the merits with regard to the President's constitutional authority "to fill future Article III vacancies, such as vacancies on this Court, with appointments made absent consent of the Senate during short intrasession 'recesses.'" Conclusion While the majority opinions in Allocco, Woodley, and Evans v. Stephens validate the President's authority to make recess appointments to the federal judiciary, the contrary arguments forwarded by the original panel in Woodley and the dissents from the en banc decisions of the Ninth and Eleventh Circuits indicate that there is broad range of opinion among members of the judiciary when considering the Recess Appointments Clause, not only in the context of judicial recess appointments, but with regard to the proper scope of the President's general authority thereunder. The unsettled status of these constitutional issues is brought into further relief by virtue of Justice Steven's opinion accompanying the denial of certiorari in Stephens , admonishing observers that "significant constitutional questions" adhere in this context. Thus, despite the outcome of litigation on the issue to date, it would appear that a significant degree of tension remains between the President's recess appointment power and the principles of judicial independence that undergird the provisions of Article III.

Article II of the Constitution provides that the President "shall nominate, and by and with the advice and consent of the Senate, shall appoint ambassadors, other public ministers and counsels, judges of the Supreme Court, and all other officers of the United States, whose appointments are not herein otherwise provided for and which shall be established by law." As a supplement to this authority, the Constitution further provides that "[t]he President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session." The Recess Appointments Clause was designed to enable the President to ensure the unfettered operation of the government during periods when the Senate was not in session and therefore unable to perform its advice and consent function. In addition to fostering administrative continuity, Presidents have exercised authority under the Recess Appointments Clause for political purposes, appointing officials who might be viewed unfavorably by the Senate. While the President's exercise of the recess appointment power in any context may give rise to controversy, the use of the Recess Appointments Clause to appoint judges to temporary positions on Article III courts can be particularly politically contentious. Presidents have made over 300 recess appointments to the federal judiciary, including twelve to the Supreme Court, since the first Administration of George Washington. The practice of making such appointments lessened considerably after the Eisenhower Administration, with only four judicial recess appointments having occurred since 1960. Despite the controversy attendant to judicial recess appointments, the President's authority to make such appointments has been challenged only in a handful of instances, with the most recent litigation arising from President George W. Bush's recess appointment of William H. Pryor to the Court of Appeals for the Eleventh Circuit on February 20, 2004. This report provides an overview of the legal and constitutional issues pertaining to the recess appointment of judges to Article III courts, with a particular focus on the proceedings involving the appointment of Judge Pryor.

Background1 The Al Qaeda movement has transformed in recent years: some of the strategic objectives of the original, or core, organization have remained consistent while the views and goals of new affiliates, leaders, and recruits have evolved and become more diverse. Osama Bin Laden's Al Qaeda and the affiliated organizations that ascribe their actions to his violence-based philosophy continue to desire to attack the United States and its global interests. In a June 2010 speech, the Principal Deputy Coordinator for Counterterrorism for the Department of State stated that "while (core) Al Qaeda is now struggling in some areas the threat it poses is becoming more widely distributed, more geographically diverse. The rise of affiliated groups such as Al Qaeda the Arabian Peninsula and Al Qaeda in the Islamic Maghreb is a new and important development and is also a troubling development." In addressing threats to global security interests before the Senate Homeland Security and Governmental Affairs Committee in September 2010, the U.S. intelligence community assessed that "the range of Al Qaeda's core, affiliated, allied, and inspired U.S. citizens and residents plotting against the homeland during the past year suggests the threat against the West has become more complex and underscores the challenges of identifying and countering a more diverse array of homeland plotting." Due in large part to the actions of the U.S. government, core Al Qaeda, reportedly located in Pakistan, is under tremendous pressure. U.S. and coalition forces' military and intelligence operations appear to have degraded the core's capacity for conducting large catastrophic operations similar to the attacks of September 11, 2001. The core organization's apparent inability to commit large-scale attacks in recent years has led some analysts to question the relevancy, capabilities, and competency of the group. However, during the 2010 Annual Threat Assessment hearing in front of the Senate Select Committee on Intelligence, Dennis C. Blair, Director of National Intelligence (DNI), observed that while "important progress has been made against the threat to the U.S. homeland over the past few years, I cannot reassure you that the danger is gone. We face a persistent terrorist threat from Al Qaeda and potentially others who share its anti-Western ideology. A major terrorist attack may emanate from either outside or inside the United States." In addressing how the U.S. might assess whether the organization remains a viable entity the DNI further stated, "until counterterrorism pressure on Al Qaeda's place of refuge, key lieutenants, and operative cadre outpaces the group's ability to recover, Al Qaeda will retain its capability to mount an attack." While pressure from the international community on core Al Qaeda appears to have limited the group's ability to undertake a catastrophic terrorist attack on U.S. interests, many terrorist groups and cells located throughout the world are affiliating their actions with the organization. Al Qaeda continues to attract potential recruits and possess an ability to influence and support global organizations with similar goals and philosophical objectives. The often-termed jihadi movement has increasingly become an issue of concern for senior members of the U.S. national security community. During the 2010 Annual Threat Assessment hearing DNI Blair noted the following: Al Qaeda will continue its efforts to encourage key regional affiliates and jihadist networks to pursue a global agenda. A few Al Qaeda regional affiliates and jihadist networks have exhibited an intent or capability to attack inside the homeland. Some regional nodes and allies have grown in strength and independence over the last two years and have begun to project operationally outside their regions. Though Al Qaeda affiliated entities have attempted numerous deadly terrorist attacks in recent years, some analysts view these operations as evidence of desperation signifying that the core organization and its affiliates are no longer capable of launching a large-scale catastrophic terrorist attack directed at U.S. interests. These analysts suggest that recent attempted acts are an acknowledgment that the destructive capabilities of corporate Al Qaeda and those individuals with similar philosophical goals are actually on the decline and are indicative of an organization desperate to prove its continued viability. Others, however, suggest that this recent trend may be indicative of an organization becoming more selective and sophisticated in the operations it pursues and adopting a model of encouraging affiliates and sympathizers to undertake smaller-scale acts to divert international attention and resources away from planning and preparations for larger, more catastrophic, attacks. Recognition of a more resilient enemy may have been enunciated in a September 22, 2010, statement by the Director of the Federal Bureau of Investigation (FBI) before the Senate Committee on Homeland Security and Governmental Affairs: the level of cooperation among Al Qaeda and other terrorist groups has changed in the past year suggesting that this collaboration and resulting threat to the homeland will increase. By sharing financial resources, training, tactical and operations expertise, and recruits, these groups have been able to withstand significant counterterrorism pressure from the United States, coalition, and local government forces. Similarly, in acknowledging the government's challenge of transitioning from an almost exclusive focus on core Al Qaeda to also attempting to assess the capabilities of numerous smaller groups that are more opaque, the Secretary of Homeland Security stated "the terrorist threat changes quickly and we have observed important changes in the threat even since this Committee convened a similar hearing last year. The threat is evolving in several ways that make it more difficult for law enforcement or the intelligence community to detect and disrupt plots." Notwithstanding the challenges associated with continuing to limit core Al Qaeda's planning and destructive capabilities while also attempting to thwart potential attacks by lesser-known affiliated entities, some in the counterterrorism community suggest that the organization and the philosophical following it has spawned are significantly degraded. A December 2010 report issued by West Point's Combating Terrorism Center noted the following: More than twenty years after its creation, Al Qaeda shows clear signs of decline. The group has lost many of its key operational leaders to arrest or assassination; a number of Al Qaeda franchises—including in Saudi Arabia, Iraq and Algeria—have been substantially weakened or defeated; and a host of ideological challenges, including recantations from prominent jihadis themselves, have compelled Al Qaeda to spend valuable time defending its reputation and actions. These setbacks and others suggest that Al Qaeda is not any closer to achieving its long-term goals than it was on 10 September 2001. Likewise, others in the national security community have offered observations that help explain why Al Qaeda may be an organization on the decline and possibly in jeopardy of losing its appeal to potential followers. According to the non-governmental Bipartisan Policy Center four key strategic issues are contributing to the demise of Al Qaeda: indiscriminate killing of Muslims, the lack of a political movement to represent the organization's interests, an ever-growing list of enemies, and the lack of a desirable vision that sustains interest in the group and its ideology (see " Al Qaeda's Global Strategy and Implications for U.S. Policy " below). Given recent discussions regarding the potential demise of Al Qaeda, some counterterrorism observers suggest that such assessments may be premature. In an article published in the December 2010 edition of Studies in Conflict and Terrorism , the authors argue that the organization's infrastructure and ideology are resilient and have the ability to endure external pressures from the international security community. The authors find that "although in recent years Al Qaeda has adopted more ideological and inspirational characteristics, it still exists as a group, and possesses, first and foremost, operational characteristics of guerilla and terrorist organization." Origins of Al Qaeda15 The primary founder of Al Qaeda, Osama Bin Laden, was born in July 1957, the 17 th of 20 sons of a Saudi construction magnate of Yemeni origin. Most Saudis are conservative Sunni Muslims, and Bin Laden, conservative from a young age, appears to have adopted militant Islamist views while studying at King Abdul Aziz University in Jeddah, Saudi Arabia. There he attended lectures by Muhammad Qutb, brother of Sayyid Qutb, the key ideologue of a major Sunni Islamist movement, the Muslim Brotherhood. Another of Bin Laden's inspirations was Abdullah al Azzam, a major figure in the Jordanian branch of the Muslim Brotherhood. Azzam is identified by some experts as the intellectual architect of the jihad against the 1979-1989 Soviet occupation of Afghanistan, and ultimately of Al Qaeda itself; he cast the Soviet invasion as an attempted conquest by a non-Muslim power of sacred Muslim territory and people. Bin Laden made his first visit to Afghanistan a few years after the December 1979 Soviet invasion, and then relocated to areas of Pakistan near the border with Afghanistan by 1986. He reportedly used some of his personal funds to establish himself as a donor to the Afghan mujahedin and a recruiter of Arab and other Islamic volunteers for the war. In 1984, Azzam and bin Laden structured this assistance by establishing a network of recruiting and fund-raising offices in the Arab world, Europe, and the United States. That network was called the Maktab al Khidamat (Services Office), also known as Al Khifah ; many experts consider the Maktab to be the organizational forerunner of Al Qaeda. Another major figure who utilized the Maktab network to recruit for the anti-Soviet jihad was Umar Abd al Rahman (also known as "the blind shaykh"), the spiritual leader of radical Egyptian Islamist group Al Jihad. Bin Laden apparently also made occasional forays across the border into Afghanistan during the anti-Soviet war; he reportedly participated in a 1986 battle in Jalalabad and an April 1987 frontal assault by foreign volunteers against Afghan forces equipped with Soviet armor. According to some experts, Bin Laden has said he was exposed to a Soviet chemical attack and slightly injured in the latter battle. During this period, most U.S. officials perceived the volunteers as positive contributors to the effort to expel Soviet forces from Afghanistan, and U.S. officials made no apparent effort to stop the recruitment of the non-Afghan volunteers for the war. U.S. officials have repeatedly denied that the United States directly supported the non-Afghan volunteers. The United States did covertly finance (about $3 billion during 1981-1991) and arm (via Pakistan) the Afghan mujahedin factions, particularly the Islamic fundamentalist Afghan factions, fighting Soviet forces. By almost all accounts, it was the Afghan mujahedin factions, not the Arab volunteer fighters, that were decisive in persuading the Soviet Union to pull out of Afghanistan. During this period, Bin Laden, Azzam, and Abd al Rahman were not known to have openly advocated, undertaken, or planned any direct attacks against the United States, although they all were critical of U.S. support for Israel in the Middle East. In 1988, toward the end of the Soviet occupation, Bin Laden, Azzam, and other associates began contemplating how, and to what end, the Islamist volunteer network they had organized could be utilized. U.S. intelligence estimates of the size of that network were between 10,000 and 20,000; however, not all of these necessarily supported or participated in Al Qaeda terrorist activities. Azzam apparently wanted this "Al Qaeda" (Arabic for "the base") organization—as they began terming the organization in 1988—to become an Islamic "rapid reaction force," available to intervene wherever Muslims were perceived to be threatened. Bin Laden differed with Azzam, hoping instead to dispatch the Al Qaeda activists to their home countries to try to topple secular, pro-Western Arab leaders, such as President Hosni Mubarak of Egypt and Saudi Arabia's royal family. Some attribute the Bin Laden-Azzam differences to the growing influence on Bin Laden of the Egyptians in his inner circle, such as Abd al Rahman, who wanted to use Al Qaeda's resources to install an Islamic state in Egypt. Another close Egyptian confidant was Ayman al-Zawahiri, operational leader of Al Jihad in Egypt. Like Abd al Rahman, Zawahiri had been imprisoned but ultimately acquitted for the October 1981 assassination of Egyptian President Anwar Sadat, and he permanently left Egypt in 1985 and arrived in the Afghanistan theater in 1986 after an intervening period in Saudi Arabia. In the Afghanistan conflict, he used his medical training to tend to fighters wounded in the war. In November 1989, Azzam was assassinated, and some allege that Bin Laden might have been responsible for the killing to resolve this power struggle. Following Azzam's death, Bin Laden gained control of the Maktab 's funds and organizational mechanisms. Abd al Rahman came to the United States in 1990 from Sudan and was convicted in October 1995 for terrorist plots related to the February 1993 bombing of the World Trade Center in New York. Zawahiri stayed with Bin Laden and remains Bin Laden's main strategist today. The Threat Unfolds The August 2, 1990, Iraqi invasion of Kuwait apparently reinforced Bin Laden's turn from a de-facto U.S. ally against the Soviet Union into one of its most active adversaries. Bin Laden had returned home to Saudi Arabia in 1989, after the completion of the Soviet withdrawal from Afghanistan that February. While back home, he lobbied Saudi officials not to host U.S. combat troops to defend Saudi Arabia against an Iraqi invasion, arguing instead for the raising of a " mujahedin " army to oust Iraq from Kuwait. His idea was rebuffed by the Saudi leadership as impractical, causing Bin Laden's falling out with the royal family, and 500,000 U.S. troops deployed to Saudi Arabia to oust Iraqi forces from Kuwait in "Operation Desert Storm" (January 16-February 28, 1991). About 6,000 U.S. forces, mainly Air Force, remained in the kingdom during 1991-2003 to conduct operations to contain Iraq. Although the post-1991 U.S. force in Saudi Arabia was relatively small and confined to Saudi military facilities, bin Laden and his followers painted the U.S. forces as occupiers of sacred Islamic ground and the Saudi royal family as facilitator of that "occupation." In 1991, after his rift with the Saudi leadership, Bin Laden relocated to Sudan, buying property there which he used to host and train Al Qaeda militants—this time, for use against the United States and its interests, as well as for jihad operations in the Balkans, Chechnya, Kashmir, and the Philippines. During the early 1990s, he also reportedly funded Saudi Islamist dissidents in London, including Saad Faqih, organized as the "Movement for Islamic Reform in Arabia (MIRA)." Bin Laden himself remained in Sudan until the Sudanese government, under U.S. and Egyptian pressure, expelled him in May 1996; he then returned to Afghanistan and helped the Taliban gain and maintain control of Afghanistan. (The Taliban captured Kabul in September 1996.) Bin Laden and Zawahiri apparently believed that the only way to bring Islamic regimes to power was to oust from the region the perceived backer of secular regional regimes, the United States. During the 1990s, bin Laden and Zawahiri transformed Al Qaeda into a global threat to U.S. national security, culminating in the September 11, 2001, attacks. By this time, Al Qaeda had become a coalition of factions of radical Islamic groups operating throughout the Muslim world, mostly groups opposing their governments. Cells and associates have been located in over 70 countries, according to U.S. officials. The pre-September 11 roster of attacks against the United States and U.S. interests that are widely attributed to Al Qaeda included the following: In 1992, Al Qaeda claimed responsibility for bombing a hotel in Yemen where 100 U.S. military personnel were awaiting deployment to Somalia for Operation Restore Hope. No one was killed. A growing body of information about central figures in the February 1993 bombing of the World Trade Center in New York, particularly the reputed key bomb maker Ramzi Ahmad Yusuf, suggests possible Al Qaeda involvement. As noted above, Abd al Rahman was convicted for plots related to this attack. Al Qaeda claimed responsibility for arming Somali factions who battled U.S. forces there in October 1993, and who killed 18 U.S. special operations forces in Mogadishu in October 1993. In June 1995, in Ethiopia, members of Al Qaeda allegedly aided the Egyptian militant Islamic Group in a nearly successful assassination attempt against the visiting Mubarak. The four Saudi nationals who confessed to a November 1995 bombing of a U.S. military advisory facility in Riyadh, Saudi Arabia, claimed on Saudi television to have been inspired by bin Laden and other radical Islamist leaders. Five Americans were killed in that attack. Saudi leaders do not attribute the attacks directly to Bin Laden or Al Qaeda. The September 11 Commission report indicated that Al Qaeda might have had a hand in the June 1996 bombing of the Khobar Towers complex near Dhahran, Saudi Arabia. However, then-director of the FBI Louis Freeh previously attributed that attack primarily to Saudi Shiite dissidents working with Iranian agents. Nineteen U.S. airmen were killed. Al Qaeda allegedly was responsible for the August 1998 bombings of U.S. embassies in Kenya and Tanzania, which killed about 300. On August 20, 1998, the United States launched a cruise missile strike against bin Laden's training camps in Afghanistan, reportedly missing him by a few hours. In December 1999, U.S. and Jordanian authorities separately thwarted related Al Qaeda plots against religious sites in Jordan and apparently against the Los Angeles international airport. In October 2000, Al Qaeda activists attacked the U.S.S. Cole in a ship-borne suicide bombing while the Cole was docked the harbor of Aden, Yemen. The ship was damaged and 17 sailors were killed. Afghanistan23 Background and Threat Assessment Afghanistan was Al Qaeda's main base of operations during Osama bin Laden's residence there in 1996-2001. Al Qaeda operatives—and their protectors in the Taliban regime that ruled those same years—were captured or mostly driven out of Afghanistan during the major combat phase of Operation Enduring Freedom, which began on October 7, 2001, and continues today. As reiterated by the December 16, 2010, summary of a late 2010 Administration review on Afghanistan, the U.S. mission in Afghanistan, now carried out by 98,000 U.S. forces plus about 41,000 forces from partner countries, is to deny Al Qaeda safe haven in Afghanistan and to deny the Taliban the ability to overthrow the Afghan government. U.S. commanders say that Al Qaeda militants are more facilitators of militant incursions into Afghanistan than active fighters in the Afghan insurgency. Small numbers of Al Qaeda members—including Arabs, Uzbeks, and Chechens—have been captured or killed in battles in Afghanistan itself over the past few years, according to U.S. commanders. Some of these fighters apparently belong to Al Qaeda affiliates such as the Islamic Movement of Uzbekistan (IMU). In the most direct Administration statement on the strength of Al Qaeda in Afghanistan itself, Director of Central Intelligence Leon Panetta said on June 27, 2010, that Al Qaeda fighters in Afghanistan itself might number 50-100. However, since that statement, some NATO/ISAF officials said in October 2010 that Al Qaeda cells may be moving back into remote areas of Kunar and Nuristan provinces. Al Qaeda's top leadership has eluded U.S. forces in Afghanistan and other efforts in Pakistan. In December 2001, in the course of the post-September 11 major combat effort, U.S. Special Operations Forces and Central Intelligence Agency operatives reportedly narrowed Osama bin Laden's location to the Tora Bora mountains in Nangarhar Province (30 miles west of the Khyber Pass crossing between Afghanistan and Pakistan), but the Afghan militia fighters who were the bulk of the fighting force did not prevent his escape. Some U.S. military and intelligence officers (such as Gary Berntsen and Dalton Fury, who have written books on the battle) have questioned the U.S. decision to rely mainly on Afghan forces in this engagement, asserting that Afghan factions may have accepted funds or tribal and clan overtures to permit the escape of the Al Qaeda leaders. Implications for U.S. Policy Bin Laden and his close ally, Egyptian militant leader Ayman al-Zawahiri, are presumed to be on the Pakistani side of the border. After years in which U.S. and regional officials said there was virtually no information on their whereabouts, CNN quoted a NATO official on October 18, 2010, that assessments from the U.S.-led coalition now say the two are likely in a settled area near the border with Afghanistan, and not living in a very remote uninhabited area. A U.S. strike reportedly missed Zawahiri by a few hours in the village of Damadola, Pakistan, in January 2006, suggesting that there has sometimes been actionable intelligence on his movements. From their redoubt, these leaders continue to occasionally issue audiotapes and statements inspiring supporters and operatives to continue to be looking for ways to attack the U.S. homeland or U.S. allies and to threaten such attacks. On the ninth anniversary of the September 11, 2001, attacks on the United States, some U.S. observers said it was still significant to try to capture bin Laden if for no other reason than for symbolic value. Among other efforts that have targeted senior Al Qaeda leadership, a strike in late January 2008, in an area near Damadola, killed Abu Laith al-Libi, a reported senior Al Qaeda figure who purportedly masterminded, among other operations, the bombing at Bagram Air Base in February 2007 when Vice President Cheney was visiting. In August 2008, an airstrike was confirmed to have killed Al Qaeda chemical weapons expert Abu Khabab al-Masri, and two senior operatives allegedly involved in the 1998 embassy bombings in Africa reportedly were killed by a Predator strike in January 2009. Press reports in early September 2010 say that Al Qaeda's former spokesman, Kuwait-born Sulayman Abu Ghaith, may have been released from house arrest by Iran and allowed to proceed to Pakistan. These types of strikes have become more frequent under President Obama, indicating that the Administration sees the tactic as effective in preventing attacks. Unmanned vehicle strikes are also increasingly used on the Afghanistan battlefield itself and against Al Qaeda affiliated militants in such countries as Yemen. Pakistan30 Background and Threat Assessment U.S. officials remain concerned that senior Al Qaeda terrorists operate on Pakistani territory, perhaps with some level of impunity, and that the group appears to have increased its influence among the myriad Islamist militant groups operating along the Pakistan-Afghanistan border, as well as in the densely populated Punjab province. Al Qaeda forces that fled Afghanistan with their Taliban supporters remain active in Pakistan and reportedly have extensive, mutually supportive links with indigenous Pakistani terrorist groups that conduct anti-Western and anti-India attacks, including the November 2008 assault on Mumbai, India, that left some 173 people dead and was perpetrated by the Pakistan-based Lashkar-e-Taiba, a group considered closely linked with Al Qaeda. Al Qaeda founder Osama Bin Laden and his deputy, Egyptian Islamist radical Ayman al-Zawahiri, are widely believed to be hiding in northwestern Pakistan, along with most other senior operatives. Al Qaeda leaders have issued statements encouraging Pakistani Muslims to "resist" the American "occupiers" in Pakistan (and Afghanistan), and to fight against Pakistan's "U.S.-allied politicians and officers." Recent unclassified assessments place more than 300 Al Qaeda operatives in Pakistan's tribal areas. Al Qaeda is widely believed to maintain camps in western Pakistan where foreign extremists receive training in terrorist operations. At least 150 Westerners reportedly have attended these camps since 2008. As military pressure has mounted on Al Qaeda, these camps may have become smaller and more mobile. In 2010, the flow of aspiring Western terrorist recruits continued, and the consensus view of analysts is that Al Qaeda's sanctuary in Pakistan's Federally Administered Tribal Areas (FATA) remains a crucial threat. Recent U.S. attention has focused on the threat posed by Yemen-based Al Qaeda elements who are likely to be receiving strategic and philosophical support from their Pakistan-based allies. A 2007 National Intelligence Estimate on terrorist threats to the U.S. homeland concluded that Al Qaeda "has protected or regenerated key elements of its Homeland attack capability, including a safehaven in [Pakistan's FATA], operational lieutenants, and its top leadership." In early 2009, the Obama Administration declared that the "core goal" of the United States should be to "disrupt, dismantle, and defeat Al Qaeda and its safe havens in Pakistan, and to prevent their return to Pakistan or Afghanistan." The President continues to assert that Al Qaeda represents the top-most threat to U.S. security, and the State Department's Country Reports on Terrorism 2009 (released August 2010) flatly stated that "In 2009, Al Qaeda's core in Pakistan remained the most formidable terrorist organization targeting the U.S. homeland." It appears that Al Qaeda's South Asia regional strategy has in recent years shifted toward greater emphasis on combating its Pakistani enemies. As articulated by one analyst, Al Qaeda has utilized its media prowess and ideological authority to discredit the Pakistani state and promote cooperation among a variety of Pakistani militants to challenge the state's authority and undermine its support for U.S. efforts in Afghanistan. By justifying and rallying support for the Pakistani jihad, providing "force multiplier" facilitation of attacks inside Pakistan, and acting as a mediator and coalition-builder among Pakistan's myriad Islamist militant groups, Al Qaeda's leadership has sought to both preserve its geographic base and mitigate the negative effects of militarized U.S. and Pakistani actions against it. While taking questions from senior Pakistani journalists during a late 2009 visit to Pakistan, Secretary of State Hillary Clinton offered a pointed expression of U.S. concerns that some elements of official Pakistan maintain sympathy for most-wanted Islamist terrorists: Al Qaeda has had safe haven in Pakistan since 2002. I find it hard to believe that nobody in [the Pakistani] government knows where they are and couldn't get them if they really wanted to. And maybe that's the case. Maybe they're not gettable.... I don't know what the reasons are that Al Qaeda has safe haven in your country, but let's explore it and let's try to be honest about it and figure out what we can do. Pakistani officials are resentful of such suggestions. Islamabad reportedly has remanded to U.S. custody roughly 500 Al Qaeda fugitives since 2001, including several senior alleged operatives. U.S. officials have lauded Pakistani military operations against Al Qaeda- and Taliban-allied militants in western tribal areas beginning in late 2009 and continuing at a limited pace to date; Islamabad has devoted up to 200,000 regular and paramilitary troops to this effort. They also claim that drone-launched U.S. missile attacks and Pakistan's pressing of military offensives against extremist groups in the border areas have meaningfully disrupted Al Qaeda activities there while inflicting heavy losses on their cadre. The Obama Administration has significantly accelerated the pace of unmanned aerial vehicle (drone) strikes in western Pakistan, with the reported number of such strikes rising from 34 in 2008 and 53 in 2009 to more than 110 in 2010. In addition, a years-long effort by Western intelligence agencies to penetrate Al Qaeda with moles and informants may be paying off, despite the fact that dozens of such infiltrators have been executed in western Pakistan since 2001. The Tehrik-e Taliban Pakistan (TTP or "Pakistani Taliban") is an umbrella organization of Islamist militant groups in western Pakistan that has more closely allied itself with Al Qaeda in recent years. The August 2009 death of TTP leader Baitullah Mehsud was a notable success for U.S. strategy, as were the May 2010 death of Al Qaeda's third-ranking operative, Egyptian national Mustafa Abu al-Yazid, and that of his successor, Egyptian national Sheikh Fateh, four months later. All three deaths were assumed caused by U.S.-launched missiles. Yet a flurry of lethal suicide bomb attacks on urban Pakistani targets in late 2009 continued (at a significantly reduced pace) in 2010 and demonstrates the resiliency of regional militant groups. New Al Qaeda-allied militant leaders have arisen to pose major threats beyond the region. Among the most notable is Ilyas Kashmiri, the commander of the Pakistan-based Harakat-ul Jihad Islami (HuJI, or Movement for an Islamic Holy War), a militant group formed in the 1980s and now closely aligned with Al Qaeda. Some analysts worry that successful drone operations are driving Al Qaeda fighters into Pakistani cities where they will be harder to target, while also exacerbating already significant anti-American sentiments among the Pakistani people. Senior Al Qaeda figures have become more active in the Pakistani megacity of Karachi, about 500 miles south of the FATA; some have been captured there through joint U.S.-Pakistani intelligence operations. Al Qaeda may increasingly be focused on provoking conflict in both Karachi and in Pakistan's "cultural capital" of Lahore as a means of diverting the Pakistani Army and establishing new safe havens. Despite Al Qaeda enduring some disruptions in its operations in Pakistan, the organization has been resurgent with anti-U.S. terrorists appearing to have benefitted from what some analysts have called a Pakistani policy of appeasement in western tribal areas near the Afghan border. Some Pakistani and Western security officials have seen Islamabad losing its war against religious militancy and Al Qaeda forces enjoying new areas in which to operate, due in part to the Pakistan Army's poor counterinsurgency capabilities and to the central government's eroded legitimacy. At the same time, the Pakistan Army appears hesitant to expand its ground offensive operations into western tribal agencies to which Al Qaeda and other militant leaders are believed to have fled (North Waziristan perhaps primary among these), and which may allow Al Qaeda to continue using the rugged region as a base of operations. Implications for U.S. Policy In the wake of the September 2001 terrorist attacks on the United States, President Bush launched major military operations in South and Southwest Asia as part of the global U.S.-led anti-terrorism effort. Operation Enduring Freedom in Afghanistan has seen substantive success with the vital assistance of neighboring Pakistan. President Obama has bolstered the U.S. military presence in Afghanistan with a central goal of neutralizing the Al Qaeda threat emanating from the region. Yet neighboring Pakistan continues to be an "epicenter of terrorism" from which threats to the United States and other western countries continue to emanate. Recently uncovered evidence suggests that the 9/11 hijackers were themselves based in western Pakistan in early 2001 and, by one account, Al Qaeda and its Pakistani affiliates provided operational direction in 38% of the serious terrorist plots against Western countries since 2004. As tensions between Pakistan and India remain tense more than two years after the November 2008 terrorist attack on Mumbai, India, Secretary of Defense Robert Gates has warned that groups under Al Qaeda's Pakistan "syndicate" are actively seeking to destabilize the entire South Asia region, perhaps through another successful major terrorist attack in India that could provoke all-out war between the region's two largest and nuclear-armed states. U.S. policy options to address the Al Qaeda threat in Pakistan are limited. While Al Qaeda remains widely unpopular among the Pakistani public, there exists a significant segment that views the terrorist group favorably. Anti-American sentiment is seen to be at peak levels within all spectra of Pakistani society, fueled by perceptions that the United States is fighting a war against Islam, that it is insufficiently attentive to the process of democratization in Pakistan, and that drone strikes and other U.S. operations on Pakistani territory are a violation of national sovereignty. A Pew Center public opinion survey released in July 2010 found the percentage of Pakistanis holding a favorable view of Al Qaeda doubling from 9% in 2009 to 18% in 2010. The poll also found only 17% of Pakistanis holding a favorable view of the United States; nearly three in five described the United States as "an enemy," while only 11% saw it as "a partner." A significant and long-term increase in economic and development assistance to Pakistan is a key aspect of the Obama Administration's effort to reduce the bilateral "trust deficit"—the Enhanced Partnership With Pakistan Act of 2009 ( P.L. 111-73 ) authorized $1.5 billion in annual nonmilitary aid through FY2014. Moreover, the United States plans to continue devoting considerable resources toward bolstering Pakistan's counterterrorism and counterinsurgency capabilities (a new "Pakistan Counterterrorism Capability Fund" provided $1.1 billion for this cause in FY2009-FY2010). Yet U.S. troops are officially prohibited from operating on Pakistani territory, and the combination of distrust of Americans and a dire security environment makes it extremely difficult for U.S. officials to operate effectively there. For the near and middle term, then, it appears that U.S. strategy likely will continue to rely on large-scale economic and development aid, redoubled efforts to build Pakistan's relevant military capacity, accelerated drone attacks on militant targets, and admonitions that Pakistani leaders consolidate what progress they have made and endeavor to keep pressure on Al Qaeda and its allies on their territory. Al Qaeda in the Arabian Peninsula (AQAP)52 Background and Threat Assessment In January 2009, Al Qaeda-affiliated militants based in Yemen announced that Saudi militants had pledged allegiance to their leader and that the group would now operate under the banner of Al Qaeda in the Arabian Peninsula (AQAP). A previous Saudi Arabia-based version of AQAP was largely dismantled and destroyed by Saudi security forces after a long and costly counterterrorism campaign from 2003 through 2007. Some Saudi militants fled to Yemen to avoid death or capture, helping to lay the groundwork for a reemergence of the organization there in recent years alongside Al Qaeda figures who escaped from Yemeni custody and former Saudi detainees from Guantanamo Bay, Cuba, and the Saudi terrorism rehabilitation program. The emergence of Yemen as a safe haven for a reconstituted Al Qaeda threat has left Saudi officials working to prevent "inspiration and re-infiltration" by the new incarnation of AQAP. Continuing terrorism arrests have sustained concerns, particularly because of an apparent shift in attackers' objectives toward targeting critical energy infrastructure and Saudi government officials. The arrest in Saudi Arabia of over 110 terrorist suspects in March 2010, along with reports that some of the suspects planned to target energy installations, highlighted these concerns. The attempted assassination of Assistant Interior Minister for Security Affairs Prince Mohammed bin Nayef bin Abdelaziz Al Saud in August 2009 underscored the threat to the royal family. In 2010, AQAP leaders released an direct appeal to Saudi security and military personnel to turn their weapons on government officials and royal family members. The recruitment of Saudis who have passed through the kingdom's terrorist rehabilitation program has raised new questions about the tactics employed in the program and underlying assumptions about the rehabilitation prospects for committed, violent Al Qaeda supporters. Yemen is an attractive base of operations for AQAP. Unlike Saudi Arabia, Yemen's much poorer population is more dispersed, rural, and geographically isolated than its neighbors. The central government, which is widely vilified for its poor governance and corruption, cannot exercise direct control in several of its own governorates without first seeking tribal support. President Ali Abdullah Saleh has ruled Yemen since its unification in 1990. Before that, Saleh ruled North Yemen from 1978 onward. He has a long history of allying himself with Sunni Islamist militants against Communist or Shiite (revivalist Zaydi ) domestic opponents. These ties have led in the past to his government's somewhat complacent attitude toward Al Qaeda sympathizers, particularly when faced with other, more pressing security challenges in the north (Houthi conflict) and south (secessionist movement) that are perceived as more of a direct threat to Saleh's rule. As Yemen's oil production drops precipitously, its population rises, its water tables drop, and its government coffers dwindle, the country only becomes more ripe for instability and extremist activity. AQAP operates both within the Arabian Peninsula and internationally. Some analysts also suggest that, with the encouragement of Al Qaeda leaders in Afghanistan and Pakistan, the group is expanding its ties with Al Shabaab in Somalia, though the extent of those ties is unknown. AQAP also may be working with other AQ affiliates. The Washington Post reported that France, with help from Saudi intelligence, recently broke up a joint AQAP-AQIM terrorist cell planning to carry out attacks inside France. Overall, AQAP seeks to: Attack the U.S. ho meland : Most counterterrorism analysts believe that of all of Al Qaeda's regional affiliates, AQAP is the most active organization seeking to carry out a successful attack inside the United States. As it has demonstrated both through Anwar al Awlaki's indoctrination of American citizens and the sophisticated bomb-making of Ibrahim Hassan al Asiri and others, AQAP is trying to radicalize U.S. citizens and carry out an attention-grabbing terrorist bombing on U.S. soil. In the third edition of its online Inspire magazine released in November 2010, AQAP claims that the October 2010 air cargo bomb plot was part of a long-term strategy to launch many small-scale attacks against the United States. The group states that "This strategy of attacking the enemy with smaller but more frequent operations is what some may refer to as the strategy of a thousand cuts. The aim is to bleed the enemy to death…. It is such a good bargain for us to spread fear amongst the enemy and keep him on his toes in exchange of a few months of work and a few thousand bucks…. In such an environment of security phobia that is sweeping America it is more feasible to stage smaller attacks that involve less players and less time to launch and thus we may circumvent the security barriers American worked so hard to erect." Attack U.S. and Western Interests in Yemen : Even before the Saudi-Yemeni merger, militants in Yemen have targeted Western embassies in Sana'a, foreign oil companies and their facilities, and tourists. Two attacks on the U.S. Embassy in Sana'a in 2008 killed 17 people, including one U.S. citizen, and injured dozens of Yemenis. On April 26, 2010, AQAP carried out an unsuccessful assassination attempt against British Ambassador to Yemen Timothy Torlot, an operation that many experts believe was designed to demonstrate the group's resilience in the face of a government crackdown following the Christmas Day attempted bombing. In October 2010, AQAP gunmen attacked a vehicle carrying five British embassy workers in Sana'a. The attack injured one British worker and two Yemeni bystanders. Britain's second- ranking diplomat in Yemen, Fionna Gibb, was in the car, but escaped uninjured. Destabilize the Yemeni Government : Unlike previous generations of Islamist fighters in Yemen who fought elsewhere, such as in Afghanistan, many of AQAP's footsoldiers are more inclined to target the Yemeni government itself. Throughout much of 2010, AQAP's activities inside Yemen have resembled the kind of insurgent warfare witnessed most recently in Afghanistan, Pakistan, and Iraq. It appears that one of the group's goals is to use the popular hatred of the central government, particularly in the former areas of Southern Yemen, to fuel a popular insurgency that is capable of holding territory. To date, this strategy has succeeded in sowing a certain degree of chaos and violence in the provinces of Abyan and Shabwah, though many observers remain skeptical of AQAP's ability to evolve into a mass movement such as the Taliban. There is no indication that large numbers of Yemeni tribesmen are open to Al Qaeda's ideological appeal, and many tribal leaders may be using AQAP as a temporary lever to pressure the government for benefits, settle scores with rival, neighboring tribes, or to strike back against the government to avenge some perceived historical injustice. Assassinate Members of the Saudi Royal Family : Several of AQAP's top leaders are Saudi veterans combatants from conflicts involving Muslims in other regions or graduates of terrorist training camps based in Afghanistan who, upon returning home nearly a decade ago, turned inward against the Saudi royal family. Since their expulsion from the kingdom, they have used their positions within AQAP to strike back against the Saudi royal family, as was vividly illustrated by a failed assassination attempt in August 2009 against Assistant Interior Minister Prince Mohammed bin Nayef bin Abdelaziz Al Saud, the director of the kingdom's counterterrorism campaign. According to one report, two of Saudi Arabia's most powerful intelligence agencies, the Saudi General Intelligence Presidency (GIP), headed since October 2005 by Prince Muqrin bin Abdulaziz, and the General Security Services (GSS), which is attached to the Saudi Interior Ministry, have been working with Yemen's military and special forces units. In the lead up to the October 2010 failed air cargo bombing, Bin Nayef reportedly provided John Brennan, the Deputy National Security Advisor for Homeland Security and Counterterrorism, and Assistant to the President with critical information on the plot reportedly derived from a Saudi informant or an AQAP member who had recently turned himself in to Saudi authorities. Implications for U.S. Policy For the past several months, numerous reports have indicated the Obama Administration is contemplating how to properly increase assistance and intelligence cooperation with Yemen without overly militarizing the U.S. presence there and causing a backlash from the local population. Based on numerous reports, it appears that the Administration is simultaneously pursuing a short term decapitation strategy to capture or eliminate the top echelons of AQAP's leadership while also enacting policies over the long run to address the growing instability in Yemen that permits AQAP to grow. In the short term, some reports suggest that the CIA may increase its use of drones inside Yemen or place military units overseen by the Defense Department (JSOC) under its control. Anonymous U.S. officials have said that Predator drones (possibly launched from either Djibouti, Qatar, or the Seychelles Islands) have been patrolling the skies over Yemen in search of AQAP leaders, but many of these leaders have gone into hiding. One report suggests that a major buildup of U.S. assets is occurring in Yemen with the arrival of additional CIA teams and up to 100 Special Operations force trainers, and the deployment of sophisticated surveillance and electronic eavesdropping systems operated by spy services including the National Security Agency. The U.S. military historically has maintained only a limited presence in Yemen, and as such, U.S. intelligence agencies may have limited knowledge of the local terrain and may need time before they are able to effectively employ all assets to their maximum capacity. On November 8, an anonymous senior Administration official said that the White House was pushing the Yemeni government for more collaboration and intelligence sharing. In the long term, the Administration has significantly increased U.S. economic and military aid, although Yemen's socioeconomic challenges far exceed current U.S. and international development efforts. In FY2010, the United States is providing an estimated $290 million in total aid and that figure is expected to increase in FY2011. The Defense Department also has proposed increasing its Section 1206 security assistance to Yemen to $1.2 billion over a five- or six-year period. In the past, the Yemeni government has cautioned the United States against overreacting to the terrorist threat there, though in recent months, Yemeni forces have launched several large-scale campaigns against suspected AQAP strongholds in the Abyan and Shabwah governorates. Whether U.S.-Yemeni security cooperation can be sustained over the long term is the key question for U.S. lawmakers and policymakers. Inevitably, at some point, disagreements arise over Yemen's tendency to release alleged terrorists from prison in order to placate tribal leaders and domestic Islamist politicians who oppose U.S. "interference" in Yemen and U.S. policy in the region in general. One report suggests that in the fall of 2009, U.S. officials met with President Saleh and showed him "irrefutable evidence that Al Qaeda was aiming at him and his relatives," and "that seems to have abruptly changed Saleh's attitude." At times, the United States government itself shares the blame for limiting its bilateral cooperation with Yemen. In the past, high-level U.S. policymakers have shifted focus to what have appeared to be more pressing counterterrorism fronts or areas of the Middle East. Yemeni leaders have grown adept at sensing U.S. interest and have adjusted their level of cooperation accordingly. According to Abdel-Karim al Iryani, a former prime minister, "The trust between the U.S. and Yemen comes and goes…. Everyone has his own calculations on what they want from this relationship." North Africa/Sahel: Al Qaeda in the Islamic Maghreb (AQIM)72 Background and Threat Assessment Al Qaeda in the Islamic Maghreb (AQIM, also known as Al Qaeda in the Lands of the Islamic Maghreb or AQLIM) and its offshoots or autonomous cells pose the main terrorist threat in North Africa and the Sahel. Under pressure from Algerian security forces, AQIM has increasingly moved its operations out of the Algerian capital of Algiers. The vast area of Algeria's six Saharan provinces and of its sparsely populated Sahelian neighbors affords AQIM optimal terrain in which to move and conduct training as well as to advance its regional ambitions. Algeria's North African neighbors, Tunisia and Morocco, have prevented AQIM from penetrating their territories, except for some recruitment of individuals; both governments fear that AQIM will transfer operational capabilities to indigenous groups. Neither has experienced a major terrorism attack for several years, but both governments and that of Mauritania continue to unearth alleged Al Qaeda cells and affiliated terrorists. It is not clear what AQIM's "unity" with or "allegiance" to Al Qaeda means in practice as the group does not appear to take directions from leaders in Afghanistan/Pakistan. A nominal link is probably mutually beneficial, burnishing Al Qaeda's international credentials as it enhances AQIM's legitimacy among radicals to facilitate recruitment. Since "uniting" with Al Qaeda in 2006, AQIM's rhetoric against the West and governments in the region and beyond (e.g., to Nigeria) as well as its calls for jihad against the United States, France, and Spain have increased. Yet, its operations remain geographically limited to Algeria and the Sahel, and public information available does not suggest a direct AQIM threat to the U.S. homeland. In mid-2010, French officials declared that France is "at war Al Qaeda" following AQIM's murder of a French hostage and AQIM issued several calls for attacks on France. A French national critical terrorism threat alert in September 2010 was attributed, in part, to a rise in AQIM threats, and in October, a message attributed to Osama Bin Laden justified AQIM and other Al Qaeda attacks on France. Algeria AQIM's origins date to the 1990s, when Islamist extremists and security forces engaged in a conflict sparked by a 1992 military coup that prevented an Islamist political party from winning a national election in Algeria. The terrorists sought (and seek) to replace the Algerian regime with an Islamic state. The Armed Islamic Group (GIA) was then the main terrorist threat. In 1998, the Salafist Group for Preaching and Combat (GSPC) split from GIA, claiming to oppose the GIA's indiscriminate targeting of civilians. In 2003, under new leader Abdelmalik Droukdel (aka Abu Musab Abdulwadood), GSPC declared "allegiance" to Al Qaeda. In 2006, it announced "unity" with Al Qaeda, changing its name to Al Qaeda in the Islamic Maghreb. AQIM raises funds by kidnapping for ransom and by trafficking arms, drugs, vehicles, cigarettes, and persons, and receives small-scale funding from cells in Europe. AQIM communicates via sophisticated online videos. In 2006, AQIM increased its attacks against the government, security forces, and foreign workers in Algeria. In 2007, it shifted tactics to "Iraqi-style," suicide attacks, with simultaneous bombings of the Government Palace (the prime and interior ministries) and a suburban police station in April, and of the Constitutional Council and the U.N. headquarters in December, among other attacks. An AQIM suicide bomber failed to assassinate President Abdelaziz Bouteflika in September. After a relative lull, terrorist attacks on security forces escalated in summer 2008, when suicide bombers perpetrated a particularly bloody attack at a police academy, resulting in more than 40 deaths. In 2009, perhaps because security forces had made it difficult to conduct operations in the capital, AQIM mounted attacks elsewhere, notably in the Berber region of the Kabylie in northeastern Algeria, where the security presence had been reduced to pacify civil unrest, although it also shifted its attacks elsewhere. In June, gunmen killed 24 gendarmes (paramilitary police) in an ambush more than 200 miles east of Algiers. In July, they ambushed a military convoy 90 miles west of Algiers, killing at least 14 soldiers. In 2010, AQIM continued carry out attacks on police, including in areas outside the northeast. Several Al Qaeda-linked international terrorist plots have involved Algerians. In December 1999, Ahmed Ressam, an Algerian trained in Afghanistan, was arrested after attempting to enter the United States from Canada; he was convicted for the so-called Millennium Plot that planned bombings in Los Angeles. His associates and other Algerians in Canada were linked to the GIA and Al Qaeda. In January 2003, six Algerians were arrested in a London apartment with traces of ricin, a deadly poison with no known antidote. In October 2009, two French brothers of Algerian origin, one a worker at the European Organization for Nuclear Research (CERN) in Geneva, were arrested in France after intelligence agencies came to suspect them of "criminal activities related to a terror group" (i.e., AQIM). Algeria continues to be a major source of international terrorists, and Algerians have been arrested on suspicion of belonging to or supporting AQIM in France, Spain, Italy, Germany, and Britain. The Sahel AQIM has become increasingly active in the West African Sahel, where it "continues to demonstrate its intent and ability to conduct attacks against U.S. citizens or other foreign nationals," according to the State Department. The Sahel stretches from Mauritania to Chad and encompasses several poor, often politically unstable countries with large, sparsely populated northern border areas and limited state capacity to monitor or secure them. AQIM reportedly maintains mobile training camps along the Algeria-Mali border, and carries out smuggling operations in countries across the Sahel, taking advantage of porous international borders. The group has carried out raids on military and police targets, primarily in Mauritania and Mali; kidnapped or assassinated tourists, diplomats, and private sector workers in these countries; carried out kidnappings in Niger; attacked foreign embassies in Mauritania; and repeatedly clashed with the militaries of Mali, Mauritania, Niger, and Algeria. In 2007, AQIM associates murdered four French tourists, prompting cancelation of the famous Dakar Motor Rally. In 2008, AQIM assassinated 12 Mauritanian soldiers and kidnapped a U.N. envoy to Niger and a Canadian colleague. The Canadians and several European tourists kidnapped in early 2009 were held in Mali and released several months later. A Briton in the group was beheaded after his government refused to meet AQIM demands to release a radical cleric with alleged Al Qaeda ties. In June 2009, a U.S. aid worker in Mauritania was murdered in an apparent kidnapping attempt for which AQIM claimed credit and, in August, AQIM carried out a suicide bombing near the French embassy in Nouakchott, Mauritania. In June 2009, it also assassinated a Malian military official involved in the arrest of several AQIM members. That killing was followed by a series of armed clashes between AQIM and Malian forces, which, with Algerian military aid and French air intelligence support, vowed an "all-out war" on AQIM. The threat of kidnapping is of growing concern. In November 2009, a heavily armed group attempted unsuccessfully to kidnap U.S. embassy employees in Niger and, in June 2010, U.S. embassies in the Sahel warned U.S. citizens of prospective AQIM kidnapping operation in the Mali-Niger-Burkina Faso border region. In July 2010, a Mauritanian-French attempt to rescue a French hostage in Mali resulted in AQIM fatalities, but the hostage was not secured and his death was announced days later. In August 2010, two kidnapped Spanish aid workers were released. In late August 2010, a suicide attack on a Mauritanian military post, attributed to AQIM, was thwarted. In mid-September 2010, seven French uranium mine workers were kidnapped in Niger and then moved into Mali. Days later, Mauritania launched "pre-emptive" air raids in Mali that reportedly killed several AQIM combatants but also civilians. AQIM's presence in the Sahel is divided between two main groups, one led by Yahia Djouadi and a second by Mokhtar Belmokhtar (MBM). The groups' members are primarily Algerian, but include individuals from Mauritania, Niger, Mali as well as Senegal, Ghana, Nigeria, and Benin. The groups appear to cooperate operationally, but their roles and relations are not clear. Differences between them may be reflected in the outcomes of the kidnappings noted above: in two cases, hostages were executed, reportedly after AQIM political demands were not met, while all other hostages were released, reportedly by MBM in return for ransom. While terrorist attacks are attributed to MBM's group, its activities focus on criminal income-earning operations, including kidnappings for ransom. It reportedly maintains a regional network of contacts, including state officials, possibly marking it as relatively pragmatic compared to other AQIM elements. Implications for U.S. Policy U.S. policy makers' efforts to assist North African and Sahelian governments in countering AQIM threats may need to take into account colonial history and regional power balances and navigate them adroitly. Algeria, Mauritania, Niger, and Mali are all former colonies of France and often resist foreign involvement in their internal affairs and territories. Algeria, which waged a bloody independence war against France, is particularly opposed to foreign interference. It has a stronger military and is richer than its neighbors, thanks to its oil and gas wealth, and sees itself as a dominant regional power. Relations between Algeria and other AQIM-affected Sahelian countries have sometimes been strained due to Algeria's regional aspirations and attempts to act as the key U.S. regional interlocutor and prevent French interference in the region. However, efforts to strengthen regional counterterrorism capabilities are being pursued via a variety of U.S. and European security cooperation programs and local initiatives. Algeria has hosted regional counterterrorism meetings, provided air cover for some Sahelian counterterrorist operations, and provided military aid to Mali and Niger. Under a 2010 agreement, the Tamanrasset Plan, Algeria, Mali, Mauritania and Niger are establishing a joint military center to combat terrorism, kidnappings, and trafficking. Under the plan, Algeria is to provide military materiel to other plan participants, and the latter are to expand the size of their militaries. The U.S. government has conducted several initiatives to counter violent extremism in the region. In 2002, the State Department launched the Pan-Sahel Initiative (PSI) to increase border security, and military and counterterrorism capacities of Chad, Niger, Mali, and Mauritania. PSI programs focused solely on building security sector capacity. In 2005, the Bush Administration announced a "follow-on" program known as the Trans Sahara Counterterrorism Partnership (TSCTP). An inter-agency, multi-faceted effort, TSCTP integrates counterterrorism and military training with development assistance and public diplomacy. It aims to improve "individual country and regional capabilities to defeat terrorist organizations [by ... ] disrupting efforts to recruit and train new terrorists, particularly from the young and rural poor, and countering efforts to establish safe havens for ... extremist groups." TSCTP is led by the State Department, but other agencies, including the U.S. Agency for International Development and the Department of Defense (DOD), implement components of the program, including DOD's Operation Enduring Freedom—Trans-Sahara (OEF-TS). Under OEF-TS, U.S. military forces work with African counterparts to improve intelligence, command and control, logistics, and border control, and to execute joint operations against terrorist groups. Governments in the Sahel, a region where democratic gains have often been limited, face diverse security threats, including armed insurrection, banditry, illegal trafficking, and other criminal activities that may threaten state stability more directly than Islamist terrorism. Some in the development community question whether U.S. policy toward the region strikes an appropriate balance between countering extremism and addressing basic challenges of governance, security, and human development, which some view as contributing to the rise of extremism. Others question whether the U.S. response employs the appropriate mix of civilian and military resources or employs a counterproductive "militarization" of U.S. foreign policy in the region. East Africa87 Background and Threat Assessment The East Africa region has emerged over the past two decades as a region highly vulnerable to terrorist attacks and is considered a safe haven for international terrorist groups. Africa's porous borders, lax security at airports and seaports, and weak law enforcement agencies are major concerns. Political, ethnic, and religious conflicts in the region help create an environment conducive to the growth of and recruitment capabilities of terrorist groups. The inability of African security services to detect and intercept terrorist activities due to lack of technology and sufficiently trained and motivated manpower are major impediments addressing the terrorist threats in Africa. The takeover of power in Sudan by the National Islamic Front (NIF) in 1989 led to a significant increase in the activities of international terror groups in Africa. The NIF government provided safe haven for well known international terrorist organizations and individuals, and the government's security services also were directly engaged in facilitating and assisting domestic and international terror groups. Sudan has also been a safe haven for major terrorist figures, including the founder and leader of Al Qaeda, Osama Bin Laden. Bin Laden used Sudan as a base of operations until he returned to Afghanistan in mid-1996, where he had previously been a major financier of Arab volunteers in the war against the Soviet occupation of Afghanistan. Many observers contend that it was during his five-year stay in Sudan that Bin Laden laid down the foundation for Al Qaeda. The penetration by Al Qaeda into East Africa is directly tied to NIF's early years of support to international terrorist organizations. The East Africa region is by far the most impacted by international terrorist activities in Africa. The 1990s saw dramatic and daring terrorist attacks against American interests in Africa. The U.S. Embassy bombings in Kenya and Tanzania in 1998 by Al Qaeda killed 229 people, 12 of whom were American citizens, and injured over 5,000 people. In November, 2002, simultaneous terrorist attacks struck Mombasa, Kenya. Al Qaeda suicide bombers drove a four-wheel drive vehicle packed with explosives into the Israeli-owned Paradise Hotel in Mombasa, killing 10 Kenyans and three Israelis. In June 1995, members of Gama'a Islamiya, an Egyptian extremist group, tried to assassinate President Hosni Mubarak of Egypt in Addis Ababa, Ethiopia. On July 11, 2010, the Somali terrorist group Al Shabaab carried out multiple suicide bombings in Kampala, Uganda. An estimated 76 people, including one American, were killed and more than 80 injured. The United Nations, the African Union, and the United States condemned the terrorist attacks. The attacks took place at a rugby club and Ethiopian restaurant while people were watching the final match of the World Cup. The following day, an Al Shabaab official, Ali Mohamud Rage, stated that "we are sending a message to Uganda and Burundi, if they do not take out their AMISOM troops from Somalia, blasts will continue and it will happen in Bujumbura (Burundi's capital)." Al Shabaab and the Islamist Movements in Somalia The United States, Somalia's neighbors, and some Somali groups have expressed concern over the years about the spread of Islamic fundamentalism in Somalia. In the mid-1990s, Islamic courts emerged in parts of the country, especially in the capital of Mogadishu. These courts functioned as local governments and often enforced decisions by using their own militia. Members of the Al Ittihad Al Islami militia reportedly provided the bulk of the security forces for these courts in the 1990s. The absence of central authority in Somalia created an environment conducive to the proliferation of armed factions throughout the country. Somali factions, including the so-called Islamist groups, often go through realignments or simply disappear from the scene. In late September 2001, the Bush Administration added Al Ittihad to a list of terrorism-related entities whose assets were frozen by an Executive Order 13224. Bush Administration officials accused Al Ittihad Al Islami of links with Al Qaeda. The leader of Hizbul Islam, Sheikh Hassan Aweys, who is on the U.S. terrorist list, was a leader in Al Ittihad Al Islami. In the late 1990s, after Ethiopia and its Somali allies attacked and crushed Al Ittihad, a number of its fighters, the current leadership of Al Shabaab, went to Afghanistan and others went underground. The Evolution of Al Shabaab90 In 2003, the leadership of Al Ittihad, including Sheik Ali Warsame, brother in law of Sheik Hassan Aweys and a number of other top leaders, decided to form a new political front. The young members of Al Ittihad disagreed with the decision of the older leadership in 2003 and decided to form their own movement. These young leaders, some of whom had fought in Afghanistan, met in Laasa aanood, a town in northern Somalia, and later formed a group known then as Harakat Al Shabaab Al Mujahedeen, currently known as Al Shabaab. The current leader of Al Shabaab, Ahmed Abdi Godane, the late Aden Hashi Ayrow, Ibrahim Haji Jama, Mukhtar Robow, helped form the new movement. The primary objective of this group was irredentism and to establish a "Greater Somalia" under Sharia. But Al Shabaab was not active and did not control any territory in Somalia until 2007-2008. The Ethiopian invasion and the ouster of the Courts from power in December 2006 contributed to the emergence of a strong resistance movement. The leadership of the Islamic Courts moved to Eritrea, while the Al Shabaab secretive leadership slowly took control over the resistance movement. Many Somalis joined the fight against the Ethiopian forces. Some of these volunteers did not know or had only limited knowledge of the intent and objectives of Al Shabaab. By mid-2007, the true leaders of Al Shabaab emerged and the ties with Al-Qaeda became clear. In February 2008, then Secretary of State Condoleezza Rice designated Al Shabaab as a Foreign Terrorist Organization and as a Specially Designated Global Terrorist. Al Shabaab and Other Somali Terrorist Groups in Somalia On February 1, 2010, Al Shabaab and the Ras Kamboni group, led by Hassan Al Turki, reportedly agreed to merge under one name: Al Shabaab Mujahidin Movement. Both Al Shabaab and the Ras Kamboni group have been coordinating their attacks against Somalia's Transitional Federal Government (TFG) and working closely with Al Qaeda leaders in East Africa and foreign fighters over the past three years. Senior TFG officials consider the merger a reaffirmation of a pre-existing informal alliance between the two groups. The merger is also triggered in part due to defections and the reported illness of Hassan Al Turki, the leader of Ras Kamboni. Al Turki, an Ethiopian from the Ogaden clan, was designated as a terrorist by the United States in 2004. In December 2010, Hizbul Islam merged with Al Shabaab. The merger is seen by some observers as a surrender after a string of defeats on the ground. Implications for U.S. Policy92 Al Qaeda poses a direct threat against U.S. interests and allies in East Africa. Al Shabaab, on the other hand, appears more focused on carrying out attacks against Somali citizens, the TFG, and African Union peacekeeping forces (AMISOM). According to the 2010 State Department Country Reports on Terrorism , "Al-Shabaab's leadership was supportive of al-Qa'ida (AQ), and both groups continued to present a serious terrorist threat to American and allied interests throughout the Horn of Africa." On February 2, 2010, Director of National Intelligence Dennis Blair at a Senate Select Committee on Intelligence hearing stated: We judge most Al Shabaab and East Africa-based Al Qaeda members will remain focused on regional objectives in the near-term. Nevertheless, East Africa-based Al Qaeda leaders or Al Shabaab may elect to redirect to the Homeland some of the Westerners, including North Americans, now training and fighting in Somalia. Reportedly, over a dozen Somali youth from Minneapolis and other parts of the United States have left the country, and some community leaders believe they went to Somalia to join the insurgency. There is no clear evidence of how many and for what purpose these Somalis left Minneapolis, although some U.S. counterterrorism officials have expressed concern to Congress that some of these individuals could be recruited by Al Qaeda to perform attacks in Somalia or the United States. U.S. officials stressed in early 2009 that they did not possess "credible reporting" that suggested such an operation targeting the U.S. homeland was planned or imminent. The concerns appear based in part on the fact that one of the suicide bombers in the October 2008 attacks in Puntland and Somaliland was a Somali-American from Minneapolis, although broader concerns exist about the participation of U.S. citizens in Al Shabaab activities and potential U.S.-based financing for terrorist groups in Somalia. Over the past decade, many Somalis have returned to Somalia to work as journalists, humanitarian workers, and teachers. A number of these Somalis have been killed in the past two years by insurgents and security forces. On August 5, 2010, more than a dozen Somali-Americans/permanent residents were indicted in California, Alabama, and Minnesota. Attorney General Eric Holder announced that 14 people are being charged with providing support to Al Shabaab. Two indictments unsealed in Minnesota state that Amina Farah Ali and Hawo Mohamed Hassan raised funds for Al Shabaab. The indictments state that 12 money transfers were made in 2008 and 2009. Holder stated at a press conference that "the indictments unsealed today shed further light on a deadly pipeline that has routed funding and fighters to the Al Shabaab terror organization from cities across the United States. These arrests and charges should serve as an unmistakable warning to others considering joining terrorist groups like Al Shabaab—if you choose this route, you can expect to find yourself in a U.S. jail cell or a casualty on the battlefield in Somalia." Al Qaeda and Radical Islamist Extremists in Southeast Asia96 Background and Threat Assessment The United States and Indonesia have a common interest in addressing the threat of militant Islamists in Indonesia and Southeast Asia. The syncretic nature of Islam in Indonesia, which has overlaid earlier animist, Buddhist, and Hindu traditions, is more moderate in character than Islam is in the Middle East or Pakistan. Further, the main political parties in Indonesia are secular-nationalist in their outlook. However, radical or militant Islamists are a threat to the largely secular state and moderate Muslim society of Indonesia. Terrorist activity is not limited to attacking Western targets in Indonesia. In June 2010, one militant was sentenced for his role in a plan to assassinate President Yudhoyono as well as for his involvement in two hotel bombings in Jakarta in 2009. Indonesian views of the nature of the threat from militant Islamists have evolved over time. Islamists were generally suppressed under the New Order regime of former President Suharto. The reformasi period that followed Suharto's fall allowed an opening up of society that gave such views space that was absent under the New Order. After the 2002 Bali bombing that killed over 200 people, Indonesia moved from seeing local militant Islamist groups, such as Jemaah Islamiya (JI), as threats not only to Western and American interests in Indonesia but also as direct threats to the Indonesian government and the Indonesian people. (For background information on JI and militant Islam in Indonesia see CRS Report RL34194, Terrorism in Southeast Asia , coordinated by [author name scrubbed].) Key terrorist attacks in Indonesia include the Bali bombing of 2002, the 2003 bombing of the Marriott Hotel in Jakarta, the 2004 bombing of the Australian Embassy, and bombing attacks against Western hotels in Jakarta in 2009. While for most of the 2000s, JI was the key terrorist organization in Indonesia, this now appears to be shifting. According to Sidney Jones of the International Crisis Group, it now appears that militant Islamists can be identified with one of three groups: JI; the remaining members of the network of Noordin Top, a militant killed in 2009; and a new alliance of various Jihadists that had set up a training camp in Aceh. JI is evidently now focused on rebuilding its organization after having been effectively pursued by the Indonesian government. JI is also focused on establishing an Islamist state in Indonesia and possibly the region, as opposed to the Noordin Top network that is more focused on attacking Western targets in Indonesia. The raid on the new alliance of Jihadists in Aceh, which began on February 22, 2010, has uncovered a group which according to Sydney Jones "is a composite of people from a number of different militant groups like Jemaah Islamiya, Kompak and Darul Islam, who are frustrated with what they see as a lack of action within these groups. They're more radical, and apparently see themselves as Indonesia's Al Qaeda." The February Aceh raid apparently led to the March 2010 raid that killed a militant named Dulmatin, who is thought to be one of the planners and executers of the 2002 Bali bombing. It is thought that a militant named Saptono took over the Aceh cell after Dulmatin was killed. Saptono was in turn killed during a raid in May 2010. Some experts have observed that the capture, rather than the killing, of such leaders could yield valuable intelligence. In May 2010, it was reported that a plot to assassinate President Yudhoyono and other national leaders in a rifle/grenade attack on Indonesia's Independence day (August 17, 2010) was disrupted. It was also reported that the plotters were considering moving the attack up to coincide with President Obama's now canceled June 2010 visit. A leader of the Aceh cell that was reportedly planning to assassinate President Yudhoyono, Abdullah Sunata, was captured in June, 2010. He was previously released from prison after having been imprisoned for his role in the Australian embassy bombing. The government's response to militant Islamists has been largely effective, though there are some problem areas. Rivalry between the Indonesian military (TNI), the police, and the state intelligence agency BIN probably keeps the state's response from being as effective as it could be. Lax standards at prisons have reportedly allowed militants to communicate with their organizations while in prison. Government-run deradicalization programs, which are more cooptative than ideological in nature, have reportedly allowed some militants to rejoin their organizations after their release from prison. Indonesia has reportedly arrested 400 terror suspects and released 242. In September 2010, General Ansyaad Mbai was appointed head of Indonesia's new National Counter Terrorism Agency (BNPT) that was formed by presidential decree. The BNPT will carry out its functions under the Coordinating Minister of Security, Political and Legal Affairs and is tasked with formulating policies and programmes and coordinating the implementation of policies. Some fears have been voiced that the BNPT will act in ways similar to former President Suharto's New Order regime. Others are concerned that BNPT may find it difficult to effectively coordinate the counter terror efforts of the police, TNI, and BIN. Security Affairs Minister Djoko Suyanto stated that there was no room for complacency during his remarks to a BNPT organized conference on Counter Terrorism in October 2010. Another new development in Indonesia's counter-terror operations in 2010 includes the use of TNI troops, particularly Kopassus troops, in counter-terror operations. There reportedly was an increase in low level terrorism activity in Indonesia in 2010 which appears to be aimed at building up terrorist groups financial resources. In the Fall of 2010 there were a number of robberies that were believed to be linked to efforts to fund radical organizations. Three policemen were killed at the Hamparan Perak police station a few days after police arrested robbers of a bank in Medan. Police killed three who robbed a bank in Padang. The Indonesian police reportedly believe that Abu Bakar Ba'asyir delivered sermons in Medan which motivated the attacks on the Hamparan police station and the robbery of the Bank in Medan. Implications for U.S. Policy The policy implications of developments in Indonesia are largely positive. Indonesia has moved from a somewhat ambivalent counter terror partner in the immediate post 9-11 period to a now effective, and increasingly close, partner. The evolving counter terror cooperation has also helped foster the larger bilateral relationship. President Obama, who spent part of his childhood in Indonesia, and President Susilo Bambang Yudhoyono signed a Comprehensive Partnership agreement during President Obama's visit to Indonesia in 2010. This marks a strengthening and broadening of U.S. relations with Indonesia and opens the way for developing closer strategic relations with Indonesia. Al Qaeda's Global Strategy and Implications for U.S. Policy110 Overall, Al Qaeda leaders' statements from the mid-1990s through the present suggest that they see themselves and their followers as the armed vanguard of an international Islamist movement. Nevertheless, some experts now argue that "al-Qa'ida has been a marginal actor in the larger drama of international Islamist militancy," and that believe that the group's "quest for influence has been in vain." Al Qaeda and many of its affiliates state a commitment to ending non-Muslim "interference" in the affairs of Muslims and to recasting predominantly Muslim societies according to narrow interpretations derived from the practices of Sunni Islam's earliest generations. Statements from some Al Qaeda leaders advocate for a phased struggle, in which the initial goal is the expulsion of U.S. and foreign military forces from "Islamic lands" and proximate goals include the overthrow of "corrupt" regional leaders and the creation of governments that rule solely according sharia (Islamic law). References to the reestablishment of an Islamic caliphate frequently appear in Al Qaeda propaganda but often lack detail and are rarely accompanied by practical political prescriptions for achieving such a goal. Some Al Qaeda leaders also promote military confrontation with Israel and conflict with Shiite Muslims. The varying appeal and compatibility of these different components of Al Qaeda's ideology account for the group's successes and failures in attracting support. In pursuit of their many goals, leaders of Al Qaeda and its regional affiliates frequently make appeals for support based on a wide range of political positions and, at times, attempt to harness nationalist sentiment or manipulate local grievances to generate support for their agendas. These differing priorities, approaches, and contexts create challenges for those Al Qaeda figures who have hoped to construct a unified narrative of Al Qaeda's goals or implement a unified strategy to achieve them. Some experts note that Al Qaeda's "description of the enemy is confusing and inconsistent" and suggest that, overall: speaking of al-Qa'ida's "strategy" is a misnomer. The jihadi movement's various operational units, whether named al-Qa'ida affiliates or small cells, cull through various ideological and strategic documents to identify elements that they can achieve. Such strategic variation is enhanced by jihadis' inability to coordinate closely, which likely limits their ability to achieve ultimate policy goals, but also complicates the processes to combat the movement writ large. Although Osama Bin Laden's self-professed goal has been to "move, incite, and mobilize the [Islamic] nation" until it reaches a revolutionary "ignition point," Al Qaeda leaders' statements and Al Qaeda attacks to date appear largely to have failed to mobilize broad support among Muslims. Some observers believe that Al Qaeda faces fundamental limits to its appeal because its rhetoric and goals extend beyond what many Muslims view as religiously legitimate or practically desirable. While global public opinion polls and media monitoring indicate that dissatisfaction with U.S. foreign policy has grown significantly in some predominantly Muslim societies, the sectarian rhetoric of some Al Qaeda affiliates and the persistence of Al Qaeda-inspired terrorist attacks that kill and maim Sunni and Shiite Muslim civilians have undermined Al Qaeda's appeal among some Muslim groups. Some experts also argue that the uncompromising, anti-democratic tone of many of the statements released by Bin Laden, Al Zawahiri, and their regional supporters may be alienating Muslims who support the concept of secular or religious representative government. Analysis of the statements issued by Al Qaeda leaders and affiliates since the mid-1990s suggests that these groups and individuals believe that characterizing their actions as religiously sanctioned, defensive reactions to external threats will increase tolerance of and support for their broader ideological program. Al Qaeda and its regional affiliates also appear to believe that the identification of limited political objectives and the suggestion to non-Muslim audiences that the fulfillment of those objectives will resolve their grievances may generate broader appeal than the group's underlying religious agenda. In fact, experts note that Al Qaeda and its affiliates "pursue a variety of objectives that are rarely clearly defined" and point out that the group "advocates everything from reestablishing the caliphate to the personal religious salvation of its members." The practical political and operational realities facing many Al Qaeda affiliates in pursuit of their discrete goals and needs have often led these groups to take actions that have undermined their efforts to portray themselves as defenders of Muslims with limited objectives. For example: In December 2004, Bin Laden identified the conflict in Iraq as "a golden and unique opportunity" for jihadists to engage and defeat the United States, and he characterized the insurgency in Iraq as the central battle in a "Third World War, which the Crusader-Zionist coalition began against the Islamic nation." Nevertheless, several strategic choices made by Al Qaeda's affiliates in Iraq undermined their support among key groups, specifically their decisions to stoke sectarian conflict, to rigidly enforce religious doctrine in some areas, and to target the leaders and citizens of some Sunni Muslim communities. Each of these decisions contributed to the significant attrition the group has suffered from 2007 onward at the hands of Iraqi security forces, the government's Sunni allies among the Awakening and Sons of Iraq movements, and the United States military. Similarly, affiliates of Al Qaeda in Saudi Arabia initially oriented their attacks against foreign interests in the kingdom during their 2003-2007 campaign, in line with Al Qaeda leaders' rhetoric that had long targeted the U.S. military presence and other outside influences. Saudi security officials believe that once local Al Qaeda affiliates shifted the focus of their attacks away from foreign targets and onto local security forces, Al Qaeda created an opportunity for the government to directly engage and eliminate the group. In addition to carrying out more robust security operations, the government launched a campaign that used nationalist sentiment to undermine popular support for the group by highlighting Al Qaeda attacks against security officers. Deradicalization programs have successfully demobilized some supporters of Al Qaeda, while other individuals have returned to militancy and rejected pro-government clerics' arguments about requiring rulers' and parents' permission to participate in violent jihad. Since 2006, Al Shabaab fighters in Somalia who affiliate themselves with Al Qaeda have rallied support from some Somalis opposed to external intervention in Somalia and the Transitional Federal Government (TFG). However, Al Shabaab threats against the United Nations World Food Program (WFP) and several other aid agencies have largely shut down humanitarian aid delivery in southern Somalia, cutting access to almost half of WFP's planned beneficiaries in 2010 and exacerbating food insecurity. Terror attacks against civilian targets, including a medical school graduation ceremony in late 2009 and a Mogadishu hotel in August 2010, also have served to alienate many Somalis. Amid recruiting efforts that have drawn ethnic Somalis and other foreigners from the United States and Europe to Somalia, Al Shabaab nevertheless has sought to publicly downplay the presence of foreign fighters within its ranks, given local sensitivities to foreigners using Somalia for their own purposes. In Southeast Asia, the Jemaah Islamiyah (JI) network's 2002 bomb attack in Bali, Indonesia that killed over 200 people led the Indonesian government to reverse course and undertake a concerted effort to track, arrest, and kill JI leaders, as well as to increase anti-terrorist cooperation with the United States and Australia. The ensuing crackdown in Indonesia and other countries appears to have degraded JI's capabilities, particularly its more militant factions, which were most closely associated with Al Qaeda. Since the mid-2000s, JI appears to be taking direction from more "bureaucratic" elements that oppose the militants' violent tactics, at least in the short term. Many observers argue that the success or failure of U.S. and allied counterterrorism efforts are tied to decisions made by regional governments and publics about the relative importance of combating Al Qaeda operatives, affiliates, and ideologues within their own societies. Recent events suggest that U.S. and allied counterterrorism policies can be successful when they capitalize on Al Qaeda actions and messages that alienate current or potential supporters. Similarly, events also suggest that Al Qaeda members seek to capitalize on U.S. and allied policies and actions that are unpopular among Muslim audiences, such as military operations that result in civilian casualties as well as broader policies such as the presence of foreign military forces in Muslim countries. Action taken by the United States and its allies against Al Qaeda affiliates has the potential to shape the global fortunes of the Al Qaeda brand and the appeal of violent Islamism, and vice versa. Counterterrorism approaches that work in one theater of operations or political context may prove counterproductive when applied elsewhere. These complex dynamics and calculations are likely to continue to challenge decision makers and require unique approaches in each of the regional contexts described above.

Al Qaeda (AQ) has evolved into a significantly different terrorist organization than the one that perpetrated the September 11, 2001, attacks. At the time, Al Qaeda was composed mostly of a core cadre of veterans of the Afghan insurgency against the Soviet Union, with a centralized leadership structure made up mostly of Egyptians. Most of the organization's plots either emanated from the top or were approved by the leadership. Some analysts describe pre-9/11 Al Qaeda as akin to a corporation, with Osama Bin Laden acting as an agile chief executive officer issuing orders and soliciting ideas from subordinates. Some would argue that the Al Qaeda of that period no longer exists. Out of necessity, due to pressures from the security community, in the ensuing years it has transformed into a diffuse global network and philosophical movement composed of dispersed nodes with varying degrees of independence. The core leadership, headed by Bin Laden and Ayman al-Zawahiri, is thought to live in the mountainous tribal belt of northwest Pakistan bordering Afghanistan, where it continues to train operatives, recruit, and disseminate propaganda. But Al Qaeda franchises or affiliated groups active in countries such as Yemen and Somalia now represent critical power centers in the larger movement. Some affiliates receive money, training, and weapons; others look to the core leadership in Pakistan for strategic guidance, theological justification, and a larger narrative of global struggle. Over the past year senior government officials have assessed the trajectory of Al Qaeda to be "less centralized command and control, (with) no clear center of gravity, and likely rising and falling centers of gravity, depending on where the U.S. and the international focus is for that period." While a degraded corporate Al Qaeda may be welcome news to many, a trend has emerged over the past few years that some view as more difficult to detect, if not potentially more lethal. The Al Qaeda network today also comprises semi-autonomous or self radicalized actors, who often have only peripheral or ephemeral ties to either the core cadre in Pakistan or affiliated groups elsewhere. According to U.S. officials Al Qaeda cells and associates are located in over 70 countries. Sometimes these individuals never leave their home country but are radicalized with the assistance of others who have traveled abroad for training and indoctrination through the use of modern technologies. In many ways, the dispersion of Al Qaeda affiliates fits into the larger strategy of Bin Laden and his associates. They have sought to serve as the vanguard of a religious movement that inspires Muslims and other individuals aspiring to join a jihadi movement to help defend and purify Islam through violent means. The name "Qaeda" means "base" or "foundation," upon which its members hope to build a robust, geographically diverse network. Understanding the origins of Al Qaeda, its goals, current activities, and prospective future pursuits is key to developing sound U.S. strategies, policies, and programs. Appreciating the adaptive nature of Al Qaeda as a movement and the ongoing threat it projects onto U.S. global security interests assists in many facets of the national security enterprise, including securing the homeland; congressional legislative process and oversight; alignment of executive branch resources and coordination efforts; and prioritization of foreign assistance. The focus of this report is on the history of Al Qaeda, known (or attributed) actions and suspected capabilities of the organization and non-aligned entities, and an analysis of select regional Al Qaeda affiliates. This report may be updated as events warrant.

Introduction Persons of African descent, commonly referred to as "Afro-Latinos," along with women and indigenous populations, are among the poorest and most marginalized groups in Latin America. The term "Afro-Latinos," as used within the international development community and the U.S. government, generally refers to Afro-descendant populations in the Spanish-and Portuguese-speaking nations of Latin America. Following common usage, this paper uses the terms "Afro-descendant," "Afro-Latino," "Afro-Latin," and "black" interchangeably. This paper does not include a discussion of Haiti or English-speaking Caribbean nations that have governments composed largely of Afro-descendants. Within the past decade, Afro-Latinos have begun to employ different strategies to align national movements with international organizations, including multilateral development banks to which the United States contributes, in order to improve their social status. Some countries—most notably Brazil and Colombia—have enacted legal reforms and government programs to address racial discrimination, land rights, and political and social exclusion. Improvement in the status of Afro-Latinos could be difficult and internally contentious, however, depending on the size and circumstances of the Afro-descendant populations in each country. Some U.S. analysts and policymakers argue that the United States has a specific interest in assisting Afro-descendant peoples in Latin America. They assert that assisting vulnerable peoples fits into larger U.S. policy goals for the region: promoting democracy, encouraging economic growth and poverty reduction, and protecting human rights. Those proponents disagree, however, as to whether U.S. foreign aid should be specifically targeted towards Afro-Latinos (as it has been in the case of some indigenous peoples), or whether it should continue to be distributed broadly through programs aimed at helping all marginalized populations. Other analysts question whether increasing assistance to Afro-Latinos is feasible at a time when limited development assistance is being allocated to Latin America. They point out that the country with the largest Afro-descendant population in the region, Brazil, is relatively developed and does not receive large amounts of U.S. foreign aid. They question whether funds directed towards Afro-Latinos will have to be taken from programs currently serving other needy groups. Still others caution that because race is a sensitive issue for many countries in Latin America, the United States should be cautious when pursuing policies that affect the issue. This report reviews and analyzes the situation, concerns, and activities of Afro-descendants in the Spanish-and Portuguese-speaking nations of Latin America. It then discusses current U.S. foreign aid programs, as well as multilateral initiatives, that have directly or indirectly assisted Afro-Latinos. The report concludes with a discussion of potential policy options that have been proposed should the United States elect to provide further support for Afro-Latinos. Panorama of Afro-Latinos in Latin America Race and ethnicity are complex issues in Latin America. Most of Latin America's 540 million residents descend from three major racial/ethnic groups: Indian or indigenous peoples, of whom there are some 400 distinct groups; Europeans, largely of Spanish and Portuguese heritage; and Africans, descendants of slaves brought to the region during the colonial era. Mestizo generally refers to people of mixed European and indigenous lineage, while mulatto refers to people of mixed African and European background. After centuries of racial mixing, there are numerous racial variations in Latin America, and many people of mixed African, European, and indigenous ancestry. Since the colonial period, racial intermingling, also known as mestizaje , has been a source of national pride for many countries in Latin America. Countries with large Afro-descendant populations, especially Brazil, have, until recently, been heavily influenced by the notion of "racial democracy." Racial democracy attributes the different conditions under which blacks and whites or mestizos live to class differences, not racial discrimination. Adherents of this theory, which is also pervasive in Ecuador, Colombia, and Venezuela, argue that being black is a transitory state that can be altered by "whitening" through miscegenation or wealth accumulation. The racial democracy theory has been challenged by recent data revealing a strong and persistent correlation between race and poverty in Latin America. In both Brazil and Colombia, the countries with the largest Afro-Latino populations in South America, Afro-descendants are (and have always been) among the poorest, least educated, lowest paid citizens. Despite the complexities surrounding racial identity in Latin America, and the limited data available on this topic, this section outlines the characteristics, history, and current status of Afro-descendant people in Latin America. Identity, Definition, and Geographic Distribution Afro-descendants in Latin America have not been historically identified, as they have in the United States, as any individual with traceable African ancestry. People in Latin America have several different ways of classifying themselves. Lighter skinned mulattoes may identify themselves as white, while some blacks may identify themselves as mulattoes or mestizos. These classifications are influenced by class position, geographic location, societal associations of blackness, the existence (or lack) of collective identities among people of color, and state policies. There is a range of state policies towards race in Latin America, from tacitly condoning racism against minority groups to promoting diversity. The Dominican Republic provides a striking example of how racial identity has been formed by official notions of national identity. The Dominican government mobilized a nationalist movement against an external threat (the mostly black republic of Haiti). Although the vast majority of the population has African ancestry, Dominicans, in order to distinguish themselves from their poorer Haitian neighbors, tend to define themselves as mestizos descended from Indians and Europeans, and not as Afro-Dominicans. A 2005 study on racial attitudes in the Dominican Republic finds that 83% of Dominicans believe their society is racist against blacks. For the purposes of this report, blacks and mulattoes are grouped together to yield the estimated number of Afro-descendants in Latin America. Of the 540 million people living in Latin America, some 150 million were of African descent as of 1997, the latest data available. Afro-Latinos tend to reside in coastal areas, although in many countries they have migrated to large cities in search of employment. Afro-Latinos constitute a majority of the population in Cuba and the Dominican Republic. In Brazil, Colombia, Panama, Venezuela, Ecuador, and Nicaragua, they form a significant minority. In terms of absolute numbers, Brazil has the largest Afro-descendant population outside of Africa. In 2000, 45% of Brazilians identified themselves as black or mulatto, as compared to 13% of U.S. citizens who identified themselves as African-American. History The vast majority of Afro-Latinos descend from the millions of slaves brought by European traders from the West African coast who survived the Middle Passage to the Americas. Some historians have stated that the first slaves in the hemisphere arrived in Virginia in 1619, and that the majority of African slaves ended up in the southern United States. However, historians now maintain that the first slaves arrived in Hispaniola, an island now divided between Haiti and the Dominican Republic, in the early 16 th century. Some 12 million or so Africans arrived in the Americas over the 400-year history of the slave trade. Some scholars estimate that more than 50% of those African slaves ended up in Brazil, while only 5% went to the United States. Although many Africans perished due to harsh working conditions and disease, new slaves from West Africa continued to replace them until abolition. Slavery was abolished in most Latin American countries at or soon after their independence from Spain in the1820s, but continued in Brazil until1888. As slavery and lingering racism have left an indelible mark on Afro-Latinos, so too has the long but little-known legacy of black rebellion and self-liberation (marronage). The first slave rebellions occurred in Puerto Rico (1514) and Hispaniola (1522). By the 17 th century, maroons (escaped slaves) in Latin America have been estimated to have numbered between 11,000 and 30,000. Maroons formed communities with sovereign territoriality in remote terrains with low population densities that now constitute the prominent Afro-Latino areas of eastern and northern South America, Central America, and the Caribbean. According to the Brazilian Ministry of Culture, there are at least 1,098 quilombola (escaped slaves) communities in Brazil today. Afro-descendant communities in Honduras and Nicaragua are generally rural communities descended from escaped slaves who immigrated to Central America from the Caribbean in the 17 th and 18 th centuries. Many of those communities, particularly the Garifuna in Honduras, have developed distinct racial, cultural, and political identities based on communal land ties in areas that are geographically isolated from the rest of their country's populations. Current Status Although some countries with large Afro-Latino populations, such as Brazil and Colombia, disaggregate socioeconomic data by race, most countries do not, making it extremely difficult to find good quantitative data on Afro-Latinos. Despite these data limitations, household surveys and anecdotal evidence from across the region point to a correlation between African descent and political, economic, and social marginalization. Disparities between Afro-Latinos and the general population in Latin America have persisted despite rising income and growth levels throughout the region. Statistics from Brazil, Colombia, Ecuador Honduras, and Nicaragua generally support that finding. Brazil Afro-Latinos represent 45% of the population of Brazil but constitute 64% of the poor and 69% of the extremely poor. With respect to education, 18% of Afro-Brazilians have completed secondary school as compared to 38% of those who self-identify as white. Afro-Brazilians have, on average, roughly five years of schooling, whereas whites have completed nine years of school. They earn, on average, some 44% less than non-blacks. Some 41% of Afro-Brazilians live in houses without adequate sanitation and 21% lack running water, versus 18% and 7% of white households. The maternal mortality rate of Afro-Brazilian women is three times that of their white counterparts. Afro-Brazilians have lower life expectancies than whites (66 years as compared to 71.5 years) and nearly twice the homicide rate of whites. One study found that violence is becoming the leading cause of death for Afro-Brazilian men. Colombia Colombia has the second largest Afro-descendant population in Latin America after Brazil. While most analysts assert that Afro-Colombians constitute between 19% and 26% of the Colombian population, only 11% of the population self-identified as Afro-Colombian in the country's 2005 national census. Most Afro-Colombians reside in rural areas on the country's Pacific Coast, but many have also fled to poor neighborhoods in the country's large cities as a result of the country's ongoing armed conflict. Some 80% of Afro-Colombians live in conditions of extreme poverty, and 74% of Afro-Colombians earn less than the minimum wage. Chocó, the department with the highest percentage of Afro-Colombians, has the lowest per-capita level of government investment in health, education, and infrastructure. Some 30% of the Afro-Colombian population is illiterate, with illiteracy in some rural black communities exceeding 40%. The Colombian health care system covers only 10% of black communities, versus 40% of white communities. Despite their marginalized position in Colombian society, Afro-Colombians reside on some of the country's most biodiverse, resource-rich lands. Ecuador Afro-Latinos represent between 5% and 10% of the Ecuadorian population. Some 69% of Afro-Latinos in Ecuador reside in urban areas, primarily in the coastal regions of Guayas and Esmeraldas. Afro-Ecuadorians generally live in slightly better conditions than the indigenous population, but both groups post poverty rates significantly above the country's average (90% and 74% respectively as compared to 62%). This poverty is perpetuated by a lack of access to health care, sanitation, education, and well paying jobs. For example, Esmeraldas, a region whose population is 80% Afro-Ecuadorian, has infant mortality rates double the national average. At a national level, only 15% of Afro-Ecuadorians aged 18 and over have completed secondary school as compared to 23% of the general population. As a result, although Afro-Ecuadorians have a high labor participation rate, the vast majority are employed in low-wage jobs. Honduras Afro-Latinos represent roughly 2% of the population of Honduras. The Afro-Honduran population is primarily composed of Garifuna and Afro-Antilleans. Some 80% of Garifuna reside in rural communities along Honduras' northern Atlantic coast, while 85% of the Afro-Antilleans reside in the Bay Islands. The 2001 Honduran census reports that these regions, though poor, have lower poverty levels than the rest of Honduras' departments. According to the national census, some 55% of Garifuna households and 63% of Afro-Antilleans report having their basic needs met. In addition, while the national illiteracy rate is estimated at 20%, the illiteracy rate for Garifuna is 9% and for Afro-Antilleans is 4%. The Garifuna are a high-risk group for HIV/AIDS, with over 8% of the population infected (as compared to the national prevalence rate of 1.8%). Nicaragua Afro-descendants constitute roughly 9% of the Nicaraguan population. Nicaragua is the second poorest country (behind Haiti) in the Western Hemisphere. Although Afro-Nicaraguans do not reside in the poorest regions of the country, their communities are located in some its most isolated coastal regions. Most Afro-descendants reside in the Caribbean lowlands of Nicaragua, a region that was never part of the Spanish empire but rather a de facto British protectorate from the 17 th through the late 19 th centuries. As recently as 1993, there were no paved roads connecting lowland Caribbean communities to Nicaragua's Pacific region. The World Bank has recently reported that although an average of 60% of Nicaraguan households have access to potable water and 49% have electricity, comparable figures for the Atlantic coast are 21% and 17% respectively. Issues Affecting Afro-Latino Populations This section provides a brief overview of some of the major issues affecting Afro-descendant communities in Latin America. These issues include legal protection, political representation, land rights, human rights, and access to quality healthcare. When applicable, the section compares and contrasts the situation of Afro-descendants to that of indigenous peoples. Indigenous peoples are, generally, descendants of the Amerindian ethnic groups that lived in the hemisphere prior to the European conquest who retain distinct communal, cultural, linguistic, or geographic identification with that heritage. Indigenous peoples have, perhaps as a result of their distinct heritage and shared history, generally exhibited a stronger sense of group identity and a higher level of political mobilization than Afro-descendants. For example, while the First Inter-American Indian Congress was held in Mexico in 1940, the first large-scale hemispheric meeting of Afro-descendant leaders was held in 1977, and the first meeting of Afro-Latino legislators was held in Brazil in 2003. Some have argued that Afro-descendant communities that have been able to prove their "indigenous-like" status have achieved more rights and recognition from their governments than other blacks in the region. Others assert that it has been easier for the indigenous to achieve collective rights than Afro-descendants as political elites in Latin America have tended to award those rights on the basis "of a perceived possession of a distinct cultural group identity, not a history of political exclusion or racial discrimination." Despite those limitations, Afro-descendant leaders in Latin America have used international forums, multilateral donors, and diplomatic channels to garner support for increased rights and representation for their communities. Since 1990, these efforts have resulted in significant improvements in the formal rights accorded to their communities in a relatively short period of time. They have also been relatively successful in garnering international support for their movement, including support from some Administration officials and Members of Congress. Afro-Latino mobilization efforts have been less successful in galvanizing grassroots support for race-based public policies or in "ensuring that public policies are implemented or that laws are followed once they are created." The most salient challenges for the Afro-descendant movement in Latin America include increasing public awareness and group identification among Afro-Latinos while also ensuring that formal rights granted by governments result in meaningful improvements in the standards of living of their communities. Political and Legal Issues National Census A government may define race and delimit a country's concept of "otherness" by the categories it chooses to include in its national census. In a 1991 census, Brazilians used 100 different words to define their racial categories. In the early 1990s, some analysts criticized the Brazilian government's historic tendency not to encourage citizens to define their racial identity in strict categories. They argued that ambiguous census categories inhibited the formation of advocacy groups and political movements to improve the status of Afro-Brazilians. In 1995, Fernando Henrique Cardoso assumed the presidency in Brazil and, under his leadership, the Brazilian government began to use fewer racial categories in the country's national census. The government sought to collect official statistics on Afro-Brazilians in order to assess whether specific public policies were needed to improve their socioeconomic status. Some observers have attributed Brazil's subsequent adoption of some affirmative action policies as a positive byproduct of this census reform. In 2000, encouraged by the Brazilian example, the World Bank sponsored the first of two conferences on census reform for officials from national statistics bureaus across the region. As a result of these conferences, and ongoing census reform, all countries in Latin America now include some sort of racial indicator in their national censuses. Many countries are also including "racial modules" in household surveys, which will enable them to track the socioeconomic status of Afro-descendants as compared to the general population. Anti-Discrimination Legislation No Latin American country has ever enacted the type of strict racially based discriminatory laws that were once common in the United States. A paradoxical result of that distinction is that the law has, thus far, proved to be a more successful tool for dismantling racism in the United States than it has in Latin America. According to the Inter-American Dialogue, a great deal of variation exists among Latin American countries with respect to anti-discrimination legislation targeted at Afro-descendants. As of October 2006, only Brazil, Colombia, and Ecuador had constitutional bans on racial discrimination that are specific to Afro-descendants. In several other countries—Nicaragua, Honduras, and Peru—Afro-descendants, though not specifically identified by a constitutional provision, have been given the same sort of legal protection and collective rights as indigenous peoples. The Dominican Republic stands out as the only country in Latin America with a large Afro-Latino population that has neither constitutional provisions nor major laws to prevent racial discrimination. Political Representation Afro-Latinos are under-represented politically in many Latin American nations. In 2007, Brazil, a country with 45% of its population claiming some African ancestry, 17 congressmen of a total of 594 self-identified as Afro-Brazilian. In Ecuador, the population is between 5 and 10% Afro-Latino, but in 2006 there was only one Afro-Ecuadorian serving in the 100-member Congress. Representation has increased in some countries, however. In November 2005, for the first time in the country's history, Hondurans elected 3 Garifuna to serve in the country's legislature. There are now Afro-descendant leaders serving as ministers in several countries throughout the region including Brazil, Ecuador, and Colombia. Some policy-makers in Latin America believe countries should employ quotas in order to ensure that Afro-descendants (as well as indigenous peoples) are represented on party tickets and in legislative bodies. Quotas, though controversial, have been used across the region to increase female political representation. In 1991, Argentina enacted a law requiring parties to present at least 30% female candidates in their party lists. By 1997, women's representation in the Argentine Congress had risen to 28%, one of the highest rates in the world. Since the Beijing Conference on Women in 1995, at least eight other Latin American countries have passed laws requiring political parties to reserve 20%-40% of candidacies for women. In 1993, Colombia passed a law that set aside two seats in Colombia's House of Representatives for persons of African descent. That law was declared unconstitutional in 1996, and several years passed during which few Afro-Colombians were elected to serve in either the Senate or the House of Representatives. Colombia now has two Afro-Colombian senators and seven Afro-Colombian members of its House of Representatives. On October 26, 2006, the Colombian Black Caucus was officially launched, at which time it presented its priorities, which include legislative proposals that would condemn racism, enforce land titles for Afro-Colombian communities, and establish quotas for the representation of indigenous peoples and Afro-Colombians in public entities. The Colombian Black Caucus has recently begun receiving technical assistance from the International Republican Institute. Similar groups are being initiated in the legislatures of Honduras, Panama, and Venezuela. Another way to address the issue of race and political representation has been the creation of new institutions to promote racial equity and affirmative action. In 2003, Brazil established a Special Secretariat with a ministerial rank to manage Racial Equity Promotion Policies. The mission of the Special Secretariat is to develop initiatives to reduce racial inequalities by developing affirmative action programs, coordinating with other Ministers and government entities, and cooperating with the private sector and international institutions. Despite the Special Secretariat's efforts to address racial discrimination in Brazil, some grassroots Brazilian groups maintain that its Afro-Brazilian leaders have been coopted by the government and assert that the Special Secretariat is under-funded and under-performing. The head of the Special Secretariat resigned in January 2008 amidst allegations that she misused her government credit card. Other countries that have similar government entities in place include Ecuador, Honduras and Peru. Affirmative Action In 2001, Brazil became the first Latin American country to endorse quotas in order to increase minority representation in government service. Although Brazil's public universities are free, most Afro-Brazilians, the majority of whom attend public high schools, have been unable to pass the admissions test required to attend those universities. In 2000, black students comprised only 2% of Brazil's 3 million college students. Since 2002, over 40 universities throughout Brazil have enacted quotas setting aside admission slots for black students. In 2004, the first university in Latin America established to serve black students opened in Sâo Paulo, Brazil. The use of quotas in university admissions and government hiring programs has opened up a vigorous debate on affirmative action in Brazil that may spread to other countries in Latin America. Although most Brazilians favor government programs to combat social exclusion and inequality, they disagree as to whether the beneficiaries of those programs should be selected on the basis of race or income. Several court cases in Brazil have challenged the fairness of using racial quotas for university admissions. Some observers have stated that state governments throughout Brazil have not budgeted the funds necessary to provide financial assistance and supplementary services for minority students admitted under the quota program. Critics of affirmative action programs fear that they will artificially divide Brazilian society along "'pseudo-racial' lines and foster the kind of overt racial tension with which Brazil is not familiar." Human Rights For the past several years, both the U.S. Agency for International Development (USAID) and the multilateral development banks have shared the goal of increasing human rights protection and access to the justice system for minority groups in Latin America, but progress has been slow in both these areas. The State Department Human Rights Report for Brazil covering 2007 finds that "darker-skinned citizens, particularly Afro-Brazilians, frequently encountered discrimination." Afro-Ecuadorians reportedly face both official discrimination and negative stereotyping and are stopped by police for document checks more frequently than other citizens. A 2004 report on people of African descent and the judicial systems of Brazil, Colombia, Peru, and the Dominican Republic finds weak enforcement of laws against racism, and limited access to justice for blacks in these countries. Though data on Latin American prisons is limited, the survey also found blacks to make up large percentages of prison populations living in conditions that were often overcrowded, violent, and unhygienic. The absence of an effective state presence in Afro-Colombian communities has created a vacuum into which the country's 40-year conflict between paramilitaries and guerrilla forces has spread. In May 2002, a battle between paramilitaries and guerrilla forces resulted in the bombing death of 119 Afro-Colombian civilians who had sought refuge in a town church. Nationally, Afro-Colombians compose roughly 22% of the total displaced population, which is now estimated to exceed 3 million. According to the Colombian Consultation for Human Rights and Displacement (CODHES), the displacement rate of Afro-Colombian communities is 20% higher than the national rate. In the last five years, more than 2,500 young Afro-Colombians have been killed, primarily in the cities of Tumaco and Buenaventura. Buenaventura posted the highest murder rate of any city in Colombia in 2006, some seven times the rate in Bogotá. In 2006, the United Nations expressed concern that the Colombian conflict was having a disproportionate effect on indigenous and Afro-Colombian communities. Afro-Colombian leaders have expressed concern that the Colombian government, though making an effort to protect some endangered Afro-Colombian leaders, has not responded to black communities' demands for better government services and increased protection. Land Titles Giving poor families access to land titles has been identified as an important poverty-fighting measure. Land titles can enable families to obtain mortgages to finance home improvements, to start small businesses, or to pay for their children's education. Increasing legal land ownership enables governments to collect more property taxes to pay for schools, hospitals, and infrastructure projects. The World Bank has helped finance land-titling programs in Peru, Bolivia, El Salvador, and Guatemala. In the 1980s, a number of Latin American countries began to recognize the importance of land reform. One type of land reform that has benefited indigenous and some Afro-descendant groups has been ethnic-specific. Starting with Brazil in 1988, and Colombia in 1991, Latin American governments began to recognize the historically derived land rights of some black communities, notably maroon communities of escaped slaves' descendants. Afro-descendant groups have, in general, been much less successful than indigenous groups in gaining collective land rights. In Central America, only Afro-Latinos in Honduras and Nicaragua have gained the same collective land rights as indigenous communities. For example, the Garifuna community, descendants of escaped slaves from St. Vincent that inhabit the Caribbean coast of Central America, won communal land rights in Honduras and Nicaragua by proving that their language, religious beliefs, and traditional agriculture techniques are inextricably linked to their notion of land and territory. In contrast, Afro-Latinos whose ancestors were brought as slaves have been integrated into the mestizo culture of Central America and do not therefore possess the racial/cultural group identity or specific relationship to the land that the Garifuna possess. Even Afro-descendant groups that have communal titles, such as the Garifuna, are facing increasing challenges to their land titles, especially in coastal areas, as real estate developers seek to capitalize on the recent boom in tourism development. Some Garifuna have also expressed concerns that a 2004 Honduran law granting land titles for individual and private capital development, may threaten their communal land rights. On May 30, 2005, Gregoria Flores, a prominent Garifuna leader, was shot while collecting evidence to present to the Inter-American Court of Human Rights in support of Garifuna land rights claims against developers in Honduras. A similar situation has occurred among Afro-descendants who live in the Pacific Coast region of Colombia. Since the early 1990s, Afro-Colombian communities have been mobilizing for increased rights and representation. In 1993, the Colombian government passed Law 70, which recognized the collective land rights of Afro-Colombian communities. While some 6.1 million hectares of land have been granted titles under Law 70, large percentages of Afro-Colombian communities have been forced off their ancestral lands because of the ongoing internal conflict. Some Afro-Colombian lands are being used by private companies (in violation of Law 70) to develop African palm oil. This practice has reportedly been accelerated by laws passed by the Colombian Congress to encourage commercial development of the country's forests, water, and other natural resources. In addition, illegally armed groups have increasingly engaged in both licit and illicit extractive activities (such as mining, agro-business, and coca cultivation) in the Afro-Colombian territories. In Brazil, the government of President Luiz Inacio "Lula" da Silva has improved health, education, and electricity provision to many quilombola communities, but many of those communities still lack titles to their land. Press reports indicate that Brazil's federal and state governments have provided only 23 land titles out of more than 400 requested by quilombola communities. A recent study found that if all of those requests were granted, Brazil would have to give out a tract of land equal to half the size of California. Health Although extensive regional data are not yet available, existing studies from selected countries indicate a persistent gap between health indicators for Afro-descendants and for the general population in Latin America. Analysts from the Pan American Health Organization (PAHO) assert that these health differentials result, at least in part, from racial discrimination. Discrimination in health can limit ethnic minorities' access to services and reduce the quality of information and services provided to them. Racial discrimination also operates indirectly, according to PAHO, by limiting the types of jobs, living conditions, and educational opportunities available to indigenous groups and Afro-descendants. Health disparities are evident in some countries by higher rates of infant mortality, homicide, suicide, and HIV/AIDS among Afro-Latinos than other people in Latin America. The infant mortality rate in the Chocó, a region that is 70% Afro-Colombian, is the highest in Colombia, more than three times higher than the rates in Bogotá. Figures from Ecuador reveal significantly higher homicide and suicide rates in Esmeraldas, a coastal region that is inhabited by Afro-descendants, than the national average. In Honduras, the Garifuna community of Afro-descendants has a much higher HIV/AIDS prevalence rate (an estimated 8%-10%) than the general population (where the rate is less than 2%). These figures, though far from exhaustive, illustrate some of the major health challenges facing Afro-descendants in Latin America. U.S. Policy Considerations In the past few years, both Bush Administration officials and Members of Congress have expressed an interest in improving the condition of Afro-Latinos in Latin America. When President Bush visited Colombia in March 2007, the only civil society groups he met with were members of Afro-Colombian organizations. In a July 2007 interview, Secretary of State Condoleezza Rice reiterated her interest in supporting African descent populations in Latin America. At the same time, Congress has moved to increase assistance to Afro-descendants in Colombia. Some have predicted that U.S. interest in Afro-Latinos may increase in the coming years due to the recent election of Barack Obama, the first African-American President of the United States. People of African descent comprise a significant portion of the population in several Latin American countries, and account for nearly 50% of the region's poor. For many Afro-descendants, endemic poverty is exacerbated by isolation, exclusion, and racial discrimination. The Inter-American Development Bank (IDB) notes that Afro-Latinos are among the most "invisible" of the excluded groups as they are not well-represented among national political, economic, and educational leadership in the region. They have also been, until recently, absent from many countries' census and socioeconomic data. Although Afro-descendants have benefited from general development assistance to the region, they have not, in most cases, received the same degree of attention or targeted funding as indigenous peoples. Afro-descendant communities have suffered human rights abuses, especially in Colombia. They may also be at a high-risk of contracting HIV/AIDS. Some argue that their demands—for political representation, land rights, jobs, access to health and education programs, and human rights protection—intersect with strategic U.S. goals for the region. This section outlines several U.S. foreign assistance programs that are already targeting Afro-descendant communities in Latin America. It then discusses how multilateral development banks and regional political institutions, such as the Organization of American States (OAS), entities of which the United States is a member and major funding source, are engaging on this issue. The section includes a brief description of previous legislative activity addressing the concerns of Afro-Latinos, as well as legislation considered during the 110 th Congress. It concludes with a brief discussion of other policy approaches that have been proposed should the United States elect to provide further support for Afro-Latinos. U.S. Foreign Assistance and Afro-Latinos Assisting Afro-Latinos has never been a primary U.S. foreign policy objective. However, a number of economic aid agencies that receive U.S. funding have benefited Afro-descendants and their communities either directly or indirectly. Three of these agencies—USAID, the State Department, and the Peace Corps—are government agencies. One—the Inter-American Foundation—is an independent agency of the U.S. government. The last organization—the National Endowment for Democracy (NED)—is a private foundation funded by the U.S. government. Since many of the programs serving Afro-Latinos are small and relatively new, few independent evaluations exist to evaluate their effectiveness. Unless otherwise noted, sources for the program descriptions contained in this section of the report were compiled from documents provided by the agency or entity in question. U.S. Agency for International Development (USAID) Bilateral economic aid to Latin America is primarily administered by USAID. Under President Bush, U.S. policy towards Latin America is based on three broad objectives—strengthening democracy, encouraging development, and enhancing security. In Latin America, USAID policy is to support efforts to deepen and broaden the participation of all groups, especially those that are poor and marginalized. According to USAID, beneficiaries of its programs in the region include indigenous populations and Afro-Latinos. In some countries these groups have faced legal or official discrimination in employment, access to health and education programs, and property rights. In Colombia, they have suffered from human rights abuses as a result of an ongoing armed conflict. To address these issues, USAID has reached out to indigenous and Afro-Latino populations, both through targeted programs and through broad efforts to support marginalized populations. Among USAID's recent programs targeting Afro-Latinos are the following: Regional Programs USAID supports Afro-Latinos through an agreement with the Inter-American Institute for Human Rights (IIDH). IIDH is completing applied research on the ease of access and level of participation in political-electoral processes by Afro-Colombians and Afro-Panamanians. IIDH has also recently completed an activity to help the Afro-Panamanian movement set its "Strategic Advocacy Plan" and influenced both the enactment of a law prohibiting workplace discrimination in Panama and the creation of a special commission to develop government policy for the full inclusion of Afro-Panamanians. Programs Benefiting Afro-Colombians USAID/Colombia supports Afro-Colombians and their communities through programs focused on alternative development, local governance, support for internally displaced and vulnerable persons, conflict resolution, human rights and justice strengthening. USAID's alternative development programs include an agriculture program that has taught approximately 6,240 Afro-Colombian families, 27,920 Afro-Colombians living in collective communities, and 102 municipalities viable alternatives to illegal drug production. According to USAID, its governance programs have supported more than 60 Afro-Colombian organizations, several Afro-Colombian conferences, and the development of a Colombian Black Caucus within the Colombian legislature. USAID has created "justice houses" in 20 departments to provide access to government services and conciliation services. In 2006, over 77,000 Afro-Colombians used the services of the justice houses. USAID asserts that its assistance to displaced persons and vulnerable persons has benefited over 170,000 Afro-Colombians, with new programs launched in 2006 in Chocó, a poor region with the country's highest concentration of Afro-descendants. In December 2007, USAID began a conflict resolution program with specific cultural components aimed at Afro-Colombian youth in four communities in Buenaventura that has benefited at least 1,077 children. Some Afro-Colombian leaders have complained, however, that USAID has not always sought Afro-Colombian participation in project formation and implementation. Programs Benefiting Afro-Ecuadorians USAID has designated funding to support the development of water and sewage systems in marginalized Afro-Ecuadorian communities along the country's northern border with Colombia. The program has benefited more than 51,000 individuals. USAID funds have also built bridges in Esmeraldas and in Imbabura, two provinces with significant Afro-descendant populations, which have benefited roughly 23,692 and 2,400 individuals respectively. USAID has provided $25,000 to support training of a core group of 40 Afro-Ecuadorian human rights promoters and the establishment of a network of Afro-Ecuadorian community advocates. It has also supported agricultural training and small grants programs that have benefited some 1,799 Afro-Ecuadorians. U.S. Department of State In FY2005, the State Department's Bureau of Western Hemisphere Affair's Office of Public Diplomacy and Public Affairs (WHA/PDA) began to implement outreach programs aimed at empowering Afro-Latinos and other marginalized youth. Many of these programs have been administered by the Public Affairs Sections of U.S. embassies in different countries throughout Latin America. In early 2007, for example, WHA/PDA began a two-year program to provide Afro-Latino and indigenous secondary school students two years of English training, college preparation tools, and advising in order to help them pursue higher education opportunities. The U.S. Embassy in Colombia is providing support to 87 Afro-Colombian university students for English language courses, leadership training, and advising on possible graduate study and scholarship opportunities in the United States. Inter-American Foundation (IAF) The Inter-American Foundation is a small federal agency that provides approximately 60 new grants each year to non-profit and community-based programs in Latin America and the Caribbean. The grants are awarded to organizations that promote entrepreneurship, self-reliance, and economic progress for the poor. The estimated appropriation for the IAF in FY2008 was for $21 million. Since the mid-1990s, the IAF has been working to raise awareness of the issues facing Afro-descendants, a group that has long benefited from its grassroots development programs. In FY2008, the IAF funded 10 grants totaling $2.2 million to organizations working in Afro-Latino communities in Brazil, Colombia, Ecuador, Haiti, Jamaica, and Nicaragua. In addition to its grant work, the IAF has supported the attendance of 475 individuals representing some 100 organizations at workshops and conferences related to development and democracy. One of those events was a dialogue between Afro-descendant leaders and the Secretary General of the Organization of American States (OAS) on efforts to combat discrimination. The IAF has also represented the U.S. government in numerous regional and international groups and forums in which Afro-descendant issues have been discussed. 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. Peace Corps volunteers are currently working in several countries in the region that have significant Afro-Latino populations. Those countries include the Dominican Republic, Honduras, Nicaragua, Panama, and Ecuador. Peace Corps/Dominican Republic says that 100% of its 176 volunteers are working with Afro-descendant populations, including 20 volunteers working on basic healthcare and HIV/AIDS prevention work in bateyes, which are among the poorest areas in the country. The vast majority of the beneficiaries in those communities (90%) are of Haitian/African descent. Peace Corps/Ecuador reports that 20 of its 151 volunteers are working with Afro-Ecuadorians in activities related to life skills development (including self-esteem, leadership, and job skills), income generation activities, water and sanitation, and HIV/AIDS prevention and education. National Endowment for Democracy (NED) The National Endowment for Democracy (NED), funded by Congress since 1983, plans and administers grants to promote pluralism and democratic governance in more than 90 countries around the world. The primary focus of these organizations is to foster participation of citizens in their national political systems. Between FY2002 and FY2008, NED provided more than $1.7 million in grants to organizations working with Afro-Latinos in Colombia, Cuba, Ecuador, and Peru. Two of its largest grantees have been the Association of Youth Groups Freedom, which supports Afro-Colombian citizen participation in local and national politics, and the League of Displaced Women, which supports training and leadership programs for displaced Afro-Colombian and indigenous women. NED has also provided some $297,066 to support AfroAmerica XXI, an organization based in Colombia that helps promote the political participation of Afro-Latino organizations throughout the region. In FY2008, NED sponsored programs related to Afro-Latinos in Cuba, Ecuador, and Peru. Multilateral Development Banks and Afro-Latinos In addition to its bilateral aid, the United States is a member and the major funding source of the multilateral development banks that work in Latin America—the World Bank and the Inter-American Development Bank (IDB). The World Bank and the IDB have both funded a number of projects benefiting Afro-descendants in Latin America, although the number of projects funded and events held related to Afro-descendants appears to have decreased in the past two years. World Bank Since 2001, the World Bank has sought to assist Afro-descendants in Latin America through both its lending and non-lending operations. In terms of strategy, the Bank's Country Assistance Strategies for Colombia, Ecuador, Honduras, Nicaragua, Peru, and Uruguay have added a special focus on Afro-descendants. With respect to operations, the number of World Bank programs targeting Afro-descendants increased from five programs between 1997 and 2000 to 23 programs between 2000 and 2005. World Bank operations targeting Afro-descendants include a wide range of activities. The World Bank has supported efforts to incorporate race/ethnicity variables into national censuses. To date, all countries in the region except Venezuela include a self-identification question in their national censuses. In February 2006, the World Bank released reports on the socioeconomic situation of Afro-Latinos in Colombia, Peru, Ecuador, and Honduras. The Bank has funded Afro-descendant civil society groups in different countries and co-sponsored conferences bringing together leaders of the Afro-descendant community from across the region, including a February 2006 conference held in Washington D.C. Inter-American Development Bank In 1996, the IDB undertook the first comprehensive assessment of the situation of Afro-descendants in Latin America. Since that time, the IDB has focused on combating poverty and social exclusion in Afro-Latinos communities. In addition to its membership in the Inter-Agency Committee on Race Relations in Latin America, the IDB formed a Working Group and a High Level Steering Committee on Social Inclusion in 2000. The IDB's broad social inclusion program includes indigenous peoples, Afro-descendants, persons with disabilities, poor women, and people with HIV/AIDS. With respect to exclusion based on race and ethnicity, the IDB has pledged to increase capacity-building within the bank and in the region, to support research on this topic, and to expand projects focused on Afro-descendants and indigenous groups. In 2004, the IDB published a book on Social Inclusion and Economic Development in Latin America. It has also provided training, travel grants, and best practices rewards to non-governmental organizations working with Afro-descendants throughout the region. The IDB has also supported country-level projects in Brazil, Ecuador, and Nicaragua, among others, as well as regional projects related to census participation, education, and health care. Some examples of IDB operations supporting Afro-Colombians include a $35 million loan to improve local capacity to deliver basic services to communities in the Pacific Coast region, as well as a $70,000 grant to support the development and implementation of an affirmative action policy for Afro-Colombians. The Multilateral Investment Fund of the IDB has approved a $1.4 million grant to increase indigenous and Afro-descendant communities' involvement in Honduras' expanding tourism industry. In February 2003, the IDB launched a Social Inclusion Trust Fund (SITF), which is being funded by initial investments by the governments of Norway and Great Britain, to support small-scale initiatives to promote social inclusion. In its first three years in operation, the SITF approved 26 projects, totaling $1.4 million. The SITF has financed small projects in direct support of Afro-descendants, including $80,000 to support the Afro-Brazilian Observatory, a research center devoted to gathering socioeconomic data on Brazil's black population, and $55,000 to support the dissemination of information on the situation of Afro-Uruguayans. The SITF has also helped incorporate social inclusion components into at least six major IDB projects, as well as several country strategies and policies, and supported awareness-raising initiatives, media, and outreach campaigns. International Organizations, Conferences, and Afro-Latinos The United Nations (U.N.) Convention on the Elimination of All Forms of Racial Discrimination entered into force in 1969. The United States, along with all the Spanish-and Portuguese-speaking countries in Latin America, are parties to this convention. As signatories, these countries have agreed to condemn racial discrimination and undertake all appropriate means necessary to eliminate it in all of its forms. Organization of American States Hemispheric leaders reiterated a commitment to ending poverty and discrimination at Summit of the Americas meetings held in Santiago (1998), Quebec (2001), and Monterrey (2004). In 2003, Brazil proposed a resolution requesting that the Organization of American States (OAS), a political body of Western Hemisphere countries, draft an Inter-American Convention for the Prevention of Racism and All Forms of Discrimination and Intolerance. As a followup to this resolution, the OAS commissioned a report by the Justice Studies Center of the Americas, completed in March 2004, on the judicial systems and racism against Afro-descendants in several countries in the region. Several cases involving Afro-descendants and their communities have been resolved or are pending before the Inter-American Commission on Human Rights (IAHCR) and the Inter-American Court. In February 2005, the IAHCR created a Special Rapporteur on the Rights of People of African descent and racial discrimination. The OAS, under the leadership of the Brazilian Mission to the OAS, is currently negotiating a draft text of the Inter-American Convention for the Prevention of Racism and All Forms of Discrimination and Intolerance. Inter-Agency Consultation on Race in Latin America (IAC) In 2000, the Inter-American Dialogue founded the Inter-Agency Consultation on Race in Latin America (IAC), a consultative group of international development institutions that met regularly from 2000-2006 to address issues of race, discrimination, and social exclusion facing Afro-descendants in Latin America. The IAC was comprised of representatives from the British Department for International Development, World Bank, IDB, Pan American Health Organization (PAHO), OAS Commission on Human Rights, Inter-American Foundation, and Ford Foundation. Its mission was to encourage the hemisphere's policy-makers, including the U.S. government, as well as the international development agencies, to address issues of race and discrimination when designing and implementing programs. The IAC, in consultation with academics and Afro-descendant advocacy and research groups in Latin America, sponsored a number of forums and conferences to increase the visibility of Afro-descendants and their communities. Impact of Durban and Regional Conferences In 2001, the World Conference Against Racism in Durban, South Africa increased regional interest in the challenges of Afro-Latinos. After a national dialogue on race leading up to its participation in the conference, the Brazilian government reportedly admitted for the first time that racial prejudice and discrimination were serious problems that Brazil had to overcome. In 2003, Brazil hosted the first meeting of Afro-descendant legislators in the Americas. The resulting "Brasilia Declaration" outlined concrete regional and national goals for advancing Afro-Latino concerns, and set forth the framework used to organize a second meeting of Afro-Latino legislators in Bogotá, Colombia, in May 2004. Legislators, including Members of the U.S. Congress, met for a third time in Costa Rica in August 2005. In June 2008, leaders from across Latin America met to prepare an outcome document on regional progress made in addressing racism for the U.N. Durban Review Conference Against Racism that will be held in Geneva, Switzerland in April 2009. Prior Legislative Activity Congress has expressed some concern in recent years about the status of Afro-Latinos in Latin America. In the 107 th Congress, the House Appropriations Committee report to the FY2003 Foreign Operations Bill ( H.R. 5410 , H.Rept. 107 - 663 ) included a section acknowledging the human rights violations suffered by Afro-Colombians, and urging USAID to increase funding on their behalf. In the 108 th Congress, one bill and two resolutions concerning Afro-Latinos were introduced in the House, but no action was taken on any of these initiatives. In November 2003, Congressman Menendez proposed a bill, H.R. 3447 , the Social Investment Fund for the Americas Act of 2003, that would have provided assistance to reduce poverty and increase economic opportunity to the countries of the Western Hemisphere. The Social Investment Fund would seek to combat poverty and the exclusion of marginalized populations by targeting assistance to people of African descent, indigenous groups, women, and people with disabilities. It would have authorized the appropriation of $250 million to USAID and to the IDB respectively for each of the fiscal years 2005 through 2009. In February 2004, Congressman Rangel introduced a resolution, H.Con.Res. 47 , recommending that the United States and the international community promote research, development programs, and advocacy efforts focused on improving the situation of Afro-descendant communities in the region. In July 2004, Congressman Meeks submitted another resolution, H.Con.Res. 482 , urging the United States government to work with the governments of Latin America, as well as the rest of the international community, to promote the visibility of Afro-descendants and to support efforts to eliminate racial and ethnic discrimination and the achievement of the Millennium Development Goals. Legislation in the 109th Congress On July 18, 2005 the House passed H.Con.Res. 175 , recognizing the injustices suffered by African descendants of the transatlantic slave trade in all of the Americas and recommending that the United States and the international community work to improve the situation of Afro-descendant communities in Latin America and the Caribbean. On July 20, 2005, a companion resolution was referred to the Senate Committee on Foreign Relations after being received by the House. Some Members of Congress also expressed specific concerns about the situation of Afro-Colombians affected by the conflict in Colombia. Legislation was introduced— H.R. 4886 (McGovern) the Colombian Temporary Protected Status Act of 2006—that would have made Colombian nationals, including Afro-Colombians affected by the country's ongoing conflict—eligible for Temporary Protected Status (TPS). Another resolution, H.Res. 822 (McCollum), was introduced recognizing the efforts of Afro-Colombian and other peace-building communities in Colombia and urging the Secretary of State to monitor acts of violence committed against them. Legislation in the 110th Congress In the 110 th Congress, there have been several bills with provisions related to Afro-Latinos. The Consolidated Appropriations Act, FY2008 ( H.R. 2764 / P.L. 110 - 161 ) required the State Department to certify that the Colombian military is not violating the land and property rights of Afro-Colombians or the indigenous. It also prohibited the use of Andean Counterdrug funds for investment in oil palm development if it causes displacement or environmental damage (as it has in many Afro-Colombian communities). In the explanatory statement to the Consolidated Appropriations Act, the conferees stipulate that up to $15 million in alternative development assistance to Colombia may be provided to Afro-Colombian and indigenous communities. On July 11, 2007, the House passed H.Res. 426 (McGovern), recognizing 2007 as the year of the rights of internally displaced persons (including Afro-Colombians) in Colombia and offering U.S. support to programs that seek to assist and protect them. Another resolution, H.Res. 618 (Payne), recognizing the importance of addressing the plight of Afro-Colombians, was introduced on August 3, 2007. On September 9, 2008, the House passed (Engel), supporting the values and goals of the "Joint Action Plan Between the Government of the Federative Republic of Brazil and the Government of the United States of America to Eliminate Racial and Ethnic Discrimination and Promote Equality," which was signed by Secretary of State Condoleezza Rice and Brazilian Minister of Racial Integration Edson Santos in March 2008. In addition to considering legislation with provisions related to Afro-Latinos, the 110 th Congress discussed the situation of Afro-Colombians during its consideration of the U.S.-Colombia Trade Promotion Agreement. If the trade agreement is taken up again in the 111 th Congress, these concerns are likely to re-surface. The Obama Administration is viewed with some optimism by Afro-Latinos in the region, with some expectations for increased attention to Afro-Latino issues. Possible Options for Support for Afro-Latinos In general, U.S. foreign aid has not addressed Afro-Latinos as a unique and specific category of beneficiaries aside from the unique case of Afro-Colombians. Afro-Latinos are not treated in the aid program the way "women in development" are—that is, as a group requiring special attention, including the need to enumerate those served in order to demonstrate and encourage progress. Rather, insofar as Afro-Latinos comprise a large proportion of the poor in Latin America, they are helped by the general assistance programs that serve the poor. Additionally, some U.S. agencies have, to the extent possible, developed interventions specific to the needs of certain Afro-descendant communities. Some assert that the United States has an interest in increasing assistance to Afro-Latinos and delineating a clearer policy to address their needs. These analysts argue that Afro-Latinos have a set of problems specific to their situation that economic assistance is not yet adequately addressing. Three examples they point to include the dearth of data on the socioeconomic situation of Afro-descendants, the limited support given to Afro-Latino community organizations, and the precarious nature of the land titles held (and still being sought) by Afro-descendant communities. Proponents of expanded assistance to Afro-Latinos emphasize the need for the United States to support or encourage Latin American governments' efforts to collect better data on race/ethnicity and socioeconomic status. These proponents also are likely to support legislative initiatives targeting aid to Afro-Latinos and their communities, especially capacity-building programs for Afro-Latino community organizations. They believe that it is important to encourage USAID and other development institutions to include Afro-Latinos in the process of designing and implementing local programs. Finally, advocates of increased support for Afro-Latinos assert that it is important to sponsor exchanges between Afro-descendant leaders, organizers, and elected officials and interested groups in the United States. In addition to increasing bilateral aid programs targeting Afro-Latinos, some argue that the United States could take a more active role in multilateral initiatives on behalf of Afro-Latinos. For example, the United States government could contribute (as Norway and Great Britain have) to the IDB's Social Inclusion Fund for the Americas. Or the U.S. government might decide to support the Inter-American Convention for the Prevention of Racism and All Forms of Discrimination and Intolerance currently being drafted by the OAS. Others question whether increasing assistance to Afro-Latinos is feasible at a time when limited development assistance is being allocated to Latin America. They point out that Afro-Latinos are already benefiting from development assistance programs. Targeting further assistance to Afro-Latinos through earmarks or other means might force USAID and other agencies to cut funding for other needy groups. It may also increase the regulatory burden on development agencies by forcing them to gather statistics on a new subgroup that is, for reasons outlined in the section on identity in Latin America, sometimes difficult to delineate. Finally, they argue that mandating the inclusion of Afro-Latinos in Peace Corps, IAF, or Millennium Challenge Account (MCA) portfolios for a country may go against the priorities outlined by the agency or the country in question. Still others caution that race is a sensitive issue for many countries in Latin America, and that the United States should proceed with caution when approaching this issue. Notions of race and national identity vary widely between the United States and Latin America, and within the countries of the region. Some maintain that it would be inappropriate for the United States to attempt to impose its views and policies with respect to race on other sovereign nations.

The 110th Congress maintained an interest in the situation of Afro-Latinos in Latin America, particularly the plight of Afro-Colombians affected by the armed conflict in Colombia. In recent years, people of African descent in the Spanish-and Portuguese-speaking nations of Latin America—also known as "Afro-Latinos"—have been pushing for increased rights and representation. Afro-Latinos comprise some 150 million of the region's 540 million total population, and, along with women and indigenous populations, are among the poorest, most marginalized groups in the region. Afro-Latinos have formed groups that, with the help of international organizations, are seeking political representation, human rights protection, land rights, and greater social and economic opportunities. Improvement in the status of Afro-Latinos could be difficult and contentious, however, depending on the circumstances of the Afro-descendant populations in each country. Assisting Afro-Latinos has never been a primary U.S. foreign policy objective, although a number of U.S. aid programs benefit Afro-Latinos. While some foreign aid is specifically targeted towards Afro-Latinos, most is distributed broadly through programs aimed at helping all marginalized populations. Some Members support increasing U.S. assistance to Afro-Latinos, while others resist, particularly given the limited amount of development assistance available for Latin America. There was legislative action on several bills in the 110th Congress with provisions related to Afro-Latinos. The Consolidated Appropriations Act, FY2008 (H.R. 2764/P.L. 110-161) required the State Department to certify that the Colombian military is not violating the land and property rights of Afro-Colombians or the indigenous. It also prohibited the use of Andean Counterdrug funds for investment in oil palm development if it causes displacement or environmental damage (as it has in many Afro-Colombian communities). In the explanatory statement to the Consolidated Appropriations Act, the conferees stipulated that up to $15 million in alternative development assistance to Colombia may be provided to Afro-Colombian and indigenous communities. On July 11, 2007, the House passed H.Res. 426 (McGovern), recognizing 2007 as the year of the rights of internally displaced persons (including Afro-Colombians) in Colombia and offering U.S. support to programs that assist and protect them. On September 9, 2008, the House passed (Engel), supporting the values and goals of the "Joint Action Plan Between the Government of the Federative Republic of Brazil and the Government of the United States of America to Eliminate Racial and Ethnic Discrimination and Promote Equality," which was signed by Secretary of State Condoleezza Rice and Brazilian Minister of Racial Integration Edson Santos in March 2008. In addition, the 110th Congress discussed the situation of Afro-Colombians during its consideration of the U.S.-Colombia Trade Promotion Agreement. As in the past, the 111th Congress is likely to continue to consider legislative provisions relevant to the circumstances of Afro-Latinos.

Overview In spite of ongoing international efforts to combat Afghanistan's narcotics trade, U.N. officials estimate that Afghanistan supplies over 90% of the world's illicit opium. Afghan, U.S., and international officials have stated that opium poppy cultivation and drug trafficking constitute serious strategic threats to the security and stability of Afghanistan and jeopardize the success of post-9/11 counterterrorism and reconstruction efforts. Since 2001, counternarcotics policy has emerged as a focal point in broader, recurring debates in the executive branch and in Congress about the United States' strategic objectives and policies in Afghanistan. Relevant concerns include the role of U.S. military personnel and strategies for continuing the simultaneous pursuit of counterterrorism and counternarcotics goals, which may be complicated by practical necessities and political realities. Coalition forces pursuing regional counterinsurgency and counterterrorism objectives may rely on the cooperation of security commanders, tribal leaders, and local officials who may be involved in the narcotics trade. Counterinsurgency operations in key poppy growing areas have presented U.S. forces and officials with challenging decisions about the relative merits and risks inherent in simultaneously seeking to limit poppy cultivation and maintain positive relationships with local farmers. U.S. officials and many observers also believe that the introduction of a democratic system of government to Afghanistan has been accompanied by the election and appointment of many narcotics-associated and corrupt individuals to positions of public office. Efforts to combat the opium trade in Afghanistan face the challenge of ending a highly profitable enterprise fueled by international demand that has become deeply interwoven with the economic, political, and social fabric of a war-torn country. Afghan, U.S., and international authorities are engaged in a campaign to reverse the unprecedented upsurge of opium poppy cultivation and heroin production that occurred following the fall of the Taliban. U.S. officials continue to implement a multifaceted counternarcotics initiative that includes public awareness campaigns, judicial reform measures, economic and agricultural development assistance, support for Afghan demand reduction programs, and drug interdiction operations. Questions regarding the likely effectiveness, resource requirements, and implications of counternarcotics strategies in Afghanistan continue to arise as Members of the 111 th Congress review and debate the Obama Administration's policies. Afghanistan's Opium Economy Opium production has become an entrenched negative element of Afghanistan's fragile political and economic order over the last 30 years in spite of ongoing local, regional, and international efforts to reverse its growth. At the time of Afghanistan's pro-Communist coup in 1978, narcotics experts estimated that Afghan farmers produced 300 metric tons (MT) of opium annually, enough to satisfy most local and regional demand and to supply a handful of heroin production facilities whose products were bound for Western Europe. From the early 1980s through 2007, a trend of increasing opium poppy cultivation and opium production unfolded during successive periods of insurgency, civil war, fundamentalist government, and recently, international engagement ( Figures 1 and 2 ). During the 2006-2007 poppy growing season, Afghanistan produced a world record opium poppy crop that yielded 8,200 MT of illicit opium—an estimated 93% of the world's supply. A slight reduction in national poppy cultivation and opium output was recorded in 2007-2008, and many international officials attributed the changes to more effective counternarcotics approaches, including governor-enforced poppy cultivation bans and eradication. United Nations and Afghan government officials announced that further reductions in national cultivation and output statistics were recorded for the 2008-2009 season, due in part to bad weather, interdiction efforts, market prices, and improved agricultural assistance in some key poppy growing areas. Estimates for 2010, suggest that production will remain relatively static, with crop disease and poor weather conditions exerting downward pressure on output. Overall, practitioners and observers remained focused on Afghan government, United Nations, and other field reporting that shows reductions in poppy cultivation in some northern, central, and eastern provinces, while large-scale cultivation continues in conflict-ridden southern provinces and remote areas of the east and west. By nearly all accounts, opiate trafficking and related corruption remain nationwide problems. With regard to so-called "poppy free" provinces, experts and practitioners continue to debate the causes and durability of recent reductions in poppy cultivation, with some analysts calling for more targeted development assistance to capitalize on and consolidate what they argue are still-reversible reductions in many areas. Parallel debates focus on the advisability and targeting of interdiction and eradication and the relative importance of and appropriate methods for sustainably replacing poppy cultivation and opium industry labor as income sources for Afghan households. The concentration of poppy cultivation in insecure and remote areas has raised doubts in the minds of some observers about the likelihood of further gains in the absence of more fundamental improvements in security and stability. In the most volatile areas of the country, insecurity and corruption create a climate in which poppy cultivators and drug-trafficking groups remain largely free to operate. Violence and criminality stifle licit economic activity and prevent effective eradication, interdiction, outside investment, or the provision of development assistance. Reports suggest that the drug trade provides financial support to corrupt officials, criminal groups, and insurgents who in turn protect traffickers and perpetuate the chaotic environments that allow illicit trade to thrive. In light of these challenges, current U.S. policy is designed to: break self-reinforcing cycles of insecurity, crime, and violence through direct action against traffickers, insurgents, and corrupt officials; understand, consolidate, and sustain reductions in poppy cultivation where they have occurred; and, reproduce sustainable reductions in cultivation nationwide. 2009 Production Statistics According to the 2009 Afghanistan Opium Survey conducted by the Afghan Ministry of Counternarcotics (MCN) and the United Nations Office on Drugs and Crime (UNODC): Opium poppy cultivation took place in 14 of 34 Afghan provinces in 2008-2009 (see Figure 3 ). The land area under poppy cultivation fell by 22% to 123,000 hectares (equal to 1.6% of Afghanistan's arable land). Cultivation remains overwhelmingly concentrated in conflict-ridden Helmand province, where farmers cultivated over 69,833 hectares of poppy—a 33% decline in the province from the prior season. MCN-UNODC estimates for 2010 suggest that three provinces may lose their poppy-free status while several others could become poppy-free depending on Afghan government responses and international support (see below). The 2008-2009 opium poppy crop had the potential to produce 6,900 MT of illicit opium, a 10% decline from the prior season. However, crop yields once again improved 15% due to better weather conditions in some areas. A range of accepted opium-to-heroin conversion rates indicate that an estimated opium yield of 6,900 MT could produce 690 to 985 MT of refined heroin. Approximately 254,000 Afghan households cultivated opium poppy in 2008-2009, equal to roughly 1.6 million people or 6.4% of the Afghan population. Thousands of laborers, traffickers, warlords, and officials continue to participate. The estimated $438 million farmgate value (equal to volume multiplied by the price of non-dried opium paid to farmers) of the 2008-2009 opium harvest is equivalent in value to approximately 4% of the country's licit GDP. The export value of the 2008 crop may have exceeded $3.4 billion, equivalent to approximately 33% of the country's licit 2008 GDP. Many licit and emerging industries have been financed or supported by profits from narcotics trafficking. As noted above, some experts and practitioners consider provincial and district level data to be a more accurate and informative reflection of counternarcotics challenges and successes. Recent UNODC/MCN reports attribute sustainable declines in poppy cultivation to political stability, economic integration, alternative livelihood assistance, and effective law enforcement. Other variables such as weather, raw opium prices (see Table 1 ), and the prices of licit crops, including wheat, have significant and difficult to quantify effects on farmers' decisions to grow poppy. At present, changes in opium and wheat price trends have led some expert observers and officials to express concern that prevailing price relationships that have undermined poppy cultivation may be slowing or entering a period of reversal. At the same time, weather conditions and disease patterns that have favored high opium yields in recent years appear to have reversed, amid widespread reports of blight from infection and drought. UNODC Projections and U.S. Assessments, 20106 The December 2009 UNODC/Afghan Government opium survey reported further consolidation of poppy cultivation in the southern and western provinces of Helmand, Kandahar, Nimroz, Farah, Dai Kundi, Uruzgan, and Zabol. According to the U.S. State Department, 97% of Afghanistan's opium is produced in six of these seven provinces. Overall, UNODC monitoring found a significant decrease in national cultivation levels in 2009, due primarily to an over 33% reduction in cultivation in Helmand province. According to UNODC estimates, three provinces, Kapisa, Baghlan, and Faryab, became "poppy-free" in the last year, while limited production in remote and less secure areas of upper Nangarhar stripped the province of the poppy free designation it earned in 2008. Although wheat prices declined from their 2008 high, they remained at roughly double their 2007 levels during 2009 and thus remained attractive relative to declining prices in Afghanistan's oversupplied opium market. Survey information from early 2010 suggests this price relationship may be shifting, as wheat prices begin to decline at a faster rate than opium prices. Survey data suggests that government intervention remains less influential in insecure southern and western provinces, with the exception of the Food Zone area of Helmand province, where a specially targeted interdiction and development program is credited with contributing significantly to the large drop in poppy cultivation observed in 2009. Farmers surveyed suggest that the effectiveness of alternative development programs varies across the country, and many reportedly emphasize the need for programs to extend beyond district centers to more remote or "grass roots" areas. Security remains a decisive factor in the ability of the Afghan government and its international partners to do so. The March 2010 State Department International Narcotics Control Strategy Report for Afghanistan states that: "the Government of the Islamic Republic of Afghanistan (GIRoA) generally relies on the international community for assistance in implementing its national counternarcotics strategy. However, more political will, greater institutional capacity, and more robust efforts at the central and provincial levels are required to decrease cultivation in the south and west, maintain cultivation reductions in the rest of the country, and combat trafficking in coming years." The report also concludes that during 2009, "several governors were unwilling or unable to implement successful poppy reduction programs due to the lack of security and high levels of insurgent activity in their provinces." The 2010 INCSR report concludes that "many Afghan government officials are believed to profit from the drug trade, particularly at the provincial and district levels of government." The report also includes accounts of corruption among officials in national security forces, such as a Afghan National Police commander from Kandahar province. In April 2009, Secretary of State Hillary Clinton called corruption in Afghanistan "a cancer" that "eats away at the confidence and the trust of the people in their government." Obama Administration Policy and Funding Requests The Obama Administration is implementing new counternarcotics policies in conjunction with its strategic reviews of U.S. policy in Afghanistan and Pakistan. The Administration's strategic review white paper, released March 27, 2009, called for "a complete overhaul of our civilian assistance strategy" and identified "agricultural sector job creation" as "an essential first step to undercutting the appeal of al Qaeda and its allies." The review document states that the Obama Administration believes crop substitution and alternative livelihood programs in Afghanistan "have been disastrously underdeveloped and under-resourced." It further indicates that interdiction and eradication operations will continue, but targeting will shift toward "higher level drug lords." These goals were echoed in the Afghanistan-Pakistan Regional Stabilization plan released in February 2010, which outlines a two-pronged approach of more robust interdiction and law enforcement efforts supported by agricultural development assistance and existing demand reduction and communications programs. A new National Security Council-approved counternarcotics strategy document summarizes the Administration's goals as follows: "Goal 1: Counter the link between narcotics and the insurgency and significantly reduce the support the insurgency receives from the narcotics industry. Goal 2: Address the narcotics corruption nexus and reinforce the Government of Afghanistan." In support of these objectives, the Administration requested civilian staff funding, development assistance, and enforcement funding in the FY2009 supplemental and its FY2010 budget and supplemental proposals. The FY2009 supplemental request included Diplomatic and Consular Program (D&CP) funding requests for $84.8 million to support new U.S. Embassy and provincial reconstruction team (PRT) personnel from the State Department, USAID, and the U.S. Department of Agriculture (USDA). In addition, the D&CP account request included $137.6 million to support expanded interagency staffing in the areas of agriculture, justice, customs and border management, health, finance, and aviation. Some of the staffing funding requests would directly increase the number of U.S. personnel devoted to counternarcotics programs in Afghanistan. The Administration also requested $129 million in International Narcotics Control and Law Enforcement (INCLE) account funding to "support counternarcotics and law enforcement efforts primarily in the south and east of Afghanistan" and $214 million in Economic Support Fund (ESF) account funding to support "counternarcotics and stabilization programs, especially in the south and east." The Administration's FY2010 request did not dramatically expand economic assistance specifically earmarked for counternarcotics purposes, in spite of official statements about those programs having been "under-resourced" in the past. However, ESF assistance requests for agricultural programs were significantly larger for FY2010. Table 2 details appropriations and requests for the main funding accounts supporting U.S. counternarcotics programming in Afghanistan for FY2009 through FY2011. Drug Enforcement Administration (DEA) funds are not included: in July 2009, the Special Inspector General for Afghanistan Reconstruction (SIGAR) reported that Congress had appropriated $127.37 million for DEA activities in Afghanistan from FY2002 to FY2009. SIGAR also reported that Congress had appropriated approximately $3 billion for counternarcotics programs in Afghanistan from 2001 through 2008. Since 2006, Congress has placed conditions on some amounts of U.S. economic assistance to Afghanistan by requiring the President to certify that the Afghan government is cooperating fully with counternarcotics efforts prior to the obligation of funds or to issue a national security waiver (see " Certification Requirements " below). Issues for Congress Experts and government officials have warned that narcotics trafficking jeopardizes international efforts to secure and stabilize Afghanistan. U.S. officials believe that efforts to reverse the related trends of opium cultivation, drug trafficking, corruption, and insecurity must expand if broader strategic objectives are to be achieved. A broad U.S. interagency initiative to assist Afghan authorities in combating the narcotics trade has been developed, and some officials argue that the U.S. efforts have been effective in areas where all elements of the strategy have been advanced simultaneously. However, in many areas, regional insecurity and corruption continue to prevent or complicate counternarcotics initiatives and thus present formidable challenges. Primary issues of interest to Congress include program funding, the role of the U.S. military, and the scope and nature of eradication, interdiction, and development assistance initiatives. During the term of the 110 th Congress, the Bush Administration argued that insecurity in key opium poppy producing areas, delays in building and reforming Afghan institutions, and widespread Afghan corruption continued to prevent full implementation of U.S. and Afghan counternarcotics strategies. The Obama Administration and the 111 th Congress have devoted new resources to counternarcotics efforts as part of an expanded civilian and military effort to bring stability to Afghanistan. The shift toward a civilian-military counterinsurgency strategy has created new challenges and opportunities for Afghan and U.S. counternarcotics efforts. Breaking the Narcotics-Insecurity Cycle Narcotics trafficking and political instability remain intimately linked in Afghanistan. U.S. officials have identified narcotics trafficking as a primary barrier to the establishment of security and consider insecurity to be a primary barrier to successful counternarcotics operations. The narcotics trade fuels three corrosive trends that have undermined the stability of Afghan society and limited progress toward reconstruction since 2001. First, narcotics proceeds can corrupt police, judges, and government officials and prevent the establishment of basic rule of law in many areas. Second, the narcotics trade can provide the Taliban and other insurgents with funding and arms that support their violent activities. Third, corruption and violence can prevent reform and development necessary for the renewal of legitimate economic activity. In the most conflict-prone areas, symbiotic relationships between narcotics producers, traffickers, insurgents, and corrupt officials can create self-reinforcing cycles of violence and criminality (see Figure 4 ) Across Afghanistan, the persistence of these trends undermines Afghan civilians' confidence in their local, provincial, and national government institutions. Critics of counternarcotics efforts to date have argued that Afghan authorities and their international partners have been reluctant to directly confront prominent individuals and groups involved in the opium trade because of their fear that confrontation will lead to internal security disruptions or expand armed conflict to include drug-related groups. Indeed, conflict and regional security disruptions have accompanied some efforts to expand crop eradication programs and to implement interdiction and alternative livelihood policies. The Obama Administration has incorporated more robust interdiction efforts and targeted major drug trafficking figures as a component of an expanded counterinsurgency strategy. For years, U.S. officials have identified rural security and national rule of law as prerequisites for effective counternarcotics policy implementation, while simultaneously identifying narcotics as a primary threat to security and stability. As early as 2005, the State Department was arguing that: "Poppy cultivation is likely to continue until responsible governmental authority is established throughout the country and until rural poverty levels can be reduced via provision of alternative livelihoods and increased rural incomes.... Drug processing and trafficking can be expected to continue until security is established and drug law enforcement capabilities can be increased." Although an increasing number of Afghan police, security forces, and counternarcotics authorities have been trained by U.S. and coalition officials, the limited size and capability of Afghan forces rendered them unable to effectively and independently challenge entrenched drug-trafficking groups and insurgents. For years, Afghan security and counternarcotics forces alone proved unable to establish the security conditions necessary for the more robust interdiction and alternative livelihood programs planned by U.S. and Afghan officials. Current coalition military operations in areas like central Helmand province—the poppy growing heartland of Afghanistan—seek to establish security conditions for the Afghan government to assert its authority and, working in conjunction with U.S. and other international partners, to disrupt reinforcing relationships between insurgents and narcotics traffickers. Balancing Counterterrorism, Counterinsurgency, and Counternarcotics In pursuing counterterrorism and counterinsurgency objectives, Afghan and coalition authorities consider difficult political choices when confronting corrupt officials, militia leaders, narcotics traffickers, and poppy farmers. These choices have changed over time as the conflict in Afghanistan has evolved and differ from region to region. Regional and local militia commanders with alleged links to the opium trade played significant roles in initial post-9/11 coalition efforts to undermine the Taliban regime and capture Al Qaeda operatives, particularly in southern and southeastern Afghanistan. Some of these figures and their political allies were subsequently incorporated into government and security structures, including positions of responsibility for enforcing counternarcotics policies. For example, the current governor of Nangarhar province, Gul Agha Sherzai, is now credited with effectively enforcing bans on poppy cultivation and supporting anti-drug-trafficking efforts. However, in 2001 and 2002, as governor of his native Kandahar province, he was alleged to have maintained a close relationship with an alleged Taliban-associated narcotics kingpin that has been indicted on drug-trafficking charges in the United States. In areas that enjoyed relative security prior to the more recent Taliban resurgence, Afghan government officials, provincial leaders, and international partners faced difficult decisions about implementing counternarcotics enforcement policies. Forced eradication, whether by central government or provincial government forces, risked antagonizing local populations with marginal economic alternatives and created opportunities for patronage and corruption on the part of those choosing eradication targets and enforcing the policy. Similarly, interdiction targets multiplied as the country's opium economy erupted and expanded, but corruption and the strengthening of trafficking groups created significant potential political and security costs for officials contemplating interdiction and anti-corruption responses. Pragmatic decisions taken since 2001 to prioritize counterterrorism operations and maintain relationships with figures known to benefit from the drug trade compounded these challenges in some areas, as tactical coalition allies inhibited the ability of the central government to extend its authority and enforce its counternarcotics policies. U.S. and Afghan officials have been increasingly adamant in stating that the Taliban resurgence that has unfolded since early 2006 has been supported in part by narcotics proceeds and that narcotics-related corruption undermines the effectiveness of Afghan security forces. However, current plans to employ counterinsurgency tactics against the Taliban and enforce counternarcotics policies more strictly also may conflict with each other, forcing Afghan and coalition authorities to manage competing priorities. Coalition military operations in Helmand province, and specifically U.S. Marine operations in Marjah and the surrounding districts of Nad-e Ali and Garm Ser (see below), have illustrated these challenges. One senior Defense Department official has argued that U.S. counternarcotics strategy in Afghanistan must recognize "the impact the drug trade has on our other policy objectives, while complementing (and not competing with) our other efforts in furtherance of those objectives." Striking such a balance may continue to create challenges for the United States and its allies. Defining the Role of the U.S. Military and ISAF Debate over the role of the U.S. military and coalition forces in the International Security Assistance Force has shifted as the roles and missions of those forces have changed. The initial focus on counterterrorism (CT) led military forces to view the narcotics trade as a contingent priority, while the shift toward a counterinsurgency (COIN) approach has dictated an increased role for the military in eliminating narcotics targets providing support for the Taliban and other anti-government forces. Targeting and Enforcement For years, some observers argued that U.S., coalition, and NATO military forces should play an active, direct role in targeting the leaders and infrastructure of the opiate trade. For example, following the announcement of record poppy cultivation and opium production in 2005-2006, UNODC Director Antonio Maria Costa called for direct NATO military involvement in counternarcotics enforcement operations in Afghanistan. Arguments in favor of coalition involvement in counternarcotics enforcement activities often cited the limited capabilities of Afghan security forces and held that coalition forces able to take action against narcotics traffickers should do so in the interest of Afghanistan's national security and coalition goals. In general, opponents of a direct enforcement role for U.S., coalition, or NATO forces claimed that such a role would alienate forces from the Afghan population, jeopardize ongoing counterterrorism missions that require local Afghan intelligence support, and divert limited coalition military resources from direct counter-insurgent and counterterrorism operations. Others in the U.S. government and in Congress opposed direct military involvement in counternarcotics enforcement activities based on concerns about maintaining distinct authorities and capabilities among agencies. For example, the House report on the FY2007 Defense authorization bill argued that the Defense Department "must not take on roles in which other countries or other agencies of the U.S. Government have core capabilities" with regard to counternarcotics in Afghanistan. During the George W. Bush Administration, U.S. Central Command (CENTCOM) officials indicated that Defense Department counternarcotics programs in Afghanistan were "a key element of our campaign against terrorism." However, U.S. military officials largely resisted the establishment of a direct counternarcotics enforcement role for U.S. forces owing to limited resources and concerns about exacerbating security threats. As late as 2006, former NATO Commander and current National Security Adviser General James Jones advanced the idea that counternarcotics enforcement was "not a military mission," and stated that "having NATO troops out there burning crops" was "not going to significantly contribute to the war on drugs." Until October 2008, NATO International Security Assistance Force (ISAF) directives precluded direct military action against narcotics targets such as traffickers and laboratories. Changes in authorization agreed to in Budapest during an October 2008 meeting and subsequent consultations now allow ISAF forces to take action against insurgency-linked narcotics targets if they so choose and if authorized under their own domestic laws. According to the Department of Defense, U.S. military forces have long been authorized to seize narcotics and related supplies encountered during the course of normal stability and counterterrorism operations. Those basic rules of engagement have been changed, but the Defense Department does not publicly disclose details on the content of the changes. Defense Department policy guidance issued in December 2008 states that Department personnel "will not directly participate in searches, seizures, arrests, or similar activity unless such personnel are otherwise authorized by law" with the exception of the provision of force protection "up to and including on the objective." According to the guidance, Department personnel may accompany U.S. or host nation law enforcement and security forces on counternarcotics field operations within presidentially declared combat zones. Executive Order 13239 (issued December 12, 2001, effective as of September 19, 2001) designated Afghanistan and the airspace above it as combat zones. In August 2009, the Senate Foreign Relations Committee released a report containing statements from unnamed U.S. military officers and officials that provides an unconfirmed account of how the new U.S. military policy on counternarcotics enforcement may be being applied in Afghanistan. According to the report two U.S. generals in Afghanistan said that the ROE [rules of engagement] and the internationally recognized Law of War have been interpreted to allow them to put drug traffickers with proven links to the insurgency on a kill list, called the joint integrated prioritized target list. The military places no restrictions on the use of force with these selected targets, which means they can be killed or captured on the battlefield; it does not, however, authorize targeted assassinations away from the battlefield. The generals said standards for getting on the list require two verifiable human sources and substantial additional evidence. Currently, there are roughly 50 major traffickers who contribute funds to the insurgency on the target list. The Defense Department has declined to comment on the specific statements included in the Senate report. However, a Pentagon spokesman said that "there is a positive, well-known connection between the drug trade and financing for the insurgency and terrorism," and, it is "important to clarify that we are targeting terrorists with links to the drug trade, rather than targeting drug traffickers with links to terrorism." Thus far, U.S. and ISAF officials have declined to offer further public comment on the specific criteria currently used for targeting individuals associated with both the drug trade and insurgency. Some observers have questioned the legal basis for the targeting of so-called "nexus targets" based on international humanitarian law (IHL), which generally prohibits the direct use of force against civilians unless and for so long as they are directly participating in hostilities. Under this view, drug traffickers could be subject to direct military attack only if they are considered to be active members of the armed forces of a party to the conflict or if they are considered to be civilians directly participating in hostilities. In July 2009, the International Committee of the Red Cross (ICRC) released nonbinding interpretive guidance on the notion of direct participation in hostilities under IHL. The guidance states that individuals involved with the "purchase, production, smuggling and hiding of weapons; general recruitment and training of personnel; and financial, administrative or political support to armed actors" retain the protected status against direct military attack that all civilians enjoy unless such acts qualify as "preparatory measures aiming to carry out a specific hostile act" and are "specifically designed to [inflict harm] in support of a party to an armed conflict and to the detriment of another." Press reports, field surveys, and coalition military statements suggest that some individuals and groups involved in narcotics trafficking provide varying levels of support to some anti-Afghan government forces, which may or may not include direct participation in hostilities on a case-by-case basis. Expanded counternarcotics roles for the U.S. military, whether under U.S. command, or as a component of ISAF, may lead to requests for more resources. The January 2009 Defense Department report on stability and security in Afghan argued that: Use of limited forces in Afghanistan is a zero-sum endeavor. A shift in force application from one mission set to another comes with a cost of a reduction of available forces for the former mission set. A shift of limited assets may result in a degradation of the [counterinsurgency] COIN mission. At the same time, the COIN mission cannot be addressed effectively without engaging in the [counternarcotics] CN mission. Additional resources, targeted to the CN mission, would be needed to expand direct DoD support to counternarcotics operations. The July 2009 report echoed this assessment, arguing that "care must be taken in shifting limited assets out of CT COIN or the CT-COIN nexus into purely CN activities. Such a shift would detract from the former mission and likely result in detrimental effects on the population as military force is applied to purely civilian-criminal narcotics activities." Administration officials have not clearly defined the distinction between so called "nexus targets" that support the insurgency and what it considers "purely civilian-criminal narcotics activities," particularly with regard to narcotics-related government corruption. According to the April 2010 report to Congress on current U.S. strategy and operations in Afghanistan, "The Government of Afghanistan has the lead in all CN operations and partners with ANSF, U.S., and international forces to target narcotics traffickers and facilities known to support the insurgency." Defense Authorization and the Provision of Equipment and Weaponry From 2002 through 2009, Congress and the Bush Administration gradually expanded the role for U.S. military forces in training, equipping, and providing intelligence and airlift support for Afghan counternarcotics teams. To date, Defense Department authorizations for counternarcotics activities in Afghanistan have been provided via reference to Section 1033 of the Defense Authorization Act for FY1998 ( P.L. 105-85 , as amended) and Section 1004 of the Defense Authorization Act for FY1991 ( P.L. 101-510 , as amended). Both acts have been amended on a semiannual basis to extend existing authorizations into subsequent fiscal years, to expand the authorities to include new countries, and, as written, to require reauthorization to extend beyond the end of FY2006. Since 2005, other legislative proposals to expand Defense Department counternarcotics authorities in Afghanistan have been considered, but not adopted. The FY2009 Defense Authorization Act ( P.L. 110-417 ) restated the existing authorizations and reauthorized the Secretary of Defense to provide non-lethal counternarcotics assistance to Afghanistan and a number of its neighbors (and other countries) through FY2009. The FY2010 authorization ( P.L. 111-84 ) extended the authorization through FY2010 and requires the submission of an counter-drug plan for each fiscal year support is provided. Section 1021 of the Defense Authorization Act for FY2004 ( P.L. 108-136 ) added Afghanistan to the list of countries eligible for transfers of non-lethal Defense Department counternarcotics equipment authorized under Section 1033 of the Defense Authorization Act for FY1998 ( P.L. 105-85 ). The FY2005 and FY2006 supplemental appropriations acts ( P.L. 109-13 and P.L. 109-234 ) further authorized the provision of individual and crew-served weapons, ammunition, vehicles, aircraft, and detection, interception, monitoring and testing equipment to Afghan counternarcotics forces. To date, .50-caliber machine guns have been provided along with night vision equipment and a range of other supplies. Afghan counternarcotics forces have requested further weaponry in response to attacks by well armed and supplied trafficking groups. The FY2009 Defense Authorization Act ( P.L. 110-417 ) reauthorized provision of .50-caliber and lighter crew-served weaponry and ammunition through FY2009. The FY2010 authorization ( P.L. 111-84 ) extended the authorization through FY2010. The House version of the FY2011 defense authorization ( H.R. 5136 ), would extend existing authorities and reporting requirements through FY2011. Alternative Livelihoods and Development As noted above, the Obama Administration has highlighted alternative livelihood and agricultural development assistance as a key component of its new strategic priorities in Afghanistan. USAID's current alternative livelihood programs are based on a two-track approach. In areas that have reduced poppy cultivation in the north, east, and west of the country, USAID and its contracting partners are seeking to provide broad-based agricultural development assistance designed to consolidate positive changes in poppy cultivation patterns. The $150 million Incentives Driving Economic Alternatives for the North East, and West (IDEA-NEW) program is planned to run through FY2014. In southern and eastern areas of the country where counterinsurgency operations are ongoing amid continued poppy cultivation and drug production, USAID and its contracting partners plan to provide more targeted, quick-impact agricultural and development assistance as a means of reinforcing efforts to secure newly cleared areas. The $300 million Afghanistan Vouchers for Increased Production in Agriculture (AVIPA-Plus) program is scheduled to run through FY2010 and includes initiatives coordinated with U.S. counterinsurgency operations in Helmand and Kandahar provinces. Obama Administration officials have stated that "part of making the counternarcotics strategy more effective will be working a lot harder on crop substitution," which has been an area of congressional interest in the past. The U.S. Department of Agriculture (USDA) has expanded its presence in country in support of new USAID programs, and USDA officials now serve as part of a consolidated interagency agriculture policy team based in Kabul. Eradication Central Government and Governor-Led Eradication The Obama Administration has "phased out" U.S. support for poppy eradication efforts in Afghanistan in line with its strategic review and the judgment of Administration officials that eradication programs were not cost efficient and that eradication activities often proved counterproductive. The policy change comes after years of debate in Washington, DC, Kabul, and across Europe about the relative merits and drawbacks of supporting Afghan government poppy eradication efforts. Proponents of forced eradication have long argued that destroying large portions of Afghanistan's opium poppy crops is necessary in order to establish and maintain a credible deterrent for farmers and landowners in line with Afghan law. Critics of forced eradication argued in response that eradication in the absence of existing alternative livelihood options for Afghan farmers contributes to the likelihood that farmers will continue to cultivate opium poppy in the future and may encourage some farmers and landowners to support anti-government elements, including the Taliban. To date, U.S. and Afghan authorities have maintained that the Central Poppy Eradication Force and governor-led eradication programs have been effective in deterring and reducing some opium poppy cultivation. However, given recurrent clashes between eradication forces and farmers and accounts of selective, politicized eradication efforts by local authorities, other observers and officials have expressed concern about the safety and effectiveness of current ground-based eradication efforts. The Bush Administration sought to improve eradication results by embedding "poppy elimination" teams (now referred to as Counternarcotics Advisory Teams or CNATs) in key opium poppy growing provinces to monitor and advise on early season, locally executed eradication activities. The strategy was designed to minimize violent farmer resistance to central government forces and give farming families time to plant replacement cash crops. The Obama Administration redirected roughly $150 million in FY2009 INCLE funding from support to central poppy eradication efforts to other initiatives, including interdiction operations, public information campaigns, and advisory efforts by CNAT personnel. Air assets previously used for air support and medivac purposes may be redirected to support Afghan-DEA interdiction operations. The 600-person Central Poppy Eradication Force has been disbanded and its personnel were redirected to other activities—initially election security—but may resume some counternarcotics security functions. The Counternarcotics Infantry Kandak (CNIK) created to secure poppy eradication operations may be redirected to support other counternarcotics or security operations. Accounts suggest that the Obama Administration's decision to "phase out" U.S. support to eradication efforts has not eliminated the Afghan government's commitment to continue to support eradication efforts by Afghan governors. The April 2010 Administration report to Congress on security and stability in Afghanistan notes that "the Afghan Government managed to eradicate 647 hectares of poppy in Helmand and Farah during the first quarter of 2010" through operations planned and implemented by the Ministry of Counter Narcotics and provincial governors. Manual or Aerial Herbicide-based Eradication Afghan and U.S. authorities discussed the introduction of aerial herbicide-based eradication to Afghanistan in late 2004, but decided against initiating a program in early 2005 due to financial, logistical, and political considerations. Since 2006, ground-based eradication results have varied drastically based on location and local political and security conditions. This has led some to renew their calls for the introduction of stronger eradication methods, including the use of herbicides to kill poppy plants. With the Obama Administration's policy changes in place, the prospects for such a program look increasingly unlikely. Nevertheless, policy makers and Members of Congress may engage in further debate concerning options for using herbicides for manual or aerial poppy eradication and their possible risks and rewards. In the past, Afghan President Hamid Karzai has expressed categorical opposition to the use of aerial eradication, citing public health and environmental safety concerns. The 2006 Afghan national drug control strategy also stated that the Afghan government "has also decided that eradication must only be delivered by manual or mechanical ground based means." Bush Administration officials argued for more widespread and non-negotiated eradication operations and stated that while herbicides may be efficient and safe, U.S. officials would follow the decisions of Afghan officials concerning their potential use. Since FY2005, Congress has sought to prohibit or condition the use of appropriated funds to support aerial herbicide spraying in Afghanistan. In the 111 th Congress, the Omnibus Appropriations Act, 2009 ( H.R. 1105 ; P.L. 111-8 ) specifies that: none of the funds appropriated under this heading for assistance for Afghanistan may be made available for eradication programs through the aerial spraying of herbicides unless the Secretary of State determines and reports to the Committees on Appropriations that the President of Afghanistan has requested assistance for such aerial spraying programs for counternarcotics or counterterrorism purposes. The Act further requires the Secretary of State to consult with the Committees on Appropriations prior to the obligation of funds for an aerial eradication programs in the event that such a determination is made. Counternarcotics Assistance Certification and Reporting Requirements Since 2002, funding for U.S. counternarcotics operations in Afghanistan has consisted of U.S. program costs and financial and material assistance to Afghan counternarcotics organizations. Although poppy cultivation and drug trafficking were widespread prior to the fall of the Taliban regime, U.S. counternarcotics programs in the region were limited, and focused on eliminating poppy cultivation and supporting interdiction activities in neighboring countries. U.S. funding for counternarcotics programs in Afghanistan did not increase dramatically until FY2005, when the Bush Administration submitted requests to Congress for funding to support the introduction of its five pillar counternarcotics strategy (See Table 2 above.). Certification Requirements Since 2006, Congress has placed conditions on some amounts of U.S. economic assistance to Afghanistan by requiring the President to certify that the Afghan government is cooperating fully with counternarcotics efforts prior to the obligation of funds or to issue a national security waiver. The conditions serve as signal of congressional views that U.S. assistance should not be given to a government not fully cooperating with U.S. counternarcotics efforts unless U.S. national security would be jeopardized if assistance were withheld. The 2006 Foreign Operations Appropriations Act ( P.L. 109-102 ) stated that no more than $225 million in Economic Support Fund (ESF) assistance could be obligated until the President certified to Congress that the Afghan government "at both the national and local level is cooperating fully with United States funded poppy eradication and interdiction efforts." The Act provided waiver authority to the President if he deemed it necessary to preserve the vital national security interests of the United States. The Bush Administration issued a waiver of the certification requirement for FY2006 ESF appropriations for Afghanistan on May 22, 2006. Subsequent appropriations legislation also has included these provisions. For FY2007, the FY2006 conditions were carried forward based on the provisions of the Revised Continuing Appropriations Resolution, 2007 ( P.L. 110-5 ). The certification and justification report were completed in June 2007. The FY2008 Consolidated Appropriations Act ( P.L. 110-161 , H.R. 2764 ) limited the obligation of FY2008 ESF assistance to Afghanistan to $300 million until the Secretary of State certified to the Appropriations committees that the Afghan government "at both the national and local level" was fully cooperating with U.S.-funded poppy eradication and drug interdiction efforts. The Act provided for a presidential waiver of this provision, subject to a reporting requirement. The Bush Administration waived the certification requirement for FY2008 ESF appropriations for Afghanistan on May 9, 2008, and issued a detailed report to Congress justifying its decision and describing U.S. and Afghan counternarcotics efforts and remaining challenges. In the 111 th Congress, the Omnibus Appropriations Act, 2009, states that $200,000,000 in ESF funding may be obligated "only after the Secretary of State certifies to the Committees on Appropriations that the Government of Afghanistan at both the national and provincial level is cooperating fully with United States-funded poppy eradication and interdiction efforts in Afghanistan." The Act provides for a presidential waiver based on national security determination. Section 7076(d) of the Consolidated Appropriations Act, 2010 states that $200,000,000 in ESF funding may not be obligated "unless the Secretary of State certifies to the Committees on Appropriations that the Government of Afghanistan is cooperating fully with United States efforts against the Taliban and Al Qaeda and to reduce poppy cultivation and illicit drug trafficking." The Act provides for waiver authority to the Secretary of State based on national security interests determination. Reporting Requirements Since 2002, Congress has required the executive branch to submit a number of detailed reports on its counternarcotics strategies and the use of appropriated funds to support counternarcotics programs in Afghanistan. Among these reports are worldwide annual surveys of Defense Department counterdrug activities, required reports justifying the waiver of conditions on U.S. ESF assistance, and specific reports on the opiate trade in and around Afghanistan and Administration plans to combat it. The following list highlights a number of recent reports that may be of interest to Congress for oversight purposes. It is not exhaustive: Section 7104 of the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ) required the submission of an interagency report that described current progress toward the reduction of poppy cultivation and heroin production in Afghanistan and provided detail on the extent to which drug profits support terrorist groups and anti-government elements in and around Afghanistan. The report was completed in October 2005. P.L. 110-28 required the DEA Administrator to submit a report by July 31, 2007 that included a plan to target and arrest Afghan drug kingpins in Helmand and Kandahar provinces. House report on H.R. 2764 ( H.Rept. 110-197 ) required the Administration to report on "the use of aerial assets to include fixed and rotary wing aircraft in coordination with and in support of Drug Enforcement Administration (DEA) counternarcotics operations," and, "the extradition status of Afghan drug kingpins and narco terrorists, the destruction of Afghan heroin laboratories, local Afghan prosecutions of heroin-related crimes, and illegal border crossings by foreign nationals from Pakistan into Afghanistan." The National Defense Authorization Act, 2008 (Section 1230, P.L. 110-181 ) requires the executive branch to submit a report on the comprehensive strategy of the United States for security and stability in Afghanistan every 180 days through FY2010. The reports issued to date have included sections devoted to counternarcotics policy as well as other issues such as police training and judicial reform relevant to U.S. and Afghan counternarcotics goals. The FY2009 Duncan Hunter National Defense Authorization Act ( P.L. 110-417 ) extended the requirement for annual Defense Department reporting on its overseas counterdrug activities through 2009, and Section 1026 of the Act requires the Secretary of Defense to submit by June 30, 2009, "a comprehensive strategy of the Department of the Defense with regard to counternarcotics efforts in the South and Central Asian regions, including the countries of Afghanistan, Turkmenistan, Tajikistan, Kyrgyzstan, Kazakhstan, Pakistan, and India, as well as the countries of Armenia, Azerbaijan, and China." The FY2010 Defense Authorization Act ( P.L. 111-84 ) requires the submission of a counter-drug plan for each fiscal year that Defense Department support is provided.

Opium poppy cultivation and drug trafficking have eroded Afghanistan's fragile political and economic order over the last 30 years. In spite of ongoing counternarcotics efforts by the Afghan government, the United States, and their partners, Afghanistan remains the source of over 90% of the world's illicit opium. Since 2001, efforts to provide viable economic alternatives to poppy cultivation and to disrupt drug trafficking and related corruption have succeeded in some areas. However, insecurity, particularly in the southern province of Helmand, and widespread corruption fueled a surge in cultivation in 2006 and 2007, pushing opium output to all-time highs. In 2008 and 2009, poppy cultivation decreased in north-central and eastern Afghanistan, while drug activity became more concentrated in the south and west. National poppy cultivation and opium production totals dropped in 2009 for the second straight season, as pressure from provincial officials, higher wheat prices, drought, and lower opium prices altered the cultivation decisions of some Afghan poppy farmers. Preliminary estimates for the 2010 season suggest that poor weather conditions, disease, and military operations in key poppy growing areas will limit production to 2009 levels, in spite of backsliding in some areas. Some experts continue to question the sustainability of rapid changes in cultivation patterns and recommend reinforcing recent reductions to replace poppy cultivation in local economies over time. Across Afghanistan, insurgents, criminal organizations, and corrupt officials exploit narcotics as a reliable source of revenue and patronage, which has perpetuated the threat these groups pose to the country's fragile internal security and the legitimacy of its elected government. The trafficking of Afghan drugs appears to provide financial and logistical support to a range of extremist groups that continue to operate in and around Afghanistan. Although coalition forces may be less frequently relying on figures involved with narcotics for intelligence and security support, many observers have warned that drug-related corruption among appointed and elected Afghan officials creates political obstacles to progress. As of April 2010, Congress had appropriated approximately $4.2 billion in regular and supplemental foreign assistance and defense funding for counternarcotics programs in Afghanistan from FY2001 through FY2010. The Obama Administration is pursuing a two-pronged interdiction and development policy in support of the government of Afghanistan's implementation of its National Drug Control Strategy. At present, U.S. military and law enforcement personnel are assisting Afghan forces and judicial authorities in targeting drug trafficking organizations while State Department, USAID, and USDA personnel are implementing expanded agricultural development assistance programs. The Administration ended U.S. support for eradication after deciding previous efforts were inefficient and potentially counterproductive. Afghan authorities continue to implement targeted eradication efforts. This report provides current statistical information, profiles the narcotics trade's participants, explores linkages between narcotics, insecurity, and corruption, and reviews U.S. and international policy responses since late 2001. The report also considers ongoing policy debates regarding the counternarcotics role of coalition military forces, poppy eradication, alternative livelihoods, and funding issues for Congress. See also CRS Report RL30588, Afghanistan: Post-Taliban Governance, Security, and U.S. Policy, by [author name scrubbed], CRS Report R40699, Afghanistan: U.S. Foreign Assistance, by [author name scrubbed], and CRS Report R40156, War in Afghanistan: Strategy, Military Operations, and Issues for Congress, by [author name scrubbed] and [author name scrubbed].

Introduction On May 23, 2006, the Eleventh Circuit Court of Appeals ordered the District Court for the Southern District of Florida to impose an injunction on EchoStar Communications Corporation to cease retransmitting all programming originating on stations affiliated with ABC, Inc.; CBS Broadcasting, Inc.; Fox Broadcasting Co.; or National Broadcasting Co. The district court complied in two orders, one granting a motion for entry of a permanent injunction and denying a settlement agreement, the other ordering the implementation of the injunction effective December 1, 2006. At issue before the Eleventh Circuit was whether EchoStar had violated the Satellite Home Viewer Act (SHVA), as amended, which grants a limited statutory license to satellite carriers transmitting distant network signals to private homes if the subscribers reside in unserved households, and the scope and consequences of that violation. The court of appeals held that because EchoStar was unable to disprove it had engaged in a "pattern or practice" of SHVA violations on a nationwide scale, the terms of the Satellite Home Viewer Act required that the court impose a nationwide injunction against EchoStar's improper retransmission of distant network programming. This differs from the decision of the district court, which had concluded that so long as EchoStar was currently complying with SHVA, the court had discretion to order EchoStar to re-analyze its subscriber base, supervised by the court to ensure compliance with SHVA, and terminate all subscribers who were ineligible to receive the signals. This report briefly describes the Satellite Home Viewer Act, as amended, through the lens of the Eleventh Circuit's ruling regarding a satellite provider's retransmission of programming originating on distant network affiliate stations to persons who live in "unserved" households. It then describes the facts underpinning the court's decision, followed by the main legal issues the court addressed and a discussion of the district court's implementation of the court of appeals' decision. The report concludes with possible legislative action. The Satellite Home Viewer Act: Satellite Retransmission of Distant Network Signals to Unserved Households The Satellite Home Viewer Act of 1988 (SHVA), as amended, grants satellite carriers like EchoStar a compulsory license to retransmit copyrighted "distant network programming" to "unserved households." The purpose behind granting the compulsory license is to "satisfy the public interest in making available network programming in these (typically rural) areas, while also respecting the public interest in protecting the network-affiliate distribution system." Distant network programming is programming that a satellite television subscriber receives from a network-affiliated broadcast station located outside his or her market area. An example is a person who lives in Fort Lauderdale but receives an ABC, CBS, Fox, or NBC network station from New York City. An unserved household , for the purposes of this discussion, is one in which a subscriber (1) cannot receive an over-the-air television signal at a certain level of signal intensity, (2) has received a waiver from the local affiliated network station, or (3) is grandfathered in. Under SHVA, the satellite carrier bears the burden of proving its subscribers reside in unserved households. If it fails to provide sufficient evidence that a household is unserved, the satellite carrier may be held liable for damages and injunctive relief. For households receiving an over-the-air television signal, SHVA permits two methods of determining whether a household is unable to receive a signal of requisite strength: the use of the "accurate measurements method" and the "accurate predictive model." The accurate measurements method requires actual physical measurements to determine the strength of the television signal at the subscriber's residence, performed in accordance with statutory and regulatory requirements. By contrast, the accurate predictive model, or ILLR, does not require home visits, yet allows the satellite carrier, through a computer model, to presumptively establish that a household cannot receive a sufficient signal and is therefore unserved. Penalties for violating SHVA vary, depending on whether they are classified as "individual violations" or "patterns of violations." An individual violation occurs where there is a willful or repeated retransmission to a subscriber who is not eligible to receive the transmission. By contrast, a pattern of violations occurs when a satellite carrier engages in a willful or repeated pattern or practice of delivering distant network service to subscribers who are not eligible to receive the transmission. A district court has broad discretion to remedy individual violations but has less discretion in its choice of remedy for a pattern or practice of violations. Assuming a court finds a willful or repeated pattern or practice of violations, it must order a permanent injunction barring retransmission by the satellite carrier of any primary transmissions from any network station affiliated with the same network, and may order damages not to exceed $250,000 for each six-month period during which the pattern or practice of violations occurred. If the violations occurred on a "substantially nationwide basis," the court must order a permanent injunction against the satellite carrier encompassing "the primary transmissions of any primary network station affiliated with the same network" —a nationwide ban. If the violations occurred on a "local or regional basis," the court must order a permanent injunction against the satellite carrier that bars the retransmission "in that locality or region." Factual Findings Regarding EchoStar's Violation of Federal Law At issue was whether EchoStar willfully or repeatedly violated SHVA by retransmitting distant network signals to ineligible satellite television subscribers from 1996 to 2003, and if so, whether the nature of the violations was best classified as "individual" or "pattern or practice" violations, thereby triggering different penalties. The district court examined the methodology by which EchoStar classified a household as unserved and the percentage of the carrier's subscriber base inappropriately classified as eligible for service. The court concluded that from 1996 to 2002, EchoStar used improper methodology to assess whether a person resided in an unserved household, with the result that 60% or more of subscribers were ineligible for service. Because EchoStar did not satisfy its statutory burden of proving it only retransmitted distant network signals to unserved households, the district court held that EchoStar's conduct constituted willful or repeated copyright infringement, actionable under the part of SHVA that governs "individual violations." The district court did not reach a conclusion as to whether EchoStar engaged in a pattern or practice of violations, which would trigger a permanent injunction, because "no pattern or practice currently exists that would warrant such an extreme sanction." The Court of Appeals' Decision The court of appeals overturned the district court's legal conclusion regarding EchoStar's punishment, holding that the district court was indeed obligated to issue a nationwide permanent injunction against EchoStar's retransmission of network programming as a consequence of "the inescapable conclusion, based on the district court's findings, that EchoStar did engage in a 'pattern or practice' of violations." The district court erroneously concluded that the legal standard for "pattern or practice" liability required EchoStar to be currently engaged in violating SHVA. The court of appeals held that the permanent injunction required under "pattern or practice" must be imposed, so long as a pattern or practice of statutory violations occurred at some point in time. The court then proceeded to evaluate whether EchoStar had engaged at any time in a pattern or practice of violating SHVA. According to the court, the standard for concluding "pattern or practice" liability under SHVA is "whenever a satellite carrier fails to carry its burden of proving eligibility [for distant network service] on a sufficient scale, and to a sufficient degree, that [a court] can presume that the satellite carrier is engaging in 'pattern or practice' of serving ineligible subscribers." Looking at the legislative history of SHVA, the court determined that a threshold of 20% of subscribers being ineligible for service is a relevant marker for pattern or practice analysis. The court of appeals, believing "that there is no other possible conclusion that can be drawn from the district court's findings of fact," determined that EchoStar's prior conduct did constitute a pattern or practice of violations. The court based this conclusion on a three main factors. First, EchoStar's three-and-a-half year history of using inadequate procedures for assessing subscriber eligibility. Second, EchoStar's exceeding the 20% threshold of unlawful subscribers nationwide. Third, EchoStar's pattern of behavior, about which the court stated, "we have found no indication EchoStar was ever interested in complying with the Act." The court also denied all but one of EchoStar's 17 claims of error. In addressing EchoStar's assertions that the court had discretion to determine a remedy for the violations, the court found that "Congress unequivocally stated a purpose to restrict the courts' traditional equitable authority upon a finding of a 'pattern or practice.'" Because the act instructs that a court shall order a permanent injunction and may order statutory damages, the court found there to be "no ambiguous statutory language in the SHVA ... [or] any legislative history that would indicate that the remedial measure chosen by Congress is anything but mandatory." As a result, on August 15, 2006, the court of appeals ordered the district court to issue a nationwide permanent injunction barring the retransmission of distant network programming pursuant to the act's statutory license. The District Court's Orders Enforcing the Court of Appeals' Decision Ten days after the court of appeals decision, EchoStar and the Affiliate Associations filed a Notice of Settlement between those parties in the district court. On August 31, Fox Broadcasting Company (Fox) filed a motion for entry of a nationwide permanent injunction in accordance with the court of appeals' decision. The district court issued two orders in response to Fox's motion on October 20, 2006. EchoStar and the Affiliate Associations (the Settling Parties) made three arguments against the court's imposition of the injunction and in favor of granting the proposed consent agreement. First, the Settling Parties argued that Fox lacked standing to obtain relief because the act only applies to networks, not network stations, and Fox abandoned its cross-appeal to the court of appeals, thereby waiving its right to seek an injunction. Second, they argued that the nationwide permanent injunction Fox sought was overly broad, and considering the agreement between the Settling Parties, the court had discretion to enter more narrow relief. Finally, Echostar argued that the entry of a nationwide permanent injunction would cause manifest injustice to the parties and EchoStar's customers. The district court rejected all three arguments. The district court concluded that the question of Fox's standing was irrelevant because the court had "an obligation to implement the mandate issued by the Eleventh Circuit even without the request of any party." The district court also found that, according to controlling case law, it was unable to review or alter the mandate from the court of appeals, as the parties' settlement agreement did not present new evidence or an intervening change in controlling law , the only circumstances under which the district court held it would have discretion to review the court of appeals' mandate. The district court also concluded that implementing the law would not constitute "manifest injustice," as it would be "neither clearly erroneous nor contrary to law," the standard for a court making that finding. As a result, the district court granted an Order of Permanent Injunction, effective December 1, 2006, that permanently enjoined and restrained EchoStar from retransmitting "a performance or display of a work embodied in the primary transmission of any network station affiliated with ABC, Inc., CBS Broadcasting, Inc., Fox Broadcasting Company, or National Broadcasting Co." Congressional Action 110th Congress S. 124 Introduced by Senator Allard and substantively identical to S. 4074 introduced in the 109 th Congress, section 2 would allow satellite broadcasters to retransmit signals originating in Denver to subscribers in two counties in Colorado that are in a local market comprised principally of counties located in another state. S. 258 Introduced by Senator Sununu, co-sponsored by Senator Gregg, and identical to S. 4068 introduced in the 109 th Congress, it generally would allow a satellite broadcaster to continue retransmitting, despite the injunction, in states with a single full-power network station. H.R. 602 Introduced by Representative Boren, it allows subscribers to receive the secondary transmissions of network stations located in Oklahoma so long as they either reside in Oklahoma but do not receive the secondary transmission of any network station located in Oklahoma or live in another state that contains a local market that includes some Oklahoma residents and the subscriber elects to receive the secondary transmission originating in Oklahoma. S. 760 Introduced by Senator Salazar, it allows subscribers in certain counties in Colorado to receive secondary transmissions of network stations located in the state capital. It also permits subscribers who are located in a designated market area comprised primarily of counties outside of Colorado to receive retransmission of broadcast signals upon FCC approval and broadcaster agreement. 109th Congress Multiple pieces of legislation were introduced in the second session of the 109 th Congress, subsequent to the district court's order implementing the permanent injunction. S. 4067 and H.R. 6402 Introduced by Senator Leahy and joined by 15 co-sponsors in the Senate and introduced by Representative Mollohan and co-sponsored by Representative Rahall in the House, it would have allowed in several limited circumstances, subject to additional conditions, a satellite provider to continue providing distant network service despite a court's permanent injunction. S. 4068 and H.R. 6340 Introduced by Senator Sununu and cosponsored by Senator Gregg in the Senate and introduced by Representative Bass and cosponsored by Representative Bradley in the House, it generally would have allowed a satellite broadcaster to continue retransmitting, despite the injunction, in states with a single full-power network station. S. 4074 Introduced by Senator Allard, the relevant portion, section 2, with some caveats, would have allowed subscribers in two counties in Colorado to choose to receive transmissions of any network station located in Denver, regardless of whether they would otherwise qualify as an unserved household. S. 4080 and H.R. 6384 Introduced by Senators Stevens and cosponsored by Senators Allard, Ensign, and Murkowski, in the Senate and introduced by Representative Boucher and joined by 18 co-sponsors in the House, it would have permitted a court to approve a settlement agreement reached by at least one plaintiff and one defendant in litigation that resulted in the issuance of a permanent injunction.

On May 23, 2006, the Eleventh Circuit Court of Appeals ordered the District Court for the Southern District of Florida to enjoin EchoStar Communications Corporation from retransmitting all programming originating on any station affiliated with ABC, Inc.; CBS Broadcasting, Inc.; Fox Broadcasting Co.; or National Broadcasting Co. The district court complied, rejecting EchoStar's last-minute arguments and partial settlement agreement and ordering the injunction imposed effective December 1, 2006. At issue before the Eleventh Circuit was whether EchoStar had violated the Satellite Home Viewer Act (SHVA), as amended, which grants a limited statutory license to satellite carriers transmitting distant network signals to private homes if the subscribers cannot receive local signals, and the scope and consequences of violating SHVA. The court of appeals determined that EchoStar engaged in a pattern or practice of violating SHVA on a nationwide scale and, consequently, that SHVA required the court to impose a nationwide injunction against EchoStar for its improper retransmission of programming. This was a different legal conclusion than that reached by the district court, which had concluded that because of EchoStar's cessation of the violation, SHVA did not require "pattern or practice" liability, and the court consequently had discretion to order EchoStar to re-analyze its subscriber base, in compliance with SHVA, and to limit termination to subscribers found ineligible under the court-supervised analysis. Subsequent to the district court's orders implementing the court of appeals' decision, multiple bills were introduced in the 109th Congress—S. 4067, S. 4068, S. 4074, S. 4080, H.R. 6402, H.R. 6340, and H.R. 6384—that would have allowed EchoStar to recommence retransmission of distant network programming under varying circumstances. Several bills have been introduced in the 110th Congress: H.R. 602, S. 124, S. 258, and S. 760.

Introduction Counternarcotics policy has been the defining issue in U.S.-Colombian relations since the 1980s because of Colombia's preeminence as a source country for illicit drugs. Peru and Bolivia were the main global producers of cocaine in the 1980s and early 1990s; however, successful efforts in reducing supply in those countries pushed cocaine production to Colombia, which soon surpassed both its Andean neighbors (see Figure 1 ). Colombia emerged to dominate the global cocaine trade by the late 1990s. National concern about the crack cocaine epidemic and extensive drug use in the United States led to greater concern with Colombia as a source. At the same time, as Colombia became the largest producer of coca leaf and the largest exporter of finished cocaine, heroin produced from Colombian-grown poppies was supplying a growing proportion of the U.S. market. Alarm over the volumes of heroin and cocaine being exported to the United States was a driving force behind U.S. efforts to assist Colombia in addressing the drug problem. Over the past 17 years, the United States and Colombia have forged a close security partnership, initially through a strategy called Plan Colombia, which was first funded by the U.S. Congress in 2000. Plan Colombia and its successor efforts laid the foundation for a strategic partnership aimed at enhancing security, lowering violence, fighting drugs and terrorism, and strengthening Colombia's democratic development. That partnership has broadened to include sustainable development, human rights, trade, regional security, and many other areas of cooperation. Between FY2000 and FY2016, Congress provided more than $10 billion of foreign assistance from the U.S. Departments of State and Defense in support of Plan Colombia and its successor programs. The strategy received backing from Democratic and Republican Administrations and bipartisan support in Congress. The Revolutionary Armed Forces of Colombia (known by its Spanish acronym, FARC), which has been defined as a foreign terrorist organization (FTO) by the U.S. government since 1997, and other armed groups in Colombia finance themselves through profits derived from drug trafficking. The lucrative drug trade in the 1990s had added new fuel to a multisided, decades-long internal armed conflict, featuring right-wing paramilitaries and a rural peasant-based insurgency. According to some analysts, the FARC took control of Colombia's resilient coca crop largely by dominating Colombia's impoverished countryside, where peasant farmers needed a cash crop, and by taxing traffickers. The FARC first became involved in the drug trade 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 owning and directing drug production and distribution. In 2012, the Colombian government opened peace talks with the FARC, receiving accolades from the U.S. government and most nations in the region for the effort to resolve the long-standing armed conflict through a political settlement. In February 2016, President Obama's Administration, anticipating a possible peace agreement between the government and the FARC, proposed a post-peace accord approach to U.S.-Colombian cooperation called Peace Colombia. The Administration's initiative requested $450 million of support to help implement any agreement, including foreign aid for reducing illicit drug production and trafficking, which built on bilateral cooperation established under Plan Colombia. Congress did not complete action on the foreign operations appropriations measure for FY2017 until May, when Congress passed the omnibus appropriations measure, the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ), which essentially funded the foreign operations portion of Peace Colombia at $391.3 million. The Trump Administration's proposed foreign aid for Colombia in FY2018 for foreign operations would reduce funding to $251 million. In August, the House passed an omnibus appropriations bill for FY2018 ( H.R. 3354 ) that would fund bilateral programs for Colombia at $335.9 million. Congressional passage of a continuing resolution (CR) through December 8, 2017, may be followed by another temporary CR before the 115 th Congress determines the remainder of FY2018 foreign operations funding for Colombia. In November 2016, the Colombian government and the FARC signed a historic peace accord that came on the heels of four years of formal peace talks and, 40 days earlier, the razor-thin defeat of an earlier peace accord in an October 2016 public referendum. The government of President Juan Manuel Santos, responding to the first accord's surprise defeat, quickly renegotiated the peace accord with the FARC. The Santos Administration maintained that the renegotiated agreement responded to some of the major concerns voiced by opponents of the first accord. The revised accord was approved by Colombia's Congress in late November 2016 (although some congressional opponents boycotted the final vote). In 2017, the government began to implement the revised accord and demobilize FARC forces under the verification of a team of United Nations monitors. Data were published that demonstrated Colombia had seen a large increase in cocaine production in 2016. During the protracted peace talks with the FARC, the Colombian government altered its approach to drug policy and announced a new strategy (see " Colombia's 2015 Counternarcotics Policy: A Shift in Approach? ," below). According to President Santos, the FARC-government peace accord had the potential to draw the once-powerful leftist guerrilla organization into the effort to counter illicit drug production and trafficking. In April 2017, the FARC submitted to authorities a list containing the names of 6,804 FARC members who were concentrated in special disarmament zones. The group also provided a list of 1,541 urban militia members and agreed to provide another list with additional names. As months passed, better and more nuanced tallies became available. According to the International Crisis Group (ICG), some 11,200 FARC, including militia, combatants, and former FARC prisoners who were released, have demobilized. Others maintain the figure is higher and may exceed 12,000. Some members and units of the FARC, in an early act of defiance, stated they would not disarm. These members, closely affiliated with the drug trade, were rejected by the FARC central leadership as recalcitrant dissidents. Others, disillusioned by the government's failure to live up to its obligations during demobilization and reintegration, have slowly abandoned the peace process and left the encampments. Most recent estimates suggest that between 5% and 10% of the FARC who disarmed in 2017 have returned to illicit activities. Colombian authorities also are grappling with criminal groups, such as organizations that the government calls Bandas Criminales , or Bacrim, which many civil society groups see as successors to the rightist paramilitaries that demobilized between 2003 and 2006. The Bacrim have publicly announced plans to usurp FARC drug routes and gain control of cocaine trafficking. Press reports indicate that Bacrim leaders have advertised salaries to induce FARC combatants to reject demobilization and join their criminal businesses. Furthermore, a second rebel group, the National Liberation Army (ELN), also heavily involved in the drug trade, began formal peace talks with the Santos government in February 2017, in Quito, Ecuador. The ELN-government negotiations are similar to the FARC-government framework for peace talks, and yet the two sets of negotiations are also distinct in some important ways. Part of the difference lies in the distinct command structures of the two leftist guerrilla groups; whereas the FARC is controlled by a ruling secretariat, the ELN's structure is more horizontal, decentralized, and consensus based. The lead issue of the ELN negotiations will be "participation of society in constructing peace." In October 2017, the ELN and the Santos government started a three-month temporary ceasefire, the first bilateral ceasefire ever negotiated between the Colombian government and the ELN. Peace and Counternarcotics13 President Santos launched formal peace talks with the FARC in October 2012. The FARC-government talks opened ceremonially in Norway and moved to Cuba in November 2012, where negotiating teams reached tentative agreements over the course of four years and some 50 rounds of talks on the following topics: land and rural development (May 2013); the FARC's political participation after disarmament (November 2013); illicit crops and drug trafficking (May 2014); victims' reparations and transitional justice (finalized in December 2015); and the demobilization and disarmament of the FARC and a bilateral cease-fire (June 2016). One of the critical topics of the peace negotiations was the issue of controlling illegal crops and drug trafficking—a major source of FARC income. In May 2014, both sides appeared to resolve through a partial agreement , as the provisional elements of the final accord were called, the issue of trafficking and production of illegal drugs. Although the Santos Administration's counternarcotics policy changed in 2015 (see " Colombia's 2015 Counternarcotics Policy: A Shift in Approach? ," below), the final peace accord, which was concluded in November 2016, remained largely unchanged from the May 2014 partial agreement on the topic of drugs. The Drug Trafficking Partial Agreement14 On May 16, 2014, the peace talks between the FARC and the Colombian government reached a new draft, or partial agreement, on illicit crops and drug trafficking just days before the first-round presidential vote in which President Santos ran against an opposition candidate opposed to the peace process. The FARC and government negotiators announced their agreement on drugs to be enacted if a final agreement were signed by both parties, which committed them to work together to eradicate coca and to combat drug trafficking in the territories under guerrilla control. The partial agreement, entitled "The Solution to the Problem of Illicit Drugs," addressed coca eradication and crop substitution, public health and drug consumption, and drug production and trafficking. The negotiators reached six major areas of agreement: 1. FARC acknowledged its links to the drug business and committed to ending its involvement. 2. FARC agreed to assist with demining in rural areas to make drug crop eradication safer. 3. FARC agreed to cooperate "practically and efficiently" in resolving the illegal drugs problem. 4. The Colombian government agreed to prioritize voluntary drug-crop eradication over forced and aerial eradication. 5. The government committed to a crop substitution and alternative development program in line with the rural development accord reached in May 2013, the first topic resolved at the peace talks. 6. The government agreed to provide public health programs to prevent addiction and to treat drug consumption as a public health problem. Other partial agreements concluded over the course of the negotiations with the FARC also are relevant to drug policy. In December 2015, on the topic of victims' reparations and transitional justice, the FARC and the Colombian government announced they had redefined the "crime" of drug trafficking as it relates to past drug trafficking charges against the FARC or prior violations by the FARC during the internal conflict in a final partial accord. Colombia re-characterized the crime of drug trafficking in transitional justice parlance as a connected crime to the political act of insurgency. In other words, drug trafficking would be designated a political crime when used to support the FARC in its armed insurgency against the Colombian state (and therefore eligible for amnesty under the accord). Drug trafficking, if not combined with more severe violations, would no longer be a straightforward criminal violation of the penal code for eligible FARC fighters. Some observers have speculated that the cessation of aerial spraying in Colombia could be viewed as an additional narcotics-related concession to the FARC during the course of the negotiations. Although not sanctioned by the accord, the issue of FARC combatants leaving the FARC and joining criminal groups after disarming, such as the remobilized paramilitaries have in recent years, raised the prospects of competing criminal groups taking control of FARC drug production and trafficking routes. Further, the same criminal bands, containing both leftist guerrillas and rightist paramilitaries—former enemies—might seek to go after the lucrative cocaine business working in tandem. As noted below, the Santos government ended the use of the herbicide glyphosate to spray coca crops as part of a change in drug policy made in 2015. However, the May 2014 partial agreement, like the final accord ratified by the Colombian Congress in late 2016, leaves open the prospects in the future of aerial eradication of illicit crops. The Colombian government, however, had determined that reintroduction of coca crop aerial eradication would be made only as a "last-choice" option. In 2017, implementation of the FARC-government peace accord has increased the centrality of voluntary crop eradication and crop substitution and other livelihood alternatives as the major tools for supply reduction in combination with aggressive interdiction. In a public document released by the Colombian Embassy in Washington, DC, in March 2017, the Colombian government stated its commitment to fight drug trafficking with a focus on "working hand-in-hand with the United States to fight against illegal drugs, including strengthening interdiction capacity, fighting organized crime, and promoting alternative development." Colombia's 2015 Counternarcotics Policy: A Shift in Approach?19 Many observers have highlighted the apparent shift in Colombia's counternarcotics strategy in 2015 from a criminal justice and enforcement approach to one that potentially places drug policy within a broader public health framework. Some observers point to the Santos government's adoption of "harm reduction" drug policy rhetoric, which promotes reform of traditional antidrug practices in ways that reduces human rights violations. This reform approach has been advocated by some policymakers in both Europe and the Western Hemisphere. The Colombian government issued a four-page synopsis of the new drug policy approach in Spanish in September 2015. On the supply side, Colombia's new drug policy gives significant attention to expanding alternative development and licit crop substitution to combat illicit drug production. In October 2015, after a finding by the International Agency for Research on Cancer (IARC), a World Health Organization affiliate, that the herbicide used to aerially spray coca in Colombia "probably" causes cancer, the Santos Administration determined that Colombian law required the practice to be discontinued. Subsequently, in September 2015, the Colombian government released a new counternarcotics strategy, focused on several objectives: reduce drug-related crime and prioritize efforts to combat links in the drug-production supply chain; build capacity in cultivation zones or areas by focusing on social, economic, and political development; and enact an integrated approach to reducing drug consumption that emphasizes public health, human rights, and human development. To accomplish these objectives, Santos laid out a strategy that included the following: social investment and institutional reform (e.g., construction of roads, provision of electricity and water utilities, and access to health care and education); crop substitution (e.g., food security programs and technical and financial assistance for households that abandon drug-crop cultivation); enhanced interdiction, investigations, and prosecutions (e.g., destruction of drug laboratories; seizure of cargoes and precursor chemicals; and effective detention of drug traffickers); and demand reduction through drug-use prevention and evidence-based treatment. Coinciding with the release of the new drug strategy was the October 1, 2015, shuttering of the aerial eradication program, once a cornerstone of U.S.-supported drug control in Colombia. Viewed by some in Colombia and the United States as a crucial supply-control element, aerial spraying of coca crops with the herbicide glyphosate was no longer part of the Colombian government's counterdrug policy. Colombia's revised antidrug strategy prominently featured a new government agency to be set up by December 2015 to implement a social program to assist coca growers, called the Agency for Alternative Development in Zones of Illicit Cultivation. The first director of the new agency, Eduardo Díaz Uribe, who was identified in the original four-page plan, would report directly to the President of Colombia. As of late 2016, the agency under Díaz was located inside the Office of the Presidency under Minister of Post-Conflict Rafael Pardo, where it was placed by decree earlier in the year. As the program was finally launched in February 2017, Díaz, whose title is now Director of Comprehensive Care on the Fight Against Drugs, announced that the government hoped to replace 50,000 hectares (ha) of illicit coca crops with legal crops in 2017 and that coca farmers would receive one-time payments to help provide food security and to help ensure that families can transfer quickly to alternative sources of income. The program began to make progress after May 2017 by brokering agreements with some 100,000 families (covering about 90,000 hectares of coca) but actual removal of the coca crops has not been as high as anticipated. Some analysts project that the voluntary removal of coca will be less than a third of the annual goal of 50,000 hectares by the end of 2017. On crop substitution, the strategy explains that communities and individuals who now cultivate coca crops will be given an opportunity to commit to voluntarily eradicate their crops in exchange for development support. Additionally, if families abstain from drug-crop cultivation for five years, they would receive title to the land they occupy. Forced manual eradication by the government, however, remains a tool to assure compliance from those who do not commit to voluntarily removing their illicit crops. The document also includes a section on a special strategy to address drug cultivation in Colombia's national parks, a location where a significant portion of coca is now cultivated to evade aerial spraying, in addition to protected territories of Afro-Colombian and indigenous communities. The health and prevention orientation of the new strategy was to be led by the Ministry of Health, along with 10 other federal entities, which are to contribute to the National Plan for Use Prevention and Care. This approach aligns the Colombian strategy with harm-reduction approaches for curbing drug use that have been promoted by reform advocates who are critical of traditional counternarcotics, law enforcement-oriented tactics and policies. President Santos at times has expressed fundamental criticism of global narcotics-control approaches, since he was first elected President in 2010. He has not proposed that Colombia take the lead in experimenting with new ways to approach drug control. Nevertheless, he has strongly stated that Colombia has paid a very high price "in blood and treasure" for antidrug policies that have not been as effective as might have been anticipated given the level of sacrifice. Many observers anticipate that the prospects for success of Colombia's new antidrug strategy depend on the outcome of the government's efforts to implement the peace accord. The State Department's International Narcotics Control Strategy Report , published in March 2017, maintained that "the new strategy constitutes a major component of the Colombian government's plans for the implementation of its final peace accord with the FARC." The level of the FARC's involvement following demobilization in 2017 remains uncertain. At the 2016 Special Session of the United Nations General Assembly on the World Drug Problem, President Santos outlined his vision of peace and post-conflict reconciliation as it relates to drug policy. He underscored that although drug profits had funded the FARC for many decades, he foresaw a post-conflict environment in which the demobilized FARC (and possibly the smaller ELN) would join the fight against drugs and "become an ally in the eradication and substitution of illicit crops, and even assist with identifying former production centers and transportation routes." Selected Elements of the Drug Strategy In addition to the emphasis on health and harm reduction approaches to drug policy, the Santos Administration's counterdrug strategy stresses enhanced interdiction and economic and social programs to encourage crop substitution by farmers, backed by enforced manual eradication of illicit crops if coca growers do not voluntarily eradicate. Although some analysts maintain that Colombia is on the cusp of a new, more peaceful stage, few believe it will be the end of drug production and trafficking in Colombia. Coca Cultivation and Coca Eradication After significant year-on-year declines in coca cultivation in Colombia between 2007 and 2012, U.S. government estimates indicate that coca cultivation has been on the rise once more. Coca cultivation rose from 78,000 ha in 2012 to 159,000 ha in 2015 (the most cultivation since 2007). During this time, Colombia's coca cultivation increases drove higher production, according to most analysts, although evasion of drug-crop removal efforts and innovation to increase coca crop productivity also may have played an important role. According to U.S. estimates, Colombia produced 495 metric tons (mt) of pure cocaine in 2015 (see Figure 3 ). Between 2009 and 2013, Colombia aerially sprayed roughly 100,000 ha annually. In 2013, however, eradication efforts declined. Colombia aerially eradicated roughly 47,000 ha. It manually eradicated 22,120 ha, short of its manual-eradication goal of 38,500 ha. This reduction had a number of causes: the U.S.-supported spray program was suspended in October 2013 after two U.S. contract pilots were shot down, rural protests in Colombia hindered manual and aerial eradication efforts, and security challenges limited manual eradicators working in border areas. In 2013, Ecuador won an out-of-court settlement in a case filed in 2008 before the International Court of Justice in The Hague for the negative effects of spray drift over its border with Colombia. Despite its efforts, Colombia became the top producer of cocaine once more in 2014, and it remains one of three countries in the Andean region that produce nearly all of the world's supply of coca and cocaine, much of which is destined for the U.S. market. These trends are illustrated in Figure 2 , which compares estimates by the U.S. government with those of the United Nations, in cooperation with national governments, of Colombia's cocaine production from 2000 to 2015 and illustrates the relationship to coca cultivation estimates from the two sources for the same period. The two sources track similar trends, and both the U.S. government and the UN reported a significant jump in illicit drug-crop cultivation (mainly coca) in Colombia in both 2014 and 2015. More recent data indicate that rising cultivation has resulted in a big surge in cocaine production. For 2015, the U.N. Office of Drugs and Crime (UNODC) reported 96,000 ha of coca were cultivated in Colombia, resulting in 646 mt of potential pure cocaine, an estimated increase of 46%. By contrast, the U.S. Office of National Drug Control Policy noted that its estimates of coca cultivation in Colombia in 2015—which reached 159,000 ha, or a 42% expansion over the year before—peaked in 2016 at 188,000 hectares in 2016 (see Figure 3 ). U.S. estimates indicate that potential cocaine production grew significantly during the time frame that coincides with a drop in Colombia's total eradication (manual and aerial) from 137,894 ha eradicated in 2011 to 67,256 ha eradicated in 2014. Reporting on drug trends separately from the United States, the United Nations jointly with the Colombian government reported that 37,199 ha were aerially eradicated in 2015 (until October 1, 2015, when aerial eradication operations ceased) and 14,267 ha were eradicated by hand. In 2016, the first full year in which aerial eradication was not conducted, the Colombian government reported 17,642 ha of manually eradicated coca crops. Although views differ on whether this increase in cultivation and production was a direct result of lower eradication levels or of the Colombian government's engagement in peace talks with the FARC, key questions center on how the Colombian government will counteract these sharp increases. U.S. policymakers have expressed renewed concern over Colombia's drug production in the context of the historic peace accord with the FARC and changes to Colombia's counternarcotics strategy. According to the State Department, Colombia's manual eradication budget has declined by two-thirds since 2008 and the number of manual eradicators in 2016 declined by 90% compared to 2008. However, the Colombian government reportedly prepared for a manual eradication push in 2017 by training some 20,000 army troops to serve on eradication brigades. Eradication and U.S. Drug Policy U.S. efforts to combat the production of illicit drugs, including cocaine, historically have relied on crop eradication as a key supply-control tool. Without drug cultivation, the State Department argued in 2007, "there would be no need for costly enforcement and interdiction operations." Eradication policies, however, have been politically fraught, particularly in Colombia. Until 2015, Colombia was the only country that permitted aerial spraying of herbicides to eradicate drug crops. Both manual and aerial eradications (sprayings) were central components of Plan Colombia. Manual eradication, involving uprooting and killing the drug plant by teams of eradicators, was much more dangerous in the context of Colombia's long internal conflict, with scores of Colombian eradicators killed. Yet, aerial eradication by spray planes was always controversial because of the risk of spray drift to licit food crops and other potential or perceived health or environmental risks. Even though eradication—both aerial and manual—was less emphasized by the Obama Administration, as recently as FY2015 roughly 24% of the State Department and the U.S. Agency for International Development (USAID) counternarcotics budget went to eradication, with most of that spent on eradication efforts in the Western Hemisphere. Originally, Colombia's aerial eradication efforts focused on both coca and opium. When the country's opium crops declined by more than 90% between 2000 and 2009, the government shifted the focus of eradication efforts almost exclusively to coca. Many have questioned why a downward trend in drug cultivation and drug production in Colombia between 2007 and 2012 was not sustained and cultivation and production trends have instead reversed. Some analysts posit that without investment in rural development and projection of the state in remote areas (increasing state presence), any decrease in illicit crops cannot be sustained. Other factors that may have contributed to the large increases in coca bush cultivation in Colombia between 2014 and 2016 include the following: the FARC incited farmers to increase coca planting in anticipation of benefits from the government, such as crop substitution programs and credits; total eradication (number of hectares sprayed) has declined and counter-eradication efforts have become more effective in recent years; the price of gold fluctuated—when gold prices increased, the FARC moved into illegal mining and encouraged coca farmers and others to engage in mining activities; however, when gold prices fell in 2013 and 2014, Colombian peasant farmers and the FARC reverted to more coca production; and cocaine demand ticked up in the U.S. and European market. The Colombian government's twin announcements in 2015 to end the controversial practice of spraying drug crops (primarily coca) with the herbicide glyphosate and adopt a new drug policy also may have contributed to the increase. Many analysts suggest that Colombian illicit crop farmers and cocaine and heroin producers reportedly use increasingly sophisticated ways to enhance productivity through eradication evasion strategies and other tactics. Policymakers in Colombia and the United States may choose to assess if the government's revised counternarcotics strategy, with its focus on rural development to reduce dependence on drug cultivation, enhanced law enforcement to interdict drugs and combat organized crime groups, and the public health approach to address domestic drug use, can bring the surge in cocaine production under control. Supply Reduction: Policy Alternatives to Aerial Eradication? Colombian policymakers maintain that the elimination of aerial spraying to destroy large volumes of coca can be compensated by increasing the government's focus on manual eradication, alternative livelihoods programming, and enhanced interdiction. Manual eradication, however, may remain cost prohibitive to implement in many parts of Colombia due to the continued threat of land mines and ongoing insecurity. Alternative livelihoods programs are long-term efforts whose fruits, sometimes literally, may not be borne out for years. Many proponents of coca eradication, whether aerial or manual, observe that it was never designed as a drug-control strategy to be effective in isolation. Most often, eradication was conceived as a program to be sequenced with alternative development. Some analysts maintain that effectively sequencing eradication with alternative development is the only way to sustainably lower coca cultivation. Interdiction The Colombian government promotes the role of interdiction as a key element of its current counternarcotics policy. Colombia has committed to further enhancing interdiction's role and has a record of being a stalwart partner with the United States in interdiction. Such efforts include drug and precursor seizures; tracking of suspected illegal drug flights; capture of air- and watercraft used to convey illegal drugs; and use of specialized forces to dismantle laboratories and base camps, as well as to capture significant trafficking leaders. According to the United Nations, Colombia accounted for approximately 56% of cocaine seizures in South America and more than one-third of global cocaine seizures between 2009 and 2014. In 2016, Colombia seized 421 mt of cocaine and cocaine base (in 2015, Colombia seized 295 mt of cocaine). The State Department often cites Colombia's strong collaboration with the United States in bilateral maritime counternarcotics operations as a special area of strength. Historically, the State Department's Bureau of International Narcotics and Law Enforcement (INL) Affairs has supported Colombia's interdiction efforts. In the absence of aerial eradication, many analysts anticipate that supply-side reduction efforts will become more dependent on Colombian interdiction to mitigate outbound flows of cocaine, destined primarily for the United States. Alternative Development As elsewhere, significant time, even decades, may be required for rural development to succeed in regions of Colombia susceptible to illicit crop cultivation. Many analysts have suggested that Colombia's underdeveloped rural areas will require an infusion of resources to address the structural causes of poverty. These include a lack of access to land; a lack of access to land titling, irrigation, roads, and limited technical assistance in remote areas; in addition to the absence of national government or state presence—including basic services such as education and health—in rural zones which remain lawless and abandoned. Under Plan Colombia, drug-crop eradication was carried out with a companion policy to provide licit alternatives, such as crop substitutes or alternative employment opportunities that were viable and sustainable. USAID funded and provided alternative development programs to assist communities to transition to licit livelihoods, although with extremely limited success. As part of the recently approved peace accord with the FARC, poor coca farmers in Briceño, Antioquia, participated in an alternative development program pilot (for further discussion, see textbox entitled "Alternative Development Pilot in Antioquia, Colombia, below). The Colombian government and the FARC are promoting the planting of alternative crops, as the government previously did under Plan Colombia with U.S. support. USAID's Areas for Municipal Level Alternative Development (ADAM) and More Investment for Sustainable Alternative Development (MIDAS) projects aimed to reduce coca cultivation by expanding economic options for poor farmers between 2006 and 2011. ADAM implemented agricultural and infrastructure support activities, which included developing smaller-scale, licit crops with long-term income potential, such as cacao and specialty coffee. MIDAS, in coordination with the Colombian government, launched policy reforms to maximize employment and income growth. According to a 2010 audit, USAID's ADAM and MIDAS projects failed to provide secure alternate livelihoods for coca farmers on a sustainable basis. The programs did not contribute to a significant reduction of coca crop and cocaine production as a result. A major criticism of the ADAM and MIDAS programs was that the programs did not reach Colombian farmers who either grew coca or were susceptible to coca growing. Colombia's Plan de Consolidación Integral de la Macarena (PCIM), first implemented in 2007 in the department of Meta, was an alternative development pilot program under the Center for Coordination of Integral Action (CCAI). It was implemented by an office of the Colombian presidency under former President Álvaro Uribe. The pilot program, which received USAID support, depended on Colombian military and police to execute coca removal and eradication. First, the military and police would physically secure an area; then, they would eradicate coca crops, either voluntarily or involuntarily. Complementing the PCIM coca removal effort, the Colombian government provided two other programs: Familias en Acción and Familias Guardabosques, "both of which [were] designed to provide conditional cash transfers to least advantaged groups." Familias en Acción promoted childhood health and education; Familias Guardabosques encouraged local cooperation with drug eradication. Despite initial success in significant reduction of coca cultivation, PCIM was hindered by the bureaucratic position of the CCAI, a government agency that eventually was eliminated. According to one account, the CCAI was not in a position to command sufficient resources from the Colombian government for its programs and had to "cajole" actual line agencies to contribute from their budgets or personnel allocations. Many factors contributed to alternative development failures during the ongoing armed conflict in Colombia, not least of which was the challenge of conducting programs during ongoing war insecurity. In addition, the Uribe government's "zero coca" policy, which required complete eradication of illicit crops as a prerequisite to receive support or development assistance for any alternative development project, posed a significant challenge to impoverished coca farmers. The certification process to ensure that farmers had uprooted their entire illicit crop often took an extended period of time, and then the alternative crops had to be cultivated for another period of time. In the interim, according to some analysts, peasant families were left without adequate provisions to feed themselves or acquire basic livelihoods. Colombia's Other Armed Groups and Future Drug Trafficking The FARC is seen by most Colombians as a terrorist group that committed grave human rights violations and financed itself for decades with proceeds from illicit drugs, kidnapping, extortion, illegal mining, and other illicit businesses. As FARC combatants have demobilized, the opportunity for groups who remain armed to take on FARC's lucrative criminal enterprise appears to be quite attractive. Colombia has had many illegal groups that have benefited from narcotics trafficking, ranging from the large cartels of the last century—such as the Medellin Cartel led by Pablo Escobar in the early 1990s and the Norte Del Valle Cartel, which began in the 1990s but was not fully disarticulated by Colombian authorities until 2012—to the leftist insurgent groups, such as the FARC and ELN, and the rightist paramilitaries who joined together in the 1990s under the banner of the Self Defense Forces of Colombia. New and lesser-known criminal organizations, or cartelitos , also have entered aspects of Colombia's narcotics trade. Some analysts posit that the growing threat from the paramilitaries, who controlled the largest share of the cocaine trade before entering peace negotiations with the government of former President Uribe and laying down their arms between 2003 and 2006, makes these groups and their successors the most likely to fill the criminal void left by demobilization of the FARC. The demobilization that followed the paramilitary peace process was not fully successful. If the largest drug trafficking organization in Colombia was the FARC, as some observers maintain, these other armed groups may compete to replace the FARC in its domination of the lucrative trafficking routes. In Colombia, many paramilitaries remobilized into criminal groups called Bacrim. By 2013, a group that consisted of many former paramilitaries and was known by several names including Clan del Golfo, but most commonly as Los Urabeños , emerged as the dominant Bacrim. The group became a major target of enforcement by the Santos government. Los Urabeños nevertheless demonstrated an intent to replace the FARC in some parts of the country. It has openly advertised to recruit former FARC combatants who have declared themselves dissidents from the peace process. What can be done to prevent criminal groups such as Los Urabeños from asserting control over former FARC territory? If the FARC—or a significant portion of its organization—does demobilize and join the fight against drug trafficking in a post-accord situation, how can other armed groups not part of the peace process be prevented from taking the FARC's illegal drug businesses and other criminal enterprises? The nation's second-largest guerrilla group, the ELN, began formal peace talks with the Santos government in February 2017. Public support for the peace process guided by the Santos government with either group of leftist guerrillas remains mixed and ambivalent. Some analysts have stated that even if most FARC fighters conform to the peace accord, the percentage of FARC militants who remain in criminal endeavors could eventually exceed 25% of the total. Thus, the prospects for what some have dubbed "Facrim"—or FARC members who re-criminalize—may pose a significant future challenge. Given the expected delay in the FARC's full reintegration and the possibility that ELN talks will proceed slowly even if the current temporary ceasefire holds, the upcoming presidential and legislative campaigns aimed at Colombia's national elections in March and May 2018 (with a presidential runoff in June in needed) may expose the peace effort to intense domestic criticism. Policy Issues for Congress Colombia's partnership with the United States broadened during the years of Plan Colombia and its successor programs from a primary emphasis on counternarcotics, although also with significant programs addressing humanitarian concerns, such as justice reform and human rights, to a wider set of concerns. Over the course of Plan Colombia and its follow-on programs, and with bipartisan support in the U.S. Congress, social and economic programs assumed a more equally weighted emphasis and became part of a whole-of-government strategy with benefits that included greater economic stability, protection of human rights, decreased violence, and increased investment and trade. Plan Colombia was initially part of a regional framework, the Andean Counterdrug Initiative, which also funded programs in neighboring countries such as Peru, Bolivia, Ecuador, and Venezuela. Many observers viewed Plan Colombia as a model for U.S. foreign policy in the region, and some saw it as an example of effective state capacity building and counterterrorism. In terms of drug-control policy and reducing drug supply, however, many analysts considered Plan Colombia's successes limited. As the Colombian government implements the peace accord with the FARC, whose insurgency was fueled by the drug trade, the U.S. Congress may consider how to evaluate the newer "post-Plan Colombia" counterdrug approach, including such issues as eradication of drug crops, alternative development, and interdiction. The final peace accord with the FARC, ratified in November 2016 by the Colombian Congress, returned aerial spraying to the government's antidrug armory. Nevertheless, force eradication was defined as a last option after voluntary methods proved unsuccessful. Policymakers also may consider the potential costs and effectiveness of alternative development and enhanced interdiction. Additionally, U.S. policymakers may assess the likelihood of FARC-dominated coca cultivation and trafficking shifting to other Colombian criminal organizations. Key questions remain: Will there be a violent battle of succession among criminal groups? To what degree can and should Colombia's role in regional counternarcotics efforts be expanded? Will U.S. and Colombian drug control objectives continue to align? And to what degree will counternarcotics appropriations by the 115 th Congress for the Departments of State and Defense, as well as USAID, synchronize with and support a newer Colombian counterdrug strategy? Funding Trends and U.S.-Colombian Counterdrug Cooperation State Department Counternarcotics Foreign Assistance According to the State Department, Colombia received an estimated $87.7 million in FY2016 for counternarcotics assistance. The Obama Administration's budget request for FY2017 sought to provide continued counternarcotics assistance to Colombia, including some $95 million in Foreign Military Financing, International Military Education and Training, and International Narcotics Control and Law Enforcement (INCLE) for reducing drug production and coca cultivation, as well as to combat illicit activities and organized crime. Colombia's counternarcotics efforts in the area of alternative development to replace illicit crops with licit crops also are supported by USAID's Economic Support Fund account, which included about $30 million in the FY2017 request for rapid-response efforts, such as support to Colombia's new agency for the substitution of illicit crops. As part of the ongoing State Department-funded assistance to Colombia, INL has sought to adjust its counternarcotics efforts to Colombia's "post-FARC" drug policy objectives. Following the cessation of aerial eradication in 2015, the State Department sought to shift funding previously allocated for such purposes, including aircraft assets, to other counternarcotics activities. According to the State Department, key areas of ongoing and future counternarcotics programming with INCLE funds include (1) enhanced land and maritime interdiction; (2) rural police support; (3) manual eradication support; (4) environmental monitoring; and (5) aviation, including helicopter airlift for rural police support and manual eradication. INL is also seeking to repurpose several of the aircraft previously used for spray operations for drug-related detection and monitoring. Some aircraft may be fitted with cameras to provide real-time imagery to monitor coca growth and related cease-fire commitments. Department of Defense Counternarcotics Authorities and Funding Congress has provided the Department of Defense (DOD) with several counternarcotics-related authorities, including some that specifically authorize DOD to conduct counternarcotics activities in Colombia. In the past, DOD has provided Colombia with a range of training, equipment, and other support for counterdrug purposes, including nonlethal protective and utility personnel equipment, such as navigation equipment, secure and nonsecure communications equipment, radar equipment, night vision systems, vehicles, aircraft, and boats. The FY2017 National Defense Authorization Act (NDAA; P.L. 114-328 ) significantly revised DOD's authorities to support foreign security forces through security cooperation, which includes DOD's counterdrug efforts. The extent to which those changes will affect DOD's support to Colombia for counternarcotics purposes remains to be seen, as DOD's implementation of these new authorities proceeds. The primary purpose of the FY2017 NDAA provisions was to clarify, rationalize, and improve upon a legal framework for DOD security cooperation that many considered too complex and unwieldy for effective planning and execution. With respect to counternarcotics policy, however, analysts are exploring whether the reforms may modify both the scope of authorities available for DOD to conduct counterdrug activities with foreign partners and the availability of funding allocated for counterdrug purposes. Originating in a provision in the 2002 Supplemental Appropriations Act for Further Recovery From and Response to Terrorist Attacks on the United States ( P.L. 107-206 , §305), Congress also authorized DOD to use counternarcotics funds designated for Colombia for a unified campaign against both narcotics trafficking and terrorism. The provision, most recently extended through FY2019 in the FY2017 NDAA (§1013), further outlines numerical and participation limitations for U.S. personnel on assignment in Colombia pursuant to this authority. The FY2018 NDAA ( H.R. 2810 ), as passed by Congress and cleared for signature by the President on November 16, 2017, further extended this authority to FY2022 (§1011). Some analysts have speculated on whether the applicability of DOD's authority to support a unified campaign in Colombia against both narcotics trafficking and terrorism would change if the FARC were to be delisted as a Foreign Terrorist Organization (FTO). To this end and in light of Colombia's peace deal with the FARC, the Senate version of the FY2018 NDAA also sought to modify the authority to support a unified campaign against "other illegally armed groups" and expand the authority to include support for efforts to demobilize, disarm, and reintegrate their members; these changes ultimately did not pass. If the FARC were to be delisted, this authority conceivably could continue to be used in Colombia but DOD may choose to focus its efforts against the ELN, which remains designated as an FTO by the State Department. What is not clear, however, is how or whether resources, personnel, and the scope of activities in Colombia would be adjusted in light of a potential FARC delisting. The beginning of talks with the ELN on February 7, 2017, may present a further challenge to DOD to limit its use of this authority. Colombia and Regional Counternarcotics Efforts In 2012, then-President Obama and President Santos announced a new joint endeavor, the U.S.-Colombia Action Plan on Regional Security Cooperation (USCAP) at the Sixth Summit of the Americas, hosted by Colombia. This joint effort, built on ongoing security cooperation, addresses hemispheric challenges, such as combating transnational organized crime, bolstering counternarcotics programs, strengthening legal institutions and the rule of law, and fostering resilient communities. The action plan focuses on capacity building for security personnel in Central America and the Caribbean conducted by Colombian security forces (both Colombian military and police). To carry out the plan, Colombia undertook 39 activities in 2013 that trained more than 700 individuals from Panama, Honduras, El Salvador, and Guatemala. In 2014, Colombia conducted 152 activities and reportedly trained more than 3,500 security personnel from the same four countries, in addition to Costa Rica and the Dominican Republic. In 2015, under the USCAP, the same six countries received training for more than 3,300 of their security forces; and, in 2016, another 271 activities took place resulting in more than 11,000 trainees over the four years of the program. USCAP trainings made up about one-fourth of all trainings of third-country security personnel provided by Colombian police and military. Colombia has trained military and police from other countries, both under the USCAP partnership and via other arrangements, totaling more than 30,000 security personnel from over 70 countries, with most located between Colombia and the United States. According to the U.S. and Colombian governments, the goals of the training by Colombian forces are to "export" Colombian expertise in combating crime and terrorism and to promote the rule of law and increase bilateral and multilateral law enforcement cooperation. Critics of the effort to "export Colombian security successes" maintain that human rights concerns have not been adequately addressed. Some observers are concerned that the portion of these trainings funded by the U.S. government may lack transparency and circumvent congressionally imposed human rights restrictions on U.S.-funded security cooperation. Advocates for Colombian training efforts maintain that the Colombian national police and armed forces are among the most highly trained and experienced in the region and that the professionalization of Colombian forces is an important asset to be shared in a region challenged by drug trafficking, crime, and related violence. In late 2017, Colombian Vice President Óscar Naranjo met with several advisers to President Donald Trump during a trip to Washington, DC, including Rich Baum, acting director of the Office of National Drug Control Policy (ONDCP); head of the Department of Homeland Security, Elaine Duke, and Vice President Mike Pence. During his meeting with the U.S. officials, Vice President Naranjo proposed creating a naval task force to buttress maritime drug interdiction efforts. "This is a strategy with three purposes: to increase interdiction efforts on the high seas, increase interdiction efforts of speedboats and semi-submersibles on the Pacific and have greater control over fluvial access to the Pacific Ocean. We are talking about an operation to cover the waterways, gather intelligence and increase the capacity for interdiction," stated Naranjo. He added among the issues discussed with Pence and other representatives of U.S. agencies and Congress, was Colombia's commitment to raise levels of interdiction of drugs and chemical precursors and to the advance the removal of illicit crops. Outlook The success of Colombia's new national drug strategy may depend on how the peace accord with the FARC is enacted. Peace or post-conflict efforts involve a broad spectrum of development programs and other activities which could influence, in turn, political stability, economic growth, and management of drug trafficking and other crime. Although some observers maintain that the scale of FARC trafficking will decline in post-accord Colombia, it is uncertain how many former FARC combatants will defect or decline to participate in post-accord programs. The FARC and other armed groups in the country financed themselves with drug profits and other illicit businesses, and the Colombian drug trade likely will continue to meet large international—and particularly U.S.—drug demand. As discussed, other Colombian drug traffickers have aggressively sought to supplant the FARC, which is estimated to have once controlled roughly 60% to70% of Colombia's coca-growing areas and lucrative trafficking routes, according to government statements and recent studies. Some analysts have estimated that the process of executing programs related to post-accord and post-conflict development could take more than a decade and cost as much as $42 billion. The country faces steep challenges to underwrite the post-accord peace programs in an era of declining budgets as it seeks to address reparations and land restitution for more than 8 million conflict victims; modernize and expand Colombia's justice system; and effectively carry out transitional justice (including full confessions, punishment, and reparations to victims and communities) for crimes by both the FARC and the Colombian security forces, as required by the peace accord. The informal campaigning and positioning for the 2018 national elections in Colombia may result in the government's drug policy being critically evaluated by those who continue to oppose the peace process with the leftist guerillas and may be profoundly affected by the president who is to take office in August 2018. Colombia is working to achieve peace with low government reserves, a weakened currency, and the unknowns of future external foreign aid or assistance. The cost and challenge of bringing social services to vulnerable, often-isolated parts of the country that are subject to violence and drug-crop production include effectively removing land-mines in the second-most land-mine-affected country in the world, and overcoming a historic dearth of transportation and other infrastructure. Many observers contend that these legal, security, and social conditions must be addressed for viable crop substitution and sustainable alternative livelihood programs to succeed. Some observers raise concerns that without adequate external financial support, the Colombian government's capacity to finance alternative livelihood programs and build the socioeconomic conditions to assist rural communities to move away from a dependence on illicit crops over the next decade is quite precarious.

Colombia is one of the largest producers of cocaine globally, and it also produces heroin bound for the United States. Counternarcotics policy has long been a key component of the U.S.-Colombian relationship, which some analysts have described as "driven by drugs." In recent years, Colombia revised its approach to counternarcotics policy, which may have implications for the U.S.-Colombian relationship going forward. On September 13, 2017, President Trump cited the recent spike in Colombia's cocaine production as the reason he was reserving the option to decertify Colombia as a cooperating partner in fighting illegal drugs, an unexpected development given the close counternarcotics partnership between the United States and Colombia. U.S. concerns about illicit drug production and trafficking in Colombia arose in the 1970s and grew significantly when Colombia became the dominant producer of cocaine in the Andean region in the mid-to-late 1990s. The United States has worked closely with Colombia to eradicate drug crops and combat trafficking. Simultaneously, since 2000, the United States has forged a partnership with Colombia—perhaps its closest bilateral relationship in Latin America—centered on helping Colombia recover its stability following a decades-long internal conflict with insurgencies of left-wing guerrillas and right-wing paramilitaries, whose longevity has been attributed, in part, to their role in the country's illicit drug trade. Between FY2000 and FY2016, the U.S. Congress appropriated more than $10 billion of bilateral foreign assistance to support a Colombian-written strategy known as Plan Colombia and its successor programs. In addition to counternarcotics, the United States helped support security and development programs designed to stabilize Colombia's security situation and strengthen its democracy. A peace accord between the government of Colombia and the country's main leftist insurgent group, the Revolutionary Armed Forces of Colombia (FARC), was signed in November 2016 after four years of formal peace talks. During protracted peace negotiations with the FARC, the Colombian government altered its approach to drug policy. A major change was the decision to end aerial spraying to eradicate coca crops, which had been a central—albeit controversial—feature of U.S.-Colombian counterdrug cooperation for more than two decades. In addition, Colombia's counternarcotics policies also shifted in 2015 to a public health approach. The shift was influenced by broader hemispheric trends to reform traditional antidrug practices in ways that proponents claim can reduce human rights violations. On the supply side, Colombia's new drug policy gives significant attention to expanding alternative development and licit crop substitution while intensifying interdiction efforts. The revised drug policy approach promotes drug-use prevention and treatment for drug users. According to Colombian officials, the public health and prevention dimensions of the revised strategy will be led by Colombia's Health Ministry, in coordination with other agencies. In November 2016, Colombia's Congress unanimously ratified the FARC-government peace accord, although some opponents boycotted that vote. The final accord was a revision following the narrow defeat of an earlier version of the accord in an October 2, 2016 referendum. The final peace agreement addresses important issues, such as illicit crop cultivation—a major source of FARC income—and rural development. According to President Juan Manuel Santos, the peace accord will draw former FARC members into efforts to counter illicit drug production and trafficking. In 2017, as Colombia began to implement the final peace accord and demobilize the FARC, the country is facing a large increase in cocaine production. This report examines how Colombia's drug policies have evolved in light of Colombia's peace agreement with the FARC and its changing counternarcotics policy. It explores both policy and oversight concerns, such as prospects for reducing coca and poppy cultivation under Colombia's new drug policy and the peace accord with the FARC; the role of Colombian drug trafficking organizations, including powerful criminal groups containing former paramilitaries, in a post-peace accord environment; U.S.-Colombian cooperation on counternarcotics and Colombia's future role in regional antidrug efforts; and shifts in U.S. government assistance to support Colombia's revised drug policy and how Colombia's new policy converges with traditional U.S. priorities. For additional background, see CRS Report RL34543, International Drug Control Policy: Background and U.S. Responses, by Liana W. Rosen; CRS Report R43813, Colombia: Background and U.S. Relations, by June S. Beittel.

Introduction The 12 banks (the Banks) that make up the Federal Home Loan Bank (FHLB) System constitute one collective government-sponsored enterprise (GSE). Originally chartered by Congress to provide liquidity to the nation's predominant lenders for home mortgage loans—savings and loan associations and savings banks—the Banks have undergone a series of changes over the years as the nation's financial institutions have changed. Still a lender to lenders primarily for housing, the Banks can now lend for many other purposes as well, and have special responsibilities for low- and moderate-income housing, for debts incurred by the federal government in handling deposit insurance crises of the 1980s, and for some community development projects. The system as a whole has also grown to become essentially the same size as the other two housing-related GSEs, Fannie Mae and Freddie Mac. Congressional discussions surrounding Fannie Mae and Freddie Mac and their regulators now include the Banks and could fold their overseer into a new single regulator for all three GSEs. This report gives a short history and basic description of the Federal Home Loan Bank System, its responsibilities, and its ties to the government. It also discusses issues affecting the Banks and highlights the differences between the FHLB System and the other two housing-related GSEs. Federal Home Loan Banks and System Origins and Development The Federal Home Loan Bank System (The System), created in 1932 by the Federal Home Loan Bank Act, was patterned on the Federal Reserve System. It comprised 12 regional, member-owned and federally chartered Banks, each with its own individual board of directors. The System was headed and overseen by the Federal Home Loan Bank Board (FHLBB), whose three members were presidential appointees. The purpose of the Banks was to provide liquidity for the main mortgage lenders of the time, the savings and loan associations. Home mortgage lending was often hampered—never more so than in the 1930s—because savings associations lacked consistent access to capital markets to replace deposits whenever large numbers of depositors withdrew their money, as would happen during periods of high unemployment. The Banks corrected this by making loans ("advances") to the federally chartered savings associations which banking law required to be members of the Banks. The Banks secured the advances by placing liens on home mortgages held by the lenders, assuring the funds were used for housing finance. The regional Banks also provided regulatory oversight for their thrift members under the guidance of the FHLBB. The Banking Act of 1935 added deposit insurance for the thrifts to the FHLBB to bolster confidence in housing finance. The System remained largely unchanged during the next three decades—the "golden years" of the savings and loan industry—until the Emergency Home Finance Act of 1970 added the Federal Home Loan Mortgage Corporation (Freddie Mac), as a wholly owned subsidiary of the Banks, to create and maintain a secondary market for system members' conventional mortgages. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) made major changes to the System in response to severe failures in the savings and loan industry. It replaced the old FHLBB, viewed as a defective, self-dealing regulatory structure dominated by the institutions it regulated, with today's Federal Housing Finance Board (FHFB). The FHFB maintained supervision of the 12 Banks, but had neither regulatory nor deposit insurance functions over the remaining savings associations, which Congress delegated to a new Office of Thrift Supervision and the Federal Deposit Insurance Corporation, respectively. In addition, FIRREA removed Freddie Mac from the Bank System and reconstituted it as a publicly owned stock corporation, a twin to Fannie Mae. The act also opened membership in the Banks to all depository institutions, so long as they engaged in significant mortgage lending, and set up two requirements for the System: a set-aside of at least 10% of each Bank's net earnings for low- and moderate-income housing programs, and repayment of part of the debt incurred in paying off insured depositors for the savings and loans that failed (REFCORP debt, please see the Appendix). The Federal Home Loan Bank System Modernization Act of 1999, Title VI of the Gramm-Leach-Bliley Act, subsequently broadened membership qualifications in the Banks by dropping minimum mortgage asset requirements, and making membership voluntary for all members, including federally chartered savings associations (who were the originally mandated members of the System). The law also required new, permanent capital standards for the Banks, and expanded the mission by allowing the Banks to make advances secured by assets other than housing loans—mainly agricultural and small business loans. It also altered and simplified the required obligation of the System's contribution to the old REFCORP debt, raising the likelihood that payments would be completed sufficient to "defease" the debt ahead of schedule. Organization Twelve regional Banks most directly carry out the System's operations. They are Atlanta, Boston, Chicago, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San Francisco (the largest), Seattle, and Topeka. In addition, a jointly owned Office of Finance facilitates the Banks' borrowing. Each Bank has its own board of directors, varying in size from 14 to 19 persons. For each of the 12 Banks, the FHFB appoints six of the directors, known as public interest directors, and supervises the election of the remaining eight by the members. At least two of each Bank's appointed directors must be representatives of organizations representing consumer or community interests. The FHFB designates the chair and vice-chair of each Bank's board of directors and the geographic area of elective directorships in each district. The FHFB approves the compensation of Bank presidents and directors. Membership System membership is limited to regulated depositories, insurance companies engaged in housing finance, and certain governmental housing finance bodies. Each member must own capital stock in its district Bank. Each Bank is thus privately owned with its own board of directors, management, and employees. Membership is voluntary. Members receive dividends on their shares of capital stock from the earnings of their respective Bank. A member must join the Bank district that serves the state in which the institution's home office or principal place of business is found. Commercial banks dominate System membership, and account for the largest share of borrowing. As of June 30, 2007, System membership totaled 8,119 institutions, with 5,861 commercial banks, 1,217 thrifts, 896 credit unions, and 145 insurance companies. Financing The Banks' permanent capital is non-public stock, which members must purchase upon joining a Bank and which they cannot cash in without a period of notice and certain determinations by the affected Bank. Banks largely fund their activity through System "consolidated obligations" (publicly traded bonds), which are the joint and several liabilities of all the Banks and are issued through the Office of Finance. Consolidated obligations are neither obligations of, nor guaranteed by, the United States. As with other GSEs, however, financial markets infer that the federal government would back these obligations if necessary to prevent default, an inference widely referred to as an "implied guarantee." The Banks fund their day-to-day operations through earnings on their investments. The Banks also fund the regulatory operations of the FHFB, which collects assessments from the earnings of the Banks. On-budget but self-supporting, the FHFB is not subject to the congressional appropriations process. System assets were $1,037 billion as of June 30, 2007, of which $640 billion comprised advances to members. (About 70% of members use advances.) The FHLBs held $94 billion of mortgages in portfolio. Liabilities totaled $992 billion. Capital totaled $41 billion. System capital is about 4% of assets, relatively close to the regulatory minimum, yet perhaps half the level required for commercial banking companies. Much of the debt is short-term, which requires that each year the total rollover of debt be several times system assets. System obligations carry a triple-A/GSE credit rating, thus making the very low GSE costs of borrowing available to borrowing member-owners. (Individual Banks may have lower credit ratings, however.) The System's primary activity is extending secured loans (advances) to member institutions. Whole first mortgage loans and mortgage-backed securities generally collateralize advances, although other assets also qualify. Under the 1999 Modernization Act, community financial institutions may receive advances supporting their loans to small businesses, small farms, and small agribusinesses. Government-Sponsored Enterprise Privileges As with all GSEs, Congress has given the System a series of special privileges and exemptions to help them in addressing their mission. These include a $4 billion line of credit with the U.S. Treasury (for the System as a whole); eligibility of debt for Federal Reserve open market purchases, unlimited investment by commercial banks and thrifts, and collateralizing public deposits; priority on collateral claims on member institutions, over any and all other creditors (the "super lien"); the use of Federal Reserve Banks as fiscal agents; exemption of earnings from federal, state, and local income tax; exemption of interest paid to investors from state income tax; and status of debt issues as government securities for purposes of the securities laws. The overall effect of these links to the federal government is that investors in System debt issuances might assume the federal government ultimately will treat the Banks as agencies, and, consequently, might not require as high a return as they would on debt of a comparable private-sector company. The Banks do borrow money at rates near to those of comparable-maturity Treasury issues. Although Bank debt does not carry the full-faith-and-credit backing of the federal government, investors generally believe that the federal government, which chartered them for their public policy mission, would not allow any Bank or its obligations to fail. The U.S. government came to the assistance of two major GSEs, Fannie Mae and the Farm Credit Banks/ System, when their obligations threatened to default in the 1980s, suggesting that similar remediation might also occur for the FHLB System. Mission The Banks have three missions. For purposes of meeting those missions, each Bank develops its own strategies. The first mission is to provide liquidity to members. They do this with advances, including member-callable and convertible advances, letters of credit, and acquisition of member assets (mortgages and mortgage-backed securities). Under the FHFB general management policy, each Bank is limited to holding mortgage-backed securities of no more than 300% of capital, except for those certificates acquired under the Shared Funding Program, an arrangement of the mortgage partnership funding program of the Chicago Bank and the system's principal acquired member asset program. Under this small program, a member of a Bank may sell eligible mortgage loans anywhere in the System to an institution that is a member of the Chicago Bank. The latter member then sells the loans to a trust that issues structured securities to the member for the loans, with Chicago acquiring the senior securities. Sales of all the securities are limited to Banks or members within the System, a restriction that limits direct competition with Fannie Mae or Freddie Mac. The second mission is for housing and community investment. Under the affordable housing program (AHP), each Bank must give away 10% of net income through its members for low- and moderate-income housing. Under the community investment program (CIP), the Banks lend to members at cost to finance loans for moderate-income households, and for commercial and economic development in low-and moderate-income neighborhoods. The third (temporary) mission is to repay debts incurred for the deposit insurance losses due to failures of savings and loan associations in the 1980s and their cleanup in the 1990s. Each Bank must pay 20% of net earnings (after AHP payments) to help repay interest on bonds issued by REFCORP. Payments will continue until REFCORP pays the debt (April 15, 2030) or until sufficient funds have accumulated to assure its payment. At the most recent reporting, the debt set-aside is sufficient to last through January 2020. Federal Housing Finance Board The regulator of the Banks is the Federal Housing Finance Board (FHFB), an independent regulatory agency in the executive branch. It is associated with, but not controlled by, HUD. The Board has five members. The President appoints four with the advice and consent of the Senate for seven-year terms. Not more than three members may be of the same political party. One represents consumer or community financial interests. One is designated as chairperson. The Secretary of HUD is the remaining director. The FHFB is on-budget but self-supporting through assessments on the Banks. Its operations are not subject to the congressional appropriations process. The Board's statutory authority is the Federal Home Loan Bank Act, as amended by FIRREA. The Board has broad statutory powers over the Banks. It uses these powers to ensure the safety and soundness of the Banks and to see that they carry out their public purpose of providing home finance. These powers enable the Finance Board to take preventive action to protect individual Banks, which are jointly and severally liable for the System's consolidated obligations. Individual Banks may carry out their mission activities subject only to the approval of the Finance Board. The FHLB Act requires the Banks to be examined annually. The statute gives the Board authority to suspend or remove officers and directors for cause. It can also issue supervisory letters, supervisory and capital directives, and can restrict dividends. The Board claims implicit authority to issue temporary and permanent cease and desist orders. This claim was bolstered on October 10, 2007, when FHLB Chicago entered into a consent degree with the FHFB in response to a cease and desist order related to FHLB Chicago's risk-management policies. The 1992 Federal Housing Enterprises Financial Safety and Soundness Act emphasized that the FHFB's main concern shall be financial soundness, and its oversight in that area has been increasingly strong under varying leadership. The Board has the power to approve new and existing activities. It also approves the Banks' debt offerings. It can limit indirectly other activities through approval of the individual Bank budgets. The Board has broad powers to liquidate and reorganize individual Banks, within a statutory framework that mandates that there be at least eight, but not more than 12, Banks. The Board may liquidate or reorganize a Bank whenever it finds such action will aid the efficient and economical accomplishment of the Bank Act. For any liquidation or reorganization, another Bank may, with the approval of the Finance Board, acquire assets of any such liquidated or reorganized Bank and assume part or all of the liabilities. These supervisory powers for System organization may be tested by a proposed merger between FHLB Chicago and FHLB Dallas. Issues Facing the Bank System Some Bank assets, such as derivatives and manufactured housing loans, have resulted in losses, in the same manner (if not scale) as Fannie Mae and Freddie Mac. The Banks have, in some cases, had to restate earnings, cut dividends, alter their capital structures, and change managements as a result. Most problems have related to accounting for derivatives generally used to hedge against interest rate movements that could erode the value of Bank holdings of mortgages or liens on member mortgage portfolios and have had little cumulative effect. The restatements had delayed some of the Banks' registrations with the Securities and Exchange Commission (SEC). In 2004, the FHFB required all the Banks to register at least one class of equity (member stock) with the SEC, thus giving up their charter exemptions from registration. As of April 11, 2007, each FHLB had submitted its Form 10-K with the SEC on time. Current combined financial reports for the FHLB system are now made available on the FHFB website. Because of their cooperative and collective structure, SEC registration looks somewhat different from that of publicly held companies, but triggers the same disclosures as to the risks and financial details of the Banks. Now that the Banks have registered under the voluntary procedures, they are not permitted to de-register, and must file all appropriate disclosures and reports required by the SEC. They are also subject to fines and penalties for inaccurate or incomplete reporting under the securities laws, including the Sarbanes-Oxley Act. Two other issues discussed among policy analysts concern risks attendant to joint and several liability, and the super lien. The former ensures that the Banks will come to each other's aid, should that be necessary, before the federal government would have to step in to take whatever actions it might deem necessary to prevent systemic losses to the banking or housing finance systems. Joint and several liability is a large part of why the Banks are usually considered a single, collective GSE rather than a collection of separate companies. It also, however, creates some "moral hazard" in that any one Bank may be encouraged to take risks that might have to be paid for in part by other Banks—even though other Banks may be unaware of any irregularity. The super lien allows the Banks to step into a failed member institution and claim assets to make itself whole before any other creditor, including the FDIC. The Banks have not historically had to specify assets used as collateral until after a failure, leading to the opportunity to "cherry pick" the best assets remaining in a failed member institution and raising the costs to the FDIC of resolving a failed bank or thrift. A continuing issue affecting all GSEs concerns the possibilities of systemic risk that arise from the circumstance of having all Bank debt treated by the financial markets as if it were federal agency debt. Because depository institutions, for which the federal government has clear safety responsibility, can hold agency debt without regard to limits on loans to a single lender, the possibility exists that a failure of the Banks could trigger failures of commercial banks, savings associations, and credit unions that were overexposed to System debt. Such failures could in turn adversely affect the FDIC and even the federal budget, and could have wide repercussions throughout the financial system. On December 22, 2006, the FHFB adopted a new rule to limit the finances of Federal Home Loan Banks. The rule limits the excess stock of member banks to 1% of the bank's assets. The limit on excess stock, also known as voluntary stock, is meant to ensure that the banks remain appropriately capitalized, retain access to capital markets, and preserve safety and soundness. Because member banks have historically redeemed excess stock on presentation, the stock has some of the same characteristics of issuing new debt and raises some of the same issues of the government's implied guarantee and the possibility of systemic risk. For the Banks, while their reach is not as great as Fannie Mae or Freddie Mac, the implied guarantee presents the same problems as for the other GSEs. Because of the market perception that GSEs are too important for the government to allow any of them to fail, the GSEs have an incentive to take on greater risks, or to expand into areas that allow them to grow their businesses at the expense of companies not so favored. This not only creates problems of competitiveness, but it also creates a macroeconomic problem of over-allocation of capital market credit into housing markets. The allocation, intended for housing, is problematic in that it is an indirect way to provide shelter. Not only can part of the implied subsidy be retained by the GSEs, what they pass through can be wasted in the sense that lower prices for mortgages may be lost in higher prices for housing. Without very strong authorities, it can be difficult for regulators to control the activities of the GSEs; as they grow in size and scope, so does the potential systemic threat to financial markets. The slowdown in the housing market could negatively affect the FHLBs. In addition to any delinquent loans that may be in the FHLB System, a general decline in house prices would reduce the value of the collateral that backs the banks making up the system. Declining collateral value hurts bank balance sheets even while the loans perform. Estimating the likely effect on the FHLB System is difficult because there has not been a national decline in house prices since the System was created, although regional house prices have declined. Refinancing represents another channel through which troubles in mortgage markets could affect the FHLBs. Large lenders with affiliates that are members of a regional FHLB could use the System to access liquidity to refinance troubled loans. For example, the cost of borrowing funds to finance mortgage-backed securities increased in August 2007. Mortgage lending generally decreased as expected; however, the volume of FHLB advances to its members increased. It is possible that these advances are being used to refinance troubled borrowers out of resetting loans and into the FHLB System. On the one hand, refinances could help hold down foreclosure rates. On the other hand, refinances could move loans likely to default from private investors to the FHLB System, which some believe has an implicit government guarantee. Legislative Issues The major issue before Congress concerning the FHLB System is GSE regulatory reform. The proposed replacement of the current System regulator accompanies a basic move to restructure and strengthen regulation of Fannie Mae and Freddie Mac. Both H.R. 1427 and S. 1100 would fold the FHFB and the Office of Federal Housing Enterprise Oversight (OFHEO)—the current regulator of Fannie Mae and Freddie Mac—into a single overseer for all three housing-related GSEs. The Federal Housing Finance Reform Act of 2007, H.R. 1427 , sponsored by Representative Frank and others, passed the House on May 22, 2007, by 313-104. The bill would fold the FHFB and OFHEO into a single regulator for all three housing-related GSEs, to be known as the Federal Housing Finance Agency. In the Senate, the Federal Housing Enterprise Regulatory Act of 2007, S. 1100 , sponsored by Senator Hagel and others, also sets up a new single regulator. S. 1100 was referred to the Senate Banking Committee on April 12, 2007, but no further action has been taken as of the date of this writing. The major reason behind such legislation is the widely understood weakness in the powers and authorities granted to OFHEO by Congress. Legislation would grant greater power and independence to the new regulator than to OFHEO, while nearly matching the authority and independence of the current FHFB. Unlike the current FHFB Board, however, the new regulator would be a single agency director. Table 1 summarizes the differences, as they relate to combined supervision, between the GSEs (as they are currently regulated). Some of the legislative discussion has also suggested that commercial bank-style regulatory controls and powers may be appropriate for a new GSE regulator. Table 2 presents a comparison of the current authorities of bank regulators, OFHEO, and the FHFB over their regulated financial institutions. It summarizes the essential control mechanisms set forth in law, regulation, and practice to control risk, self-dealing, and certain other undesirable characteristics. Agency-to-agency variations exist, especially between OFHEO, the FHFB, and the banking regulators. The latter, however, strive for uniformity in their regulatory issuances, although they do not always achieve it and may apply "common" standards differently in examinations. Government-sponsored enterprises are "wholesale" nondepository institutions that are not supposed to make loans directly to the public. Table 2 thus omits multiple banking regulations intended only for "retail" banking institutions.

The Federal Home Loan Bank (FHLB) System comprises 12 regional banks (the Banks) that form a collective government-sponsored enterprise (GSE). As a GSE, the Banks have special ties to the federal government that accord them "agency" status and lead investors in capital markets to infer that the government would step in to make good any failure in the debt of the Banks. Originally begun in 1932 as lenders to the savings and loan associations that were the primary lenders for home mortgages, the Banks have undergone several changes since the savings and loan crisis of the 1980s. Membership in the Banks has changed, today encompassing more commercial banks than savings associations and including credit unions, insurance companies, and some associated housing providers. Purposes of lending—while still primarily housing-related—now include agricultural and small business lending. The changes have also resulted in special mission set-asides for low- and moderate-income housing and special programs for community development. The five-member Federal Housing Finance Board (FHFB) regulates the System. Some advocate combining the FHFB with the Office of Federal Housing Enterprise Oversight (OFHEO), which is the current regulator of Fannie Mae and Freddie Mac, the other two housing-related GSEs. Differences between FHFB and OFHEO, including capital and ownership standards, requirements for the housing mission, and regulatory powers, complicate regulatory consolidation. In the 110th Congress, two major bills would merge regulation for the housing-related GSEs. Both S. 1100 and H.R. 1427 would combine regulation of the three housing GSEs under a single regulator who would have powers and independence similar to those of the FHFB. H.R. 1427 passed the House on May 22, 2007. S. 1100 was referred to the Senate Committee on Banking, Housing, and Urban Affairs on April 12, 2007. The measures have several important differences. (See CRS Report RL33940, Reforming the Regulation of Government-Sponsored Enterprises in the 110th Congress, by [author name scrubbed], [author name scrubbed], and [author name scrubbed] for additional information.) The slowdown in housing markets and rise in foreclosures have led to concerns about the health of the FHLBs. Some large non-member lenders have affiliates that are members of a regional FHLB. These affiliates could draw on FHLB resources to move some troubled loans onto System balance sheets. This is a concern because some believe that the government would not let the FHLB System fail, and that such affiliate actions could raise the potential risk and cost to taxpayers. Possible mergers of FHLBs is another issue. FHLB Dallas has been in negotiations to merge with FHLB Chicago, in part because of the financial difficulties of FHLB Chicago. The potential merger would be the first of its kind and raises several oversight issues, including FHFB approval powers and System organization. This report will be updated as events warrant.

Background The 1970s stand out in the post-World War II era as the inflation decade. This is evident from the data in Table 1 for the leading industrial countries. Inflation served to motivate public policy in a number of countries. A major impetus of these initiatives was to focus central banks on one major policy goal: the achievement of price stability. In some cases this has taken the form of legislation specifying this goal to the exclusion of all others. In other cases, the central bank was granted greater autonomy in the expectation that this would lead to the desired outcome. During recent years, Canada, the United Kingdom, New Zealand, Sweden, Australia, and Israel, among others have adopted inflation targeting as the major goal of monetary policy. And since the European Central Bank's inception, price stability has been its main objective. These developments have not gone unnoticed in the United States. The ultimate objectives of Federal Reserve (Fed) policy are currently specified in the Federal Reserve Reform Act of 1977 as maintaining the "long run growth of monetary and credit aggregates commensurate with the economy's long run potential production, so as to promote the goals of maximum employment, stable prices, and moderate long-term interest rates." Both Democratic and Republican Members of Congress have introduced legislation that would replace the current multigoal mandate of "maximum employment, stable prices, and moderate long-term interest rates" with a single goal to maintain "stable prices." In some proposals, "stable prices" is defined as a low inflation rate. In others, the overall price level would remain constant. An early example of Democratic efforts along these lines was the "Zero Inflation Resolution" introduced by Representative Stephen Neal of North Carolina in 1989. In the 109 th Congress, Representative Jim Saxton, Republican of New Jersey, introduced the Price Stability Act of 2005, H.R. 498 , "To mandate price stability as the primary goal of ... monetary policy.... " Two bills were introduced in the 110 th Congress. The first, the Price Stability and Inflation Targeting Act of 2008, H.R. 6042 , was introduced by Representative Jim Saxton, Republican of New Jersey. The second, H.R. 6053 , the Price Stability Act of 2008, was introduced by Representative Paul Ryan, Republican of Wisconsin. Both would commit the Fed to inflation targeting. The Federal Reserve takes no official position on inflation targeting. Governors and Regional Bank Presidents of the Federal Reserve are perceived to have mixed views on making inflation the sole goal of monetary policy, with recently retired Chairman Alan Greenspan perceived to be opposed to a congressionally mandated inflation target. His successor, Ben Bernanke, is a long-time advocate of inflation targeting. William J. McDonough, former president of the New York Federal Reserve Bank, said: It is often said that there is a worldwide community of central bankers. I certainly feel that way. Central bankers in all countries share a number of concerns. Perhaps the most important of these is the desire for price stability. While central bankers may differ in the way they seek price stability—differences grounded in our respective histories, customs, and institutions—the goal we all strive for is no less important. Although the purpose of this proposal is straightforward, it raises many technical issues that this report will consider. As a preface to this discussion, the report will begin with pro and con cases given by economists who either favor or oppose the legislation focusing the Federal Reserve on an exclusive goal of achieving price stability. The Case for Refocusing the Federal Reserve The ultimate purpose of refocusing the Federal Reserve on a price stability goal is to increase the amount of real goods and services available to the nation, not , as the late Professor James Tobin reminded us, because "Price or inflation stability is ... an ultimate social good." Thus, it must be shown that inflation has a pernicious effect on economic growth, the efficiency with which the economy works, the choices available to Americans to satisfy their needs and wants, or on employment. Such a case can be made. But should price stability be the sole goal of monetary policy? Proponents make that case based on five powerful strands of economic theory and empiricism, as well as one political argument. (1) The Neutrality of Money The basic case made by economists for refocusing the Federal Reserve is built on a very old economic doctrine known as the "Neutrality of Money." This is the view that the influence of money and changes in the money supply are neutral with respect to changes in the real economy where economic growth, employment, real interest rates, and relative prices are determined. These depend on such factors as the choices individuals make between leisure and work, the technical means by which labor and capital are combined, and the saving/investment decisions by economic agents. Money, on the other hand, influences only money things such as the price level, money wages, the money value of output, and the nominal or market rate of interest. Since this is money's primary economic effect and a changing price level can have harmful effects on an economy, the doctrine of the neutrality of money can serve as a powerful rationale for focusing monetary policy on achieving price stability. (2) Long and Variable Lags A second element supporting refocus on price stability is based on the empirical finding that changes in the money supply can affect the pace of economic activity and prices with a lag that is both long and of a variable length (i.e., a given change in the rate at which the money supply grows does not always affect the pace of economic activity and prices within the same length of time). This may be due to changes in the underlying structure of the economy as well as to changes in policy regimes, as might be expected to occur when a country moves from a system of fixed to a system of flexible exchange rates. Because of the long and variable lag of monetary policy, changes in policy undertaken today can have their effect on the economy after the underlying cause of the original disturbance may already have corrected itself. If so, countercyclical monetary policy could be destabilizing. For that reason, some economists argued against using monetary policy to promote such goals as full employment. Rather, they argued, it should be geared to producing stable prices, since money's lasting effect on the economy is on nominal magnitudes. (3) Rational Expectations Third, there were developments in specifying how economic agents formed their expectations. Expectations, especially of inflation, are important in many forward looking price-setting activities in market economies, such as wages, the prices of individual goods and services, and interest rates. The revolution in this area occurred with the introduction of the so-called theory of rational expectations. Rational expectations is the theory that economic agents make use of all relevant information, including information about monetary policy, in formulating their expectations about the future. Wage earners, for example, would strike a wage bargain with an employer only after considering what monetary conditions would likely prevail over the period of the employment contract. Rational expectations do not mean that individuals are always right. It only means that they do not make systematic mistakes. This method of forming expectations has a powerful implication. It implies that systematic monetary policy, or that expected by economic agents, can have no effect on the real sector of the economy since it would have been anticipated by economic agents and become a part of their market behavior. Thus, systematic monetary policy is also neutral in the short run (as well as in the more general case of long run neutrality). If monetary policy does affect the pace of economic activity in the short run, it must be because it comes as a surprise—it is unanticipated and nonsystematic. Its nonneutral effects will last only until economic agents incorporate it into their wage, price, and interest rate decisions (this leads to the so-called misperceptions theory of business cycles). The question might arise why the Federal Reserve would want to spring monetary surprises on the economy. A major reason given in the literature is that it yields to political pressures to boost economic activity—create good times—prior to presidential elections. This notion of a political business cycle enjoys some support among economists. It should also be noted that a surprise based monetary policy is not an optimal policy since ultimately the cost of avoiding inflation reduces welfare and output is no higher than it would have been in the absence of the surprise inflation. In the jargon-rich language of economists, this is also known as the "time inconsistency problem." The notion of rational expectations supports focusing Federal Reserve policy on the single goal of price stability. This is because, according to rational expectations, the only way the Federal Reserve can alter employment is by engineering a surprise. Surprise changes in monetary policy can, at best, have only a short run effect on employment. The longer run effect is only on the inflation rate and inflation has harmful side effects on the economy. (4) Precommitment and Credibility The discussion above stresses the importance of misperceptions by economic agents as a cause of business cycles. If errors of predictability and errors of understanding are an important part of misperceptions, then making monetary policy more predictable, consistent, and understandable (more transparent) should reduce errors and misperceptions. Furthermore, this theory suggests that over time surprises will become less and less effective at stimulating the economy, until they ultimately become counterproductive. Conversely, the theory suggests that monetary policy changes, such as disinflations, could be faster and less costly if credibility were greater. It is thought that under a credible central bank individuals might change their inflationary expectations more quickly, making the economy more flexible as a result. Thus, a monetary policy based on precommitment and credibility should be conducive to economic stability. A single goal such as price stability, it is argued, can increase the clarity and understandability of monetary policy by "anchoring" expectations and, thus, contribute to this end. The importance of credibility has been raised during the present financial crisis. Former Fed governor, Frederic Mishkin, was quoted as saying that monetary policy could be more effective in the current financial turmoil if it had an inflation target. He argues that it could help keep inflationary expectations anchored at a time when the monetary base is rapidly rising while also reassuring the public that the Fed would not allow deflation to emerge. (5) The Natural Rate of Unemployment (the NAIRU) In the 1960s, there was a broad consensus in macroeconomics that a relationship existed between inflation and unemployment known as the "Phillips Curve." This theory posited that a rise in inflation would lead to a predictable fall in unemployment, and vice versa. There was, as shown in Figure 1 , considerable empirical support for this notion. In the late 1960s, two economists, Professors Edmund Phelps of Columbia University and Milton Friedman of the University of Chicago, independently rejected the Phillips Curve framework and in its place substituted the notion of the non-accelerating inflation rate of unemployment or NAIRU as a definition of the unemployment rate consistent with the full employment of labor. This refers to an unemployment rate consistent with a stable rate of inflation. In the long run, the economy will return to the NAIRU with any inflation rate, be it zero or any positive number, and so there is no permanent tradeoff between inflation and unemployment. Phelps and Friedman suggested that the empirical finding shown in Figure 1 occurred because individuals during the 1960s had not anticipated the inflation that were to occur because they based their expectations upon the 1950s when inflation was low. Once they built into their expectations the inflation that had occurred (both Phelps and Friedman wrote before the rational expectations revolution), Phelps and Friedman predicted the stability of the Phillips curve would vanish. The curve would shift up and to the right. The only way monetary policy could then keep the unemployment rate below the natural rate would be to engineer continual surprises—keep accelerating the inflation rate. The contribution of Phelps and Friedman was important and prescient; what these economists predicted seemed to come to pass. As the data plotted in Figure 2 show, the tradeoff that is apparent in Figure 1 vanishes after the 1960s. The large amount of dispersion in the data suggests that there is no stable tradeoff between the two variables. If anything the relationship becomes positive—as the unemployment rate falls, so does the inflation rate. The NAIRU cannot be influenced by monetary policy because it is determined in the real sector of the economy by such things as the work/leisure choices of individuals. Thus, the function of monetary policy, it is argued, should be to keep aggregate demand growing at a rate consistent with price stability. If aggregate demand grows at a rate consistent with price stability, then the NAIRU (or full employment) will prevail, making the NAIRU concept consistent with making price stability the sole goal of monetary policy. (6) The Desire for Greater Accountability In addition to the economic arguments presented above, there is a closely related political argument for making price stability the sole goal of monetary policy. There has long been dissatisfaction voiced with the accountability of the Federal Reserve for the macroeconomic performance of the economy. The political independence granted to the Fed combined with the imprecise and oftentimes conflicting goals it is mandated to achieve means that there is little chance for congressional criticism of its performance to have a concrete effect on future policy decisions. Twice a year, the Fed reports to Congress on the state of the economy and monetary policy. At these hearings, the Chairman of the Board of Governors of Federal Reserve System presents a review of the current state of the economy and projections for the future course the economy is expected to take over the coming 36-months. This once prompted the Nobel Prize winning economist, James Tobin to declare: "It is disingenuous for the FOMC [Federal Open Market Committee] to forecast or 'project' the economy, pretending that they have no control over it." When the economy behaves differently from these projections, little effort is exerted in the reports to explain why. When the effort is made, the explanation frequently attributes it to unexpected events. Federal Reserve policy is seldom, if ever, the culprit. Formal accountability is weak in this system. No governor of the Federal Reserve has ever been removed from office for any reason, although removal is statutorily permissible "for cause." Some have not been reappointed, however, and during hearings the Members of Congress have not been hesitant in voicing displeasure with the performance of the economy, especially during economic downswings and periods of inflation. Proponents of a price target argue that it would make the Fed more accountable. The Fed would no longer be able to justify its decisions by pointing arbitrarily to the achievement of one of its goals, while disregarding its failure to meet other goals. The target could be crafted in such a way that a failure to reach it would trigger explicit remedial actions, such as discussed below. Yet a target would not undermine the Fed's independence, they argue, because it would not lead to political interference in the day-to-day decision-making of the Fed. The Case in Favor of Refocusing Fed Policy—Summary Proponents of a single price-stability goal base their case on several basic tenets of economic theory. First, money is "neutral" in the long run, meaning it cannot affect real economic activity. It can only affect inflation, which in excess is harmful to the efficient market allocation of resources; this makes price stability the natural goal of monetary policy in their eyes. Second, unemployment tends to a "natural rate," which is dictated by labor market conditions and policies. Since monetary policy cannot affect this natural rate of unemployment, the Federal Reserve cannot be held responsible for achieving a goal of full employment. Third, people have rational expectations and cannot be systematically fooled by monetary "surprises." This implies that the economy will function most smoothly if monetary policy is given a predictable "anchor" such as price stability so people can make decisions with some degree of certainty about the future path of policy. It is claimed that this anchor will make the Fed more accountable for its actions and will make its decisions more credible, which, in turn, will make policy more transparent and effective. For some proponents, a price-stability goal is desirable because they believe discretionary monetary policy has done more to destabilize than stabilize the business cycle in the past. They base their case on the temptation for monetary surprises and the long and variable lags in policy effectiveness that make successful discretionary policy unlikely. Other proponents acknowledge that the responsible application of monetary policy is helpful in the reduction of economic instability, but would not see responsible stabilization policy as inimical to a price stability goal in most cases. They would be likely to agree with Bernanke and Mishkin's characterization of monetary policy under a price-stability goal as "constrained discretion" in practice. In this characterization, central banks would be free to stabilize the business cycle as long as long-run price stability is not placed at risk in the process. The Case Against a Single Goal for Federal Reserve Policy It is, perhaps, best to begin the case against a single goal for the Federal Reserve with the proposition that while the current monetary system does not have an explicit anchor such as would be provided by a fixed exchange rate or a legislated inflation target, it does have an implicit anchor. The Federal Reserve has been extremely reluctant over the past two decades to let the U.S. inflation rate rise above 3%-4% without intervention. Rates above 3%-4% seem to bring on monetary tightening of the type that often leads to a cyclical downturn. Thus, in practice, the adoption of an inflation target cannot be supported on the grounds that the Fed has neglected to pursue the goal of price stability. The burden of proof should be on proponents to show that the Fed's past performance could have been improved—or there is reason to believe that future performance could be improved—if a price stability regime had been in place. The case against an exclusive price stability goal can be subdivided into six parts: (1) Is Money Neutral in the Long Run? Are Expectations Rational? Most economists believe in the neutrality of money as a long run proposition, some also agree that for all practical purposes, over any reasonable time horizon, money is not neutral. Changes in the growth rate of the supply of money can, over such a time horizon, according to this view, have significant and lasting effects on the growth of real output and employment. This perspective was well stated by Prof. Richard N. Cooper: ...the strong and sometimes helpful working hypothesis of the economics profession [is] that in the medium to long run, money supplies affect only price levels, not the real side of economies, so that central bank action can only influence prices in the long run. This working hypothesis through repetition and use has come to be accepted as fact, as a structural characteristic of actual economies. It is a dangerous assumption, largely because it is rarely questioned. The evidence is ample that it is false in the short run that runs for several years. The best that can be said about the empirical evidence over longer periods is that with sufficient imagination by the estimators, the hypothesis cannot be rejected—a very weak test on which to base important policy decisions. Those rejecting the neutrality thesis believe that a stable Phillips curve does exist over reasonable time periods and ought to be exploited, for they argue that the costs to an economy from unemployment far exceed the costs due to inflation (for the rates of inflation experienced by the United States in the post World War II period). From the above, this can be seen as an assault on views such as those that business cycles are due to misperceptions of the actual course taken by inflation and on the concept of the NAIRU. Other economists question outright the practical significance of rational expectations. They point out that there is really little evidence that American business cycles are due to misperceptions of inflation (see " (3) Rational Expectations " section, above) and there is equally little evidence to support the view that the Federal Reserve somehow yields to political pressure to create booming economic conditions just before presidential elections (the so-called political business cycle or that the Federal Reserve engages in policies that are "time inconsistent"). Former Presidents such as Gerald Ford, Jimmy Carter, and George H.W. Bush might agree since they did not have the best of economic conditions when they faced re-election. There is something quite fundamental in this criticism that should not be overlooked. The proponents of refocusing the Federal Reserve on a single goal of price stability do so because of their view that the continuation of inflation is due largely, if not entirely, to the self-interested short-term focus of politicians aided and abetted by the discretionary choices made at the Federal Reserve. This criticism is aimed both at this explanation for inflation and its goal for reform: the conduct of monetary policy to achieve a single goal. (2) Does NAIRU Exist? Some question the entire concept of NAIRU. They point out that the behavior of the U.S. economy in the late 1990s through 2007 is at variance with the widely held view that for the United States NAIRU is about 6.0%. If this estimate is correct, the United States should have experienced a rising rate of inflation since between August 1994 and August 2008, the unemployment rate has been below 6.0% (except for December 2002, the period April through October 2003, and from September 2008 to the present). But the inflation rate followed no trend over this period, fluctuating between 1.6% and 3.4%. These critics are also likely to claim that monetary (and fiscal) policy may in fact influence the long run unemployment rate, contrary to the assertions of the neutrality of money and the NAIRU. They argue that the future employability of people is, in part, determined by their experience with unemployment. Thus, severe short term downturns may affect the longer term unemployment rates of some countries. Nevertheless, those economists who are critical of NAIRU must explain the data patterns observed in Figure 2 . An oil price shock (or supply shock in general) will cause both unemployment and the rate of inflation to rise. Thus, some of the observations can be explained in this way. Others can be explained by the efforts of the Federal Reserve to reduce the unemployment caused by the supply shock (which should reduce unemployment while accelerating the ongoing inflation rate). (3) Long and Variable Lags (Again) As it happens, one of the arguments used in favor of a price stability goal can also be used against it. The technical difficulties in implementing monetary policy may be as problematic for a price stability goal as for countercyclical policy. The Federal Reserve does not directly control the price level. Rather, it controls only the monetary and credit conditions of the country that influence changes in aggregate demand. And it is the interaction of changes in demand with changes in supply that affect the price level and the rate of inflation. To the extent that monetary policy operates with lags that are long and of variable length, maintaining price stability can be a difficult task. Were a shock to the economy to move inflation away from the target, policy lags would prevent the Fed from returning inflation to the target immediately. As explained below, the lack of direct control is not a fatal problem. Much would depend on how a law would be written, that is, how price stability is defined and the time horizon over which stability is to be achieved. It may be that the lags pose no fundamental problem. Another possible way proposed to deal with the difficulties posed by the long and variable lags, suggested by some economists, is to use a system of intermediate targets such as the monetary aggregates. Intermediate targets can provide much useful information about the thrust of Federal Reserve policy since they are the link between Federal Reserve action and the ultimate goals of policy. In the case of the monetary aggregates, however, the value of the information they provide about Federal Reserve intentions has decreased considerably since the 1980s. Nevertheless, the case for using an intermediate target and what is required to make it work is well stated by Bernanke and Mishkin: If credibility building is an important objective of the central bank, and if there exists an intermediate target variable—such as a monetary aggregate—that is well controlled by the central bank, observed and understood by the public and the financial markets, and strongly and reliably related to the ultimate goal variable, then targeting the intermediate variable may be the preferred strategy. (4) A Little Inflation Can Make Important Adjustments Easier Economic systems are subject to a variety of shocks, some of which require changes in real magnitudes as the system returns to equilibrium. Supply shocks can pose particularly serious problems. When they involve a reduction in aggregate supply (such as the OPEC cut-off of oil supplies in 1973), they often require a fall in real wages in order to restore full employment. Because of the pervasiveness of contractual arrangements in the U.S. market economy, it is argued that the fall in real wages can be accomplished with less loss of output and increase in unemployment if the Federal Reserve allows the price level to rise rather than force an increase in unemployment to bring about a fall in money wages. In this case, a little inflation is thought to ease the return to full employment. For example, Akerlof, Dickenson, and Perry derive a model based on the assumption of some downward nominal wage rigidity and show with U.S. data that below a certain inflation rate a permanent tradeoff exists with unemployment. In this paper nominal wage rigidity holds even though expectations are assumed rational. Of course, an inflation target could avoid this problem if the numerical target were set high enough. (5) The Importance of Other Goals Those who reject changing the ultimate goal of Federal Reserve policy point out that a central bank has a number of responsibilities that are not necessarily encompassed in a price stability goal, even if it were to give up its counter-cyclical role. In particular, a central bank is responsible for the integrity and solvency of the payments system which includes its role as a lender of last resort to the financial system. An important reason for establishing the Federal Reserve was to deal with financial panics that had periodically gripped the United States. Our central bank was to serve as a "lender of last resort" to the financial system in time of trouble to avert a serious destabilization or even collapse (such a role is currently being played by the Federal Reserve as it deals with the financial crisis that began in the summer of 2007). This important role for the Federal Reserve might be precluded by a narrowly written law mandating a single goal of price stability. Similarly, a literal and narrow interpretation of a price stability goal could needlessly increase the volatility of output and unemployment. Critics would argue that if this outcome is not desirable, then the goal of full employment should not be eliminated. They add that most central banks that have made price stability their sole goal have continued to employ some counter-cyclical policy when they deem it consistent with long-run price stability. Thus, these foreign central banks do not practice the pure price stability goal that they are mandated to follow. Second, monetary policy is not the only policy a nation has. Most governments have fiscal policies, debt management policies, and even exchange rate policies. In the United States, responsibility for these policies has not been delegated to the Federal Reserve. There is no doubt that a goal of price stability for monetary policy can constrain these other policies. It may make it impossible to achieve certain fiscal positions, to intervene in the foreign exchange market should this prove necessary, or to deal with any attempt by creditors to refuse to renew their holdings of maturing federal debt or to purchase new debt to finance an existing federal budget deficit. (6) The Need for Flexibility and Discretion There has been a long and continuing debate in monetary economics over whether monetary policy should be conducted by rules that limit Fed decision-making or by allowing the Fed to exercise discretion. The debate over the desirability of refocusing the Federal Reserve on a price stability goal is often cast in the terms of this discussion with the new goal being seen as a rule. Critics argue that all macroeconomic contingencies cannot be spelled out in advance. Unforeseen circumstances can arise that cannot be accommodated within the framework of a simple target. For example, would a target have limited the Fed's reaction to September 11 or to the 2007 financial crisis? Since targets cannot accommodate all contingencies, the judgment of central bankers arguably should prevail in deciding how to conduct monetary policy. Individuals with this view likely believe that the judgment of Paul Volcker, Alan Greenspan, and Ben Bernanke has produced a better performing economy over the past three decades than could have been achieved if their hands had been tied by a goal mandating price stability. Critics would also argue that empirical evidence has been unable to corroborate the prediction that more discretionary power leads to poorer economic performance, and has even found the opposite to be true. Several studies (before the introduction of the Euro) compared the response of the German economy and the U.S. economy to shocks. Since the German central bank was presumed to "inspire greater confidence" than the Federal Reserve because of its history of low inflation, Germany should have experienced a smaller loss in real output relative to the United States in response to a given reduction in the inflation rate. Yet the evidence suggests that the United States experienced smaller losses. In their previous careers as academic economists, Chairman Bernanke and former Fed Governor Frederic Mishkin have argued that in practice the price stability goal does not impose a rigid rule on central bankers. Rather, the legislation that has been enacted in foreign countries is more appropriately viewed as a case of "constrained discretion," in which central banks are given a goal but have wide latitude in determining how the goal is met. The central bank in this arrangement is referred to as having "operational independence." Bernanke and Mishkin argue that inflation targeting has many of the advantages of rules and discretion, with few of the drawbacks. If they are correct, a target may not limit the Fed from acting on its best judgment as much as some critics fear. But this, then, raises the question of what purpose a price stability goal would serve if broad discretion is still allowed to subjugate it to other goals. The Case Against a Single Goal Fed Policy—Summary Critics of proposals to make price stability the sole goal of monetary policy argue that there are other important goals that monetary policy can and should accomplish. At the extreme, critics argue that money is not neutral and can affect unemployment over relevant time horizons, and a little inflation makes adjustments easier. While few economists may agree with these views today, there are many who would nevertheless agree that the short-term stabilization of the business cycle is a meaningful goal of monetary policy that should not be sacrificed in the pursuit of price stability. They would also argue that the Fed's lender of last resort function is essential for maintaining a sound and stable financial system. These critics believe that the economy is too complex for monetary policy to be committed to one simple goal. It is impossible to foresee every contingency, so discretion is necessary to allow experts to use their best judgment. They might agree with certain price stability proponents that "constrained discretion" is the optimal form of monetary policy, but they would argue that multiple goals are the best way to make certain it is achieved. Having presented both the case for and against the proposal to refocus the ultimate goal of Federal Reserve policy, this report now explores a number of the technical issues that would likely be raised should Congress decide to adopt a singular goal of price stability for the Federal Reserve. Technical Problems With Implementing a Price Stability Goal40 Beginning in the late 1980s, a number of countries imposed a goal of price stability on their central banks. Their experience will be used in the exposition to follow because it demonstrates that the manner in which the legislation is written in those countries has either compounded or simplified the technical problems noted below. Mishkin and Schmidt-Hebbel identify 17 countries that currently use a goal of price stability; in addition, the European Central Bank has such a goal. The Definition of Price Stability The former Chairman of the Board of Governors of the Federal Reserve, Alan Greenspan, once said that "price stability exists when inflation is not considered in household and business decisions." Although the utility of this definition for policy formulation can be challenged, it does raise the question of whether price stability should be defined in general terms or in terms of a quantified numerical target. Should the former be pursued legislatively, some would suggest using terms "of reasonable price stability." Congress might amend the Federal Reserve Reform Act of 1977 to require the long term growth of monetary and credit aggregates commensurate with stable prices, thereby dropping goals of potential production, maximum employment and moderate long term interest rates. However, some would argue that, in practice, the goal of maintaining stable prices dominated Fed policy under Paul Volcker, Alan Greenspan, and Ben Bernanke. If that were the case, making price stability the sole goal of monetary policy would lead to no changes in policy unless a numerical target was set. For those preferring numerical targets, discussions about the definition of price stability usually center on whether the goal should be defined in terms of keeping the value of a price index stable or keeping an inflation rate stable. The advantage of the former, it is claimed, is that economic agents would know with certainty the long run value of the price level and it would be an immense aid in planning a variety of economic activities. The disadvantage is that every deviation of the price level from its legislated value would have to be corrected and this, it is conceded, could lead to bouts of deflation and introduce a great deal of volatility into the pace of economic activity and employment. Alternatively, Congress could define price stability as a rate of inflation. And the rate could be a given amount (a so-called point target) or a permissible range, for example, between zero and 2.5%. The advantage claimed for this alternative is that bygones would be bygones in the sense that rates of inflation that deviated either from the point target or the permissible range would not have to be corrected in subsequent periods. While this would reduce the volatility of economic activity and employment over time, it would make uncertain the longer run value of the price index and this may undermine the putative beneficial effects from this legislation. How price stability is defined would appear to be quite crucial to any legislative effort in this area. All countries that currently impose a price stability goal on their central banks do so in terms of an inflation range (e.g., Canada 1-3%, New Zealand 0-2%) rather than a price level target. Choice of Price Index An ideal index should, at a minimum, be timely, accurate, not subject to revisions, and readily understood by the public. These characteristics largely exclude the two price indexes that come from the series on Gross Domestic Product because they are subject to numerous revisions. This leaves the CPI which is published monthly, widely reported in the news media, understood by the public, and not subject to revisions. As presently formulated, however, it (as well as many other prices indexes) is subject to a number of problems or biases which may make it a poor candidate to accurately measure the true price level or the true rate of inflation. In particular, some economists believe the CPI overstates inflation, so an inflation target of 0% as measured by the CPI might result in forcing the Federal Reserve to deflate the economy. Many economists believe this would be harmful to the goal of maintaining full employment in the presence of sticky prices. Some have argued that the use of a target that included volatile commodities such as food and energy would make monetary policy destabilizing. They argue that the Fed should instead target a "core inflation" measure which excludes these commodities. This argument is buttressed by the fact that energy shocks have often destabilized growth in the past, and making monetary policy react to their effect on "headline" inflation could compound the destabilization, as discussed below. Occasionally, the core and headline rates diverge for long periods of time, so a focus on core could diverge from the price stability goal. For example, headline inflation exceeded core in nine out of ten years between 1999 and 2008 (as measured on a year over year basis). Another issue would be whether to use a price index that includes imported goods or goods and services, the supply of which are more vulnerable to disruptions and whose price is more sensitive to changes in the exchange rate than goods and services in general. All countries that impose a numerical price stability goal on their central banks use a CPI index. Most use the full CPI. The remainder use a CPI less a number of items such as food, energy, excise taxes, and home mortgage costs. Should There Be a Fixed Band Around the Target, and If So, How Wide Should It Be? All agree that any target set should be both demanding and credible. Two approaches have been taken to achieve these ends. One has focused on the selection of a point target (for either a price level or a rate of inflation). This target is specified in law with the understanding that some deviations about the point are unavoidable. However, the precise range of these deviations is left unspecified. A second approach has involved the specification in law of the permissible range or band in which the price level or rate of inflation may fluctuate, such as 0% to 2% per year. It is understood that such a law does not impose on the central bank any obligation to keep the rate at the mid-point of the range. Any point within the range or band is equally good from a policy perspective. It is possible to view these two approaches in the following way. A point target can be thought of as the mean value of an unspecified range while a fixed range or band can be thought of as a specified range without a mean value. Regardless of what approach is taken, a question arises about the width of the band within which prices might fluctuate. If it were quite wide, the public might perceive it as not very demanding and this could undermine credibility. But if it were too narrow, the regime could suffer credibility problems because the band might frequently be inadvertently breached. Achieving the proper balance could be problematic—estimates of how wide a band would have to be for the central bank to stay within the band 95% of the time range from 3 to 14 percentage points. At the bottom of this selection is the type of shocks likely to be faced by an economy, the type of price index that should be used, the lags inherent in monetary policy that hamper control, and the need to maintain credibility. In practice, the widths have been set to about 2 to 3 percentage points. There is something more substantial in selecting the width of the band that is frequently absent from the discussion on the desirability of focusing a central bank on a single goal of price stability. Most economists currently hold the view that the harm inflicted on an economy from inflation comes not so much from inflation itself as from a variable rate of inflation. If inflation could be fixed at some moderate but constant percent per year and held there, it might do little damage. Economic calculations, on the other hand, can be severely handicapped by an inflation rate that is highly variable. For that reason, the width of the band of permissible variations of the price level or rate of inflation becomes much more important for it constrains the possible variations in the price level or rate of inflation and, thus, the damage inflicted on the efficient operations of the economy. Would Exceptions Be Allowed? It is often said that inflation is a monetary phenomenon caused by too many dollars chasing too few goods. While this is true in the longer run, in the short run movements in a price index can be due to more than just movements in the supply of money. Shocks to the turnover rate of money and the supply of goods and services available to a nation can have an influence on prices and the rate of inflation. Shocks to supply can come about through changes in such factors as domestic productivity, unusual weather conditions, and international flows of both trade and capital. Some of these shocks are random, meaning that their average value over extended periods of time is zero. The other shocks can be longer lasting in nature and nonrandom in character. Both types of shocks would bear on the width of a band that would either be specified if a fixed band were legislated or tolerated if a point target were legislated. Demand shocks do not pose a serious problem for a single goal regime focused on price stability, or, for that matter, a multi-goal regime focused on price stability and output stabilization. In a demand shock, prices and output move together so monetary policy can be used to offset both problems at once. For example, after a fall in consumer confidence, both output and inflation would be expected to fall. In this situation, expansionary monetary policy would be consistent with both maintaining price stability and stabilizing output. It is the supply type shocks that have been highlighted in the literature as imposing the greatest difficulty to achieving a price stability objective because output and inflation move in opposite directions in a supply shock. Supply shocks are of several types. The most commonly mentioned are the OPEC-type oil price shocks. These are often called terms-of-trade shocks. With a singular goal of price stability, an OPEC-type shock could force the Federal Reserve to deflate all other prices in order to keep to the goal. This would lead to a rise in unemployment, especially in the short run. Terms-of-trade shocks can also occur for other reasons, especially in response to international movement of capital. When a country is the recipient of a net inflow of foreign capital, its exchange rate will appreciate in real terms and the price of foreign goods will fall relative to domestic goods so that a trade deficit will occur. If imported goods are in the price index, other things constant, the index will decline. Under a constant price level target the Federal Reserve could be required to inflate the value of domestic prices (its policy actions could depend on the time period over which it was required to meet its goal). It might be required to do the same thing to prevent a negative rate of inflation (i.e., a deflation), if the target were specified in terms of an inflation band. Another type of supply shock could occur if the United States decided to add or substitute a consumption-based tax such as a VAT for the current income-based tax. This is an option frequently proposed for fundamental tax reform. In some of the countries that impose a numerical price goal on their central bank, such a tax substitution or an increase in the VAT rate is allowed as an exception to the goal. The above discussion raises a general issue about exceptions to the goal. If too many events that cause prices to change are made exceptions to a price stability goal, confidence could be undermined and the directive to the central bank would be significantly diluted. While some exceptions might be desirable, too many might make the goal of price stability indistinguishable from current practice. One way to get around the issue of exceptions is to set a fairly wide range or band in which prices fluctuations are permitted or tolerated. As the width of the band is increased, the setting of exceptions becomes less important. However, this is done with the knowledge that if the band is too wide, credibility in the regime is undermined. Most countries have chosen not to make a list of formal exceptions. In the other countries, exceptions are made for shocks originating from terms-of-trade changes, supply disruptions, and changes in excise taxes and interest rates. That such exceptions are allowed is testimony to the importance of supply shocks to the general ability of central banks to reach numerical targets. How Long Would the Central Bank Have to Achieve Its Goal? To answer this question, one should have some appreciation for what is involved. The Federal Reserve cannot now rely on a direct and stable relationship of a monetary aggregate to aggregate demand and the price level or rate of inflation. Because of this, it manipulates short term market interest rates in an effort to shift aggregate demand and, ultimately, the price level and rate of inflation. Success requires technical expertise, good models of the economy (models that capture the structure of how monetary variables interact with the real economy), some degree of patience, and, because policy operates with a lag that is long and of variable length, a long time horizon. Also hampering the success of the operation is that the relevant interest rates that matter for aggregate demand are the unobservable real or inflation adjusted rates. Thus, success in meeting a goal of price stability would likely depend on the time horizon over which the goal would need to be met. The technical considerations involved seem to support a time horizon longer than one or two quarters. Among the eight countries specifying a numerical price goal, six specify a time horizon of at least one year. Were a numerical target selected that was significantly different from the inflation rate prevailing at the time, there might also need to be a transition period between the implementation of the new regime and the realization of the new target. Otherwise, the sharp shift from the prevailing inflation rate to the targeted rate could temporarily destabilize the economy. The nature of the lags inherent in monetary policy and the uncontrollable shocks to inflation and output raise the question of how literally the Fed should pursue its goal under an inflation target. Because inflation and output do not always move in opposite directions—notably in the case of oil shocks—a single-minded concentration on stabilizing inflation over short periods of time could potentially lead to a significant degree of volatility in output and unemployment. Arguably, countries with inflation targets have interpreted the target as an intermediate goal in practice for that reason. As a result, they try to minimize short-run fluctuations in output because of its medium-run effect on inflation, even though this may move inflation further from its target in the short run. But critics could argue that this behavior begs two questions. First, are the gains in accountability of an inflation target regime lost if the central bank can always claim to be aiming for the medium run? And more importantly, what is the purpose of claiming to have a "sole goal" to monetary policy if, in practice, central banks continue to pursue an unemployment goal in the short run? If a Target Were Changed or Missed, What Would Be the Optimal Time Over Which to Return to the Target? If the target were missed, it might have no consequences if the amount of overshooting or undershooting were small and unlikely to persist. There are other misses, however, that the monetary authorities could decide required corrective action. If corrective action is required, then the goal should be a smooth transition back to the target. Sudden and possibly large changes in monetary variables can have large and disruptive changes to output, employment, interest rates, and the international exchange value of the dollar. The purpose of a price stability goal should be to increase the amount of goods and services available to the public, not cause extreme volatility to real income, employment, and financial markets. Alternatively, the time period to re-establish the goal should not be so long as to be meaningless. This would undermine confidence in the new regime. Thus, any legislation refocusing the Federal Reserve would be expected to pay particular attention to this issue. What Incentives Are There, or Should There Be, for the Federal Reserve to Achieve Its Announced Target? Or, What Type of Accountability Should There Be? The adoption of a single goal of price stability defined with some arithmetic precision would likely increase accountability compared to the current system, where success is evaluated in subjective terms. But that raises the question of what appropriate recourse should be taken if the Fed were to miss its target. Failure to do anything would undermine public confidence in the new regime. Alternatively, to penalize the governing board for missing a legislative requirement might be self-defeating if the failure was unavoidable. The nature of unavoidable shocks to the economy argues for a medium run target, yet accountability is further weakened if the central bank aims to meet a target only over the medium run. For example, if the Fed is mandated to target inflation one year in the future, it is difficult to evaluate whether or not it is pursuing a policy today that will meet the goal. It can be punished retroactively for missing the goal today that it set last year, but it can always claim that it missed its goal for "reasons beyond its control" and "it will do better next year." Acknowledging the nature of unavoidable economic shocks, some inflation target proponents argue that central banks should be able to change inflation targets on a regular basis. This would reduce accountability further since missed targets could then be revised away in the future. Formal accountability for meeting price stability targets varies considerably among those countries that have imposed such a goal on their central bankers. In a few countries, the central bank is required to write an open letter to the finance minister explaining why the target was missed and what measure have been taken to rectify the situation. Only New Zealand links the tenure of the head of its central bank to achieving the inflation target. In most other countries, no explicit sanctions for missing the target are given. Some have proposed that the salaries and, possibly, bonuses of the governors might be linked to achieving the price stability goal. Who Would Set a Target for Price Stability? Does an Inflation Target Require a Mandate Change? In many parliamentary systems of government, this is presented as an important but unsettled issue. It is important because if the government alone sets the target, it is thought to underscore the dependent position of the central bank and, it is argued, may undermine central bank credibility. This may be less important in a country such as the United States where central bank independence is well established. The joint setting of the goal is thought to enhance credibility for it would commit the government to the goal and make it more difficult to be critical of the central bank in achieving the goal. In practice, most countries have set the goal jointly. In the United States, the Constitution vests monetary policy in Congress. Congress, in turn has granted the Federal Reserve broad operational independence, but maintained responsibility for oversight and determining the goals of monetary policy. If Congress chose to set a target for price stability, it would have two general options. First, it could specify the target in general terms such as directing the Federal Reserve to achieve reasonable price stability. This would allow the Federal Reserve discretion in implementing the law (e.g., choosing the specific numerical inflation target). (Of course, Fed implementation could be done in consultation with relevant congressional committees as is now the case in the semi-annual monetary policy hearings). Second, Congress could set the target range and direct the Federal Reserve to achieve the goal. But could an inflation target be adopted without Congressional action? Inflation targeting and a sole goal of price stability have typically been seen as going hand in hand by proponents and opponents alike, as this report has stressed. Price stability is seen as the goal of monetary policy and inflation targeting is seen as the means for achieving that goal. Indeed, it is fair to say that the underlying motivation of most inflation targeting proponents was to move monetary policy away from the goal of maximum employment. This is not the view of Chairman Bernanke, however. He has argued that inflation targeting is consistent with the current multi-goal mandate because low inflation promotes economic efficiency. While this distinction may seem semantic, it turns out to be highly important in the current debate because Chairman Bernanke has argued that if an inflation target does not require a change in the mandate, then the Fed can adopt one independently without Congressional action. Since Congress gives the Fed broad discretion to formulate policy as it sees fit, if it wished to prevent the Fed from adopting an inflation target, it would probably need to do so explicitly through legislative action. How Could the Government Set a Permanent Target? This question bears on the credibility of a monetary policy focused on a single price stability goal. Many writers on this subject have expressed the concern that if the government could override any prior decision on the target, it would undermine the confidence of economic agents that price stability would remain the central goal of monetary policy. For example, there could be opportunistic changes in the numerical target in order to "pump up" the economy to meet short-term political objectives. Although it is clear that credibility would be enhanced if it could be ensured that changes to prior legislation would not take place, this is not possible in the American political system. The possibility of change is always present. That government has the power to change laws is, of course, the essence of democracy. It may also be the essence of good economic policy. Conclusion The American model of central banking has distinctive attributes. The U.S. Congress delegates to a central bank its power to "coin money and regulate the value thereof." In doing so, it specifies a variety of goals that monetary policy should achieve that can be viewed as mutually inconsistent. This lack of goal independence is, however, arguably superficial since the Federal Reserve has long been allowed to pick and choose the one or ones on which it will place the greatest emphasis during any given time period. The Federal Reserve has also been given complete instrument independence in the sense that no constraints are placed on the monetary powers available to it to achieve its ends. The exercise of monetary policy is completely at the discretion of the Federal Reserve. A growing number of economists argue that a more desirable regime would be one in which the central bank is directed to achieve a single goal, price stability. While this regime would restrict the goal independence of the Federal Reserve, instrument independence would continue as it is now. Most economists would agree that monetary policy has been highly successful in the past 25 years. Proponents of a single price stability goal for monetary policy must contend with the time-honored adage "if it ain't broke, don't fix it." While proponents are likely to agree that monetary policy has been a success in the last two and a half decades, they would attribute that success to the Fed's decision to focus single-mindedly on price stability. Making price stability the sole goal of monetary policy would institutionalize this success, preventing any potential departure from this philosophy under future Fed chairmen and insulating current policy from political pressure. With the current regime of broad discretion, there is always the potential for the Fed to spring opportunistic monetary surprises which would lead to an inflationary bias that would create long-term harm for short-term gain. Furthermore, they would argue that the Fed pays lip service to goals that are contradictory and unattainable—thereby avoiding criticism—while focusing on only one goal. This, they argue further, is a potential threat to the credibility, transparency, and accountability of monetary policy. In proponents' eyes, a price stability goal would lead to an improvement on all three of these fronts, whereas the current multi-goal regime leads to uncertainty, opacity, and subjectivity. Some proponents are motivated by a desire to end discretionary policy, while others view a price stability goal as "constrained discretion." The latter believe that monetary policy can play a useful role in reducing the volatility of the business cycle, as long as constraints are present in the form of a price stability goal to prevent high inflation and monetary surprises. Critics would contend that price stability proponents underestimate the complexity of monetary policy and the broad and varied effects it has on the economy. While most would acknowledge the salutary effects the Fed's pursuit of price stability has produced, they would disagree that this is the only policy goal the Fed can and should pursue. Instead, they would argue that the Fed has proven in the last two decades that price stability can go hand-in-hand with a monetary policy that minimizes the excesses of the business cycle and maintains the soundness of the financial sector. If a price stability goal is interpreted as precluding the Fed from pursuing these other two goals, then they would argue that the economy would suffer as a result. For example, a price stability goal could have limited the Fed's ability to ease policy in response to recent oil shocks and the attacks of September 11. It remains to be seen if the recent expansion in Federal Reserve activities related to the financial crisis that began in the summer of 2007 will compromise its ability to maintain an inflation goal for the United States. Alternatively, if the price stability goal is interpreted as a regime of "constrained discretion" which still allows for the stabilization of output, then critics would view the current multi-goal mandate as more appropriate. Furthermore, they would argue that the complexity of the economy means that policy must rely on expert judgment, and the Fed has proven in the past two decades that discretion can be pursued responsibly. In conclusion, the price stability goal, while simple, is deceptively so. The long and variable lags in policy effectiveness and unpredictable nature of shocks to the economy mean that the Fed's control over inflation is imprecise and delayed. For that reason, the Fed could not reasonably be expected to keep inflation on a point target at all times, should a price stability goal be adopted. This implies accountability would not be as straightforward as proponents might hope. Legislation can address this problem explicitly. Possible remedies for the problem include allowing inflation to stay within a range, targeting core rather than headline inflation, permitting exceptions when inflation would be allowed to miss its target under pre-determined circumstances, and targeting forecasted rather than contemporaneous inflation. But critics would argue that none of these solutions really solves the inherent complications that makes the price stability goal impractical. To date, Congress has taken no legislative action on the issue of inflation targeting or changing the current mandate, but its hand may be forced in the near future. Fed Chairman Ben Bernanke, a longtime advocate of inflation targeting, has argued that the Fed could independently adopt one without any change to the current mandate. This is a departure from the views of most proponents and opponents who see inflation targeting and changing the mandate to a sole goal of price stability as going hand in hand. If the Fed decides to unilaterally adopt an inflation target, Congress can either prevent it through legislative action or accept it, actively through legislation or passively through inaction.

Some economists have long criticized the American model of central banking for featuring multiple policy goals, discretion on the part of the central bankers as to which goal to emphasize, freedom in the choice of instruments to achieve the policy goals, and rather vague accountability for policy failures if, indeed, these can even be identified. Recently, the critics have urged that the multiple policy goals of the Federal Reserve (Fed) be replaced by a single goal of price stability. Critics believe that central bankers tend to use their discretionary powers to achieve political as well as economic objectives, notably to create "good times" through monetary expansion. Since these "good times" do not last long, such a policy imparts a costly inflationary bias to an economy and, hence, is not economically optimal over time. Among other virtues, it is argued that a single goal would provide an explicit anchor for the American monetary system. The current model has strong support as well. Since an economy faces many unforeseen contingencies, supporters argue that giving central bankers multiple goals and a high degree of discretion is optimal. They question whether a price stability goal would be flexible enough to allow the Fed to remain the lender of last resort to the U.S. financial system and to cope with short run stabilization problems that beset the country at times such as the financial turmoil that began in the summer of 2007. They note that the Fed has successfully delivered price stability for over two decades under the current multi-goal regime. Both proponents and opponents of a price stability goal are supported by an array of economic theories and empirical studies. To formally replace the current multi-goal mandate of "maximum employment, stable prices, and moderate long-term interest rates" with a single goal of price stability would require legislation. Members from both parties have introduced such legislation in past Congresses. But Fed Chairman Ben Bernanke, a long-time advocate of inflation targeting, has argued that the Fed could independently adopt an inflation target without changing the multi-goal mandate. A number of countries have made price stability the sole goal of their monetary policy. In practice, these countries have not focused their monetary policy solely on price stability, but have responded to changes in output and to the recent turmoil in financial markets. Thus far, these policy shifts seem not to have undermine their long-term price stability goals. This arrangement has been coined "constrained discretion." The price stability goal, while simple and straightforward, raises a number of technical questions about definition, in terms of a goal of inflation or constant prices, whether a point or band target should be used, and the appropriate price index to measure price stability. The goal may also place constraints on fiscal, debt management, and exchange rate policies—policies not delegated to the Fed. Accountability should be greater than under the current regime, but the degree of accountability depends on how the goal is defined. Since it is infeasible to expect the central bank to keep inflation right on target at all times, consideration should be given to the exceptions granted to the goal and the permissible time interval over which the targets must be met. But these exceptions in turn make accountability more difficult. This report will be updated as events warrant.

Background Actually, nationality and citizenship are distinct concepts. Citizenship concerns the political status and rights conferred on a person by a nation, such as the right to vote and to hold office. Nationality concerns the status of a person under international law, i.e. , the allegiance which a person owes to a nation and the protection owed by a nation to a person vis-à-vis another nation. In the U.S., all citizens are nationals, but not all nationals are citizens. Nationals by birth who are citizens are those persons born or presumed to be born in the U.S., born in the outlying possessions to parents at least one of whom is a U.S. citizen who satisfies certain conditions precedent, or born outside the U.S. and its possessions to parents at least one of whom is a U.S. citizen who satisfies certain conditions precedent. Nationals by birth who are not citizens are those persons born or presumed to be born in an outlying possession of the U.S. on or after the date of formal acquisition of the possession or born to parents at least one of whom is a U.S. national who satisfies certain conditions precedent. Aside from this distinction, generally the terms seem to be used interchangeably, although citizenship is really a subset of nationality. Therefore, although the U.S. provision concerning loss of nationality is entitled "Loss of nationality by native-born or naturalized citizen," the courts also appear to have used the two terms interchangeably, so the loss of nationality seems to be understood usually to mean the loss of citizenship as well where both are involved. Therefore, the terms will be used interchangeably in this report. Dual citizenship can arise in several ways, from naturalization and from two doctrines of citizenship. Jus soli is the principle that a person acquires citizenship in a nation by virtue of his birth in that nation or its territorial possessions. Jus sanguinis is the principle that a person acquires the citizenship of his parents, "citizenship of the blood." A person may acquire dual citizenship by being born in the U.S., which recognizes jus soli , to alien parents whose country recognizes jus sanguinis , or by being born abroad to U.S. parents. Also, a U.S. citizen may become a naturalized citizen of a nation that does not require renunciation of other allegiances, or a naturalized U.S. citizen may still retain citizenship in a country that does not recognize renunciation of its citizenship. Although the U.S. requires an immigrant to take an oath renouncing allegiance to any other sovereign power, citizenship and nationality of another nation are really determined by the laws of that other nation claiming a person as a citizen and/or as a national. Therefore, when a naturalized U.S. citizen renounces allegiance to his former country, if the laws of that country do not recognize the renunciation, that person still retains the citizenship of his former country. In deference to the sovereignty of that other nation, the U.S. generally recognizes the dual citizenship. Even the U.S. originally did not recognize the right of a citizen to expatriate himself if he so desired. The original expatriation statute was enacted because of a growing belief in Congress that the rights of citizenship included the right to renounce citizenship. Some nations still do not permit citizens to renounce citizenship. Expatriation of U.S. Citizens Section 1481 of Title 8 of the U.S. Code enumerates actions which may result in the expatriation of a U.S. citizen, regardless of whether that person is a citizen by birth or naturalization. A naturalized citizen could be "denaturalized," i.e. , have his citizenship revoked by a U.S. court upon a finding that the immigrant committed fraud or misrepresentation in gaining admission to the U.S. or in obtaining his citizenship. However, this report will not address this issue since it is separate from the expatriation acts in section 1481. Section 1481 includes acts demonstrating an allegiance to another nation which may be incompatible with allegiance to the U.S. Those acts include naturalization in a foreign country; taking an oath of allegiance to a foreign state or one of its political subdivisions; serving in the armed forces of a hostile foreign state or serving as a commissioned or non-commissioned officer in the armed forces of a foreign state; serving in any office, post or employment under a foreign state's government, if one is a national of that state; making a formal renunciation before a diplomatic or consular officer of the United States in a foreign state; making a formal renunciation in a manner prescribed by the Attorney General when the U.S. is at war; and committing treason. Section 1483 of Title 8 restricts the conditions for expatriation. Except for treason and formal renunciation in the U.S., a citizen cannot be expatriated while he is in the U.S. or its possessions. However, acts committed in the U.S. or its possessions can be grounds for expatriation once the citizen leaves the U.S. and resides outside it and its possessions. Also, a citizen who asserts his claim to U.S. citizenship within six months of attaining majority shall not be considered expatriated as the result of serving in the armed forces of a foreign state or making a formal renunciation abroad before a U.S. diplomatic or consular official. Section 1489 provides that treaties and conventions ratified by the Senate before December 25, 1952, supersede the provisions on expatriation, except that no woman shall lose her nationality solely by reason of her marriage to an alien, regardless of the provisions of a treaty. Currently, the mere commission of an act of expatriation enumerated in section 1481, or any other act that may be evidence of expatriation, cannot result in loss of citizenship unless committed voluntarily and with specific intent. At one time a U.S. citizen could lose his citizenship by denationalization as well as by expatriation. The distinction is that expatriation is a loss of citizenship resulting from an act evincing the desire and intention of the citizen to renounce his citizenship, while denationalization is a loss of citizenship resulting from conduct which Congress has decided is contrary to the national interest and thus should result in a loss of citizenship. While conduct resulting in denationalization had to be voluntary and not coerced, there was no requirement of a specific or subjective intention to renounce citizenship. For example, at one time an American woman could be denationalized by marrying a foreigner. The woman's lack of subjective intent to renounce her U.S. citizenship was irrelevant; if she married voluntarily, she lost her citizenship. One interpretation is that the voluntariness of the denationalizing conduct was equivalent to an objective intent to renounce U.S. citizenship. Over the years the United States Supreme Court has moved toward a stricter interpretation of expatriation. Formerly, the Supreme Court upheld the power of Congress to denationalize a U.S. citizen, even a citizen by birth. Finally, it reversed itself and found that the Fourteenth Amendment prevents Congress from legislating the automatic loss of citizenship by naturalization or birth in the U.S. merely because of certain conduct, without that citizen's assent. There has been at least one case which found that Congress could set conditions on the retention of U.S. citizenship for a person born abroad to parents only one of whom has U.S. citizenship. Since the person was neither born nor naturalized in the U.S. but merely derived his citizenship from the parent, he was not protected from denationalization by the Fourteenth Amendment. More recently, the Supreme Court elaborated on its earlier decision in Afroyim by holding that the Government had to prove specific intent to renounce citizenship. The statutory provisions on expatriation state that the party claiming that expatriation occurred must establish the claim by a preponderance of the evidence. Any act of expatriation, including those enumerated under § 1481, will be presumed to have been done voluntarily, but the presumption may be rebutted upon a showing, by a preponderance of the evidence, that the act or acts committed or performed were not done voluntarily. Terrazas upheld the statutory evidentiary standards as constitutional, but in light of Afroyim and the Fourteenth Amendment, it required a finding of intent to relinquish U.S. citizenship and stated that no presumption of intent arose from an expatriating act. A finding of intent did not require a written, express relinquishment of citizenship. Intent could be found by a preponderance of the evidence; it could be inferred from conduct that was completely inconsistent with and derogatory to allegiance to the U.S. The courts have interpreted the statutory requirements with regard to several of the acts of expatriation. Regarding an oath of allegiance and statement of renunciation, a court has found that signing an oath of allegiance to another country as part of that country's naturalization process did not constitute renunciation of U.S. citizenship in the absence of an explicit renunciation. The courts have found that where there is an explicit renunciation or an oath of allegiance accompanied by or including an explicit renunciation, the requisite specific intent exists and the citizen is expatriated. On the other hand, at least one district court has found that where a person has signed naturalization papers of another country which explicitly renounce U.S. citizenship, the government has not proved the requisite specific intent where the citizen can prove that, through gross negligence, he was unaware of the fact that the naturalization papers contained a renunciation of all other citizenships. While one court of appeals has rejected the argument of economic duress in rebuttal of the presumption of voluntariness of an act, another court of appeals has said that economic duress may avoid expatriation, but the citizen's economic plight must be "dire." A district court has found that holding office in a foreign legislature does not constitute expatriation in the absence of a specific intent to renounce U.S. citizenship. Subsequently, the plaintiff in that case lost his U.S. citizenship when the laws of the foreign country changed to require single citizenship in order to hold legislative office. The plaintiff wished to run to retain his office, renounced his U.S. citizenship but was still unable to run for office for other reasons. His subsequent attempt to retract his renunciation was deemed ineffective because he had already voluntarily and effectively renounced U.S. citizenship. Administratively, it appears that, since the line of cases holding that a person must have committed an expatriating act voluntarily and with specific intent to lose citizenship, the State Department has taken a permissive position with regard to whether a person has lost citizenship upon commission of an act. Even taking an oath of allegiance to a foreign state which renounces allegiance to the United States is considered strong, but not necessarily conclusive, evidence of intent to relinquish U.S. citizenship. Conflicting Rights and Obligations of Dual Citizenship The rights and obligations of a citizenship of another nation may conflict with U.S. citizenship. As mentioned above at note 18 , voting in a foreign political election is no longer grounds for expatriation. If a U.S. citizen wishes to retain his citizenship and goes through some form of naturalization process in another nation, he might well be advised, for example, to take care that no renunciation of U.S. citizenship is included in any required oath of allegiance. A U.S. citizen must also be cautious if he or she is considering accepting a government position in the other country. In recent years, many East-European-American dual nationals have been going to Eastern Europe to aid in the restructuring and development of that region. Reportedly, some have been offered positions in the governments there, but those who definitely wish to retain U.S. citizenship have turned down those offers because of concern that they would lose U.S. citizenship. Some are reportedly acting as unofficial, unpaid advisors. A most notable example is former Minnesota governor Rudy Perpich who briefly considered the post of foreign minister in Croatia. Even if no formal renunciation is required as part of accepting the foreign position, by not accepting such positions, dual citizens ensure that no cloud is cast on their U.S. citizenship. In one case, Milan Panic, a naturalized U.S. citizen who briefly served as Prime Minister in his native Yugoslavia during the post-communist transition period in the early 1990s, was said to have received express permission from the U.S. State Department to retain his U.S. citizenship while serving as Prime Minister. U.S. citizenship may have been deemed so inherently incompatible with holding a high government position in a foreign country, that an intent to relinquish U.S. citizenship could arguably be found in the act of accepting such high office. An additional factor in this case was the embargo against the former Yugoslavia; as a U.S. citizen, Panic had to receive permission from the United States for travel to Yugoslavia. In an even more recent case, Valdas Adamkus, the current President of Lithuania, a Baltic state once part of the Soviet Union, was a naturalized U.S. citizen who had fled his native country more than fifty years ago. After his election in Lithuania, he renounced his U.S. citizenship. Reportedly, the Lithuanian Constitution would have permitted him to retain his U.S. citizenship while serving as President. However, he had made a campaign promise to renounce his U.S. citizenship, knowing it would be politically awkward to retain it. He went to the U.S. Embassy in Vilnius, Lithuania, to turn in his passport, sign a formal renunciation of U.S. citizenship, and receive a diplomatic visa. It appears that, since Lithuanian laws permitted him to retain his U.S. citizenship and did not require him to renounce it to take office, U.S. laws would have permitted him to retain his U.S. citizenship, and that President Adamkus' action was not legally required. If the laws of the other country provide for mandatory military service for young men, they may conflict with the expatriation provision that service in foreign armed forces is an expatriating act, even in a friendly country if service is as an officer. A multilateral Protocol Relating to Military Obligation in Certain Cases of Double Nationality, to which the U.S. is a party, provides that "[a] person possessing two or more nationalities who habitually resides in one of the countries whose nationality he possesses, and who is in fact most closely connected with that country, shall be exempt from all military obligations in the other country or countries." Under the Protocol, the country in which the national resides and with which he has the closest ties is considered the country of the dominant nationality. So an American possessing dual citizenship could be exempt from military service in his other country if it is a party to the Protocol and if his dominant nationality is American. Article 1 of the Protocol provides that such an exemption may involve the loss of the non-dominant nationality. As discussed above, foreign military service is a potentially expatriating act under current U.S. law. Therefore, an exemption from service in the U.S. military in favor of obligations in another country could be considered evidence of an intent to relinquish U.S. citizenship. The U.S. is not a party to the Convention on the Reduction of Cases of Multiple Nationality and on Military Obligations in Cases of Multiple Nationality and its Protocols. A dual citizen may have conflicting financial obligations to his two countries. He may be obligated to pay taxes to both of his countries if he has sufficient income. There are numerous bilateral treaties between the U.S. and other countries to avoid double taxation but these address situations in which a citizen or national of one party is domiciled in another party; often they do not address the special issue of the dual national. The tax laws of the U.S. provide for foreign tax credit and a court has even found that taxes levied by a political subdivision of a country, not by the federal government, may be credited toward the taxes owed by a U.S. corporation; current regulations are consistent with this ruling. Laws governing the repatriation of income earned and investment by aliens and dual nationals may differentiate between the alien and the dual national; the dual national may not be permitted to take as much money out of the country because he is considered a national with not as much reason as an alien to remove assets to another country, even if he is a national of that other country. If there is no treaty to which the U.S. and the particular nation involved are parties, the U.S. and that nation can negotiate naturalization, tax or military obligation treaties in which they can resolve any conflicting obligations to make the status, rights and obligations of dual nationals clear. Historically, treaties of expatriation which resolved questions of dual nationality have been negotiated with a number of countries; however, some of these have terminated. Laws of Selected Countries This section will briefly describe the dual nationality or citizenship laws of selected countries in which it appears that a significant number of Americans possess nationality or citizenship. In particular, recent changes in the constitution and federal statutes of Mexico have received a great deal of attention in the United States, since those changes were apparently motivated, at least in part, by the effects of recent immigration law reforms in the United States on Mexican citizens who are permanent resident aliens in the United States. Additionally, the relevant citizenship and nationality laws of Israel, Ireland and Colombia will be discussed. The laws discussed here do not include the naturalization laws, which could result in dual citizenship if a U.S. citizen chose to apply for naturalization in those countries. Rather, this discussion focuses on describing those laws which provide for retention of nationality after naturalization in the United States or for acquisition of nationality by descent, a sort of jus sanguinis . It has been suggested that the exercise of the rights and privileges of a prior nationality by a naturalized U.S. citizen, after the date of naturalization, calls into question the truthfulness of the citizen's oath of allegiance to the United States and renunciation of other allegiances, and that therefore, the naturalization could be invalidated on the grounds of fraud in the procurement. On the other hand, since some of the foreign laws provide for reacquisition of native nationality, it could be argued that persons who take advantage of reacquisition procedures are not acting differently from native-born U.S. citizens who seek naturalization in another country. Mexico Recent changes in the constitutional and federal statutory laws of Mexico have made possible the retention or reclamation of Mexican nationality for former Mexican citizens who are now naturalized U.S. citizens and for their U.S.-born children. In December 1996, both chambers of the Mexican federal legislature unanimously passed amendments to articles 30, 32, and 37 of the Constitución Politica de los Estados Unidos Mexicanos [Political Constitution of the United Mexican States]. The effective date of these amendments was March 20, 1998, one year after the date of publication in the Diario Oficial de la Federación [Official Journal of the Federation]. Publication occurs upon ratification by a majority of the 31 state legislatures in Mexico. These amendments made possible the retention of Mexican nationality by Mexicans who possess the nationality of another country. Such persons can also transmit Mexican nationality to their children born outside Mexico. Transmission is limited to persons born outside Mexico to parents one or both of whom are Mexicans by birth or naturalization in Mexican territory. Only Mexicans with no other nationality may be appointed or elected to public offices where national security and sovereignty concerns are implicated. Mexican dual nationals will be able to hold passports and to own real property in restricted areas. Under Mexican law, foreigners are prohibited from owning land within 100 kilometers of borders and 50 kilometers of the coastline. Former Mexican nationals who have already lost their nationality through naturalization in another country have five years after the entry in force of the amendment to initiate the procedure for recovering their Mexican nationality, that is, until March 3, 2003. The law implementing the constitutional amendments with respect to dual nationality was passed by both chambers of the Mexican Congress in December 1997, published on January 23, 1998, and went into effect on March 20, 1998, the effective date of the underlying amendments. Mexican law distinguishes between nationality and citizenship with regard to the rights enjoyed. Although Mexican dual nationals will be able to travel and live in Mexico and to own property without restrictions, they will be exempted from certain obligations and also barred from certain privileges and rights associated with citizenship. As mentioned above, they will not be allowed to hold certain public offices. They will not be required to serve in the Mexican armed forces, but will have to register abroad at consulates or embassies. Significantly, the right to vote, the primary political right associated with citizenship, has not been extended to dual nationals by the new laws. Apparently, at the current time there are no procedures for absentee voting even by those possessing Mexican nationality and citizenship who reside outside of Mexico. According to estimates of the Mexican government, the new dual nationality laws could affect between 4 to 5.5 million current or former Mexican nationals, of whom approximately 2.2 million are already naturalized citizens who can now apply to regain their nationality status and rights. According to at least one expert, there approximately 6.6 million U.S.-born children with one or both parents born or naturalized in Mexico, who could be eligible to apply for Mexican nationality status. Israel The Law of Return in Israel provides for the right of every Jew to immigrate to Israel and become an Israeli citizen, unless it is determined that the person is engaged in activity directed against the Jewish people, may endanger public health or the security of the state, or has a criminal past, likely to endanger public welfare. A "Jew" is defined as a person born of a Jewish mother or who has converted to Judaism and is not a member of another religion. An extension has been made to cover the offspring of intermarriage between a Jewish man and a non-Jewish woman. In that case, the right of return is extended to the child and grandchild of a Jew, the spouse of a Jew, the spouse of a child of a Jew, and the spouse of a grandchild of a Jew, except for a person who has been a Jew and has voluntarily changed his religion. Ireland Under the Nationality and Citizenship Acts of 1956 and 1986, a person born outside Ireland may acquire Irish nationality by descent transmitted up to three generations down from the person born in Ireland. A person born outside Ireland, whose mother or father was born in Ireland and was an Irish citizen at the time of his birth, is automatically an Irish citizen. A person whose grandfather or grandmother was born in Ireland, but whose parents were not, may acquire Irish citizenship by registering in the Foreign Births Register at a consulate or embassy of Ireland or at the Department of Foreign Affairs in Dublin, Ireland. A person whose great-grandfather or great-grandmother was born in Ireland but whose grandparents and parents were not, may register for Irish citizenship, provided that a parent eligible to register for Irish citizenship as the grandchild of a native Irish citizen actually registered prior to that person's birth. Colombia Since amendments in 1991, article 96 of the Constitucion Política [Political Constitution] of Colombia provides that a native Colombian cannot be stripped of his nationality. Colombian nationality is not lost by acquiring another nationality by naturalization. Naturalized Colombians are not obligated to renounce other nationalities in order to become Colombians. Colombians who previously lost their nationality by naturalization in another country are provided the opportunity to reacquire Colombian nationality. Other Countries In addition to the existing laws of the countries discussed above and others, such as Turkey and Italy, there has been political pressure in several countries, including Korea and Germany, to liberalize nationality laws in a way that would permit or promote dual nationality. However, in Korea, plans for legislation that would permit dual nationality have been put on hold due to concerns expressed by China about the split loyalties of the sizeable population of ethnic Koreans in China. In Germany, liberalizing nationality laws became a contentious issue in the elections there. Most of the political parties apparently support liberalization which would permit non-ethnic Germans born in Germany to become German nationals automatically without having to apply for naturalization, but one conservative party is vehemently opposed and another party is split on the issue. Legislation in the 105th Congress In the 105 th Congress there has been only one piece of legislation which refers to dual citizenship, although there has been some interest in revisiting the issue of permitting dual nationality under U.S. laws in light of the recent Mexican legislation, the relatively recent Colombian legislation, an increasing trend of Irish-Americans acquiring Irish nationality, and other harbingers of a global trend toward liberalization of dual nationality laws. These foreign laws and foreign legislative activity potentially could have a particular impact on the United States, traditionally perceived as a nation of immigrants. On the one hand, concern has been expressed in the media and elsewhere about split loyalties and protecting the national interests of the United States in the face of the growing numbers of Americans who hold the nationality of other countries, regardless of whether those other countries are perceived as friendly to the United States or not. These concerns are reflected in some of the current policies in the federal government. In one reported instance, a renewal of security clearance was denied to a government employee when he informed authorities that he had acquired Irish nationality and possessed an Irish passport. On the other hand, other opinion accepts dual nationality as a natural occurrence for a nation of immigrants and embrace the advantages of strong ties to the native or ancestral countries of Americans. In the middle are those commentators who perceive neither a particular threat or benefit in the dual nationality of U.S. citizens. In addition, a recent high profile criminal case illustrated one of the problems that can be caused by dual nationality. An American man, wanted by Maryland authorities for a homicide, fled to Israel and claimed U.S.—Israeli dual nationality through his father. Because Israeli extradition laws apparently prohibit the extradition of an Israeli national, lengthy delays and legal wrangling have resulted from the man's claim of dual nationality. Appendix. Nationality Treaties in Force for the United States Multilateral Treaties 1. Protocol relating to military obligations in certain cases of double nationality, concluded April 12, 1930, in force May 25, 1937, 50 Stat. 1317, T.S. 913, 2 Bevans 1049, 178 L.N.T.S. 227. 2. Convention on the Nationality of Women, concluded Dec. 26, 1933, in force Aug. 29, 1934, 49 Stat. 2957, T.S. 875, 3 Bevans 141. Bilateral Treaties 1. Naturalization Treaty, signed Nov. 23, 1923, in force April 5, 1924, U.S.—Bulgaria , 43 Stat. 1759, T.S. 684, 5 Bevans 1083, 25 L.N.T.S. 238. 2. Convention regulating military obligations of persons having dual nationality, signed Jan. 27, 1939, in force Oct. 3, 1939, U.S.—Finland , 54 Stat. 1712, T.S. 953, 7 Bevans 747, 201 L.N.T.S. 197. 3. Agreement relating to the fulfillment of military obligations during the wars of 1914-1918 and 1939-1945 by persons with dual nationality, signed and in force Dec. 22, 1948, U.S.—France , 62 Stat. 3621, T.I.A.S. 1876, 7 Bevans 1294, 67 U.N.T.S. 38. Extension signed Nov. 18, 1952 , in force Dec. 31, 1952, 3 U.S.T. 5345, T.I.A.S. 2741, 185 U.N.T.S. 396. 4. Treaty relating to exemption from military service or other act of allegiance of persons having dual nationality, signed Nov. 1, 1930, in force Feb. 11, 1931, U.S.—Norway , 46 Stat. 2904, T.S. 832, 10 Bevans 502, 112 L.N.T.S. 399. 5. Convention relating to exemption from military service of persons having dual nationality, signed Jan. 31, 1933, in force May 20, 1935, U.S.—Sweden , 49 Stat. 3195, T.S. 890, 11 Bevans 778, 159 L.N.T.S. 261. 6. Convention relative to military obligations of certain persons having dual nationality, signed Nov. 11, 1937, in force Dec. 7, 1938, U.S.—Switzerland , 53 Stat. 1791, T.S. 943, 11 Bevans 936, 193 L.N.T.S. 181.

This report provides an overview of the legal requirements for dual citizenship and some of the issues concerning dual citizenship. There are several potential problems and issues falling into two categories—first, actions which may result in expatriation from the U.S., i.e., loss of American citizenship, and second, potentially conflicting obligations to both countries, e.g., mandatory military service for men, double income taxation, voting privileges, public office or employment and repatriation of income from employment or investment abroad. The report will first discuss the legal basis for dual citizenship, then the expatriation actions, the potentially conflicting obligations of holding citizenship of the U.S. and another nation, the dual citizenship laws and legislative activity of selected countries in which a significant number of U.S. citizens may be eligible for dual citizenship, and finally, current legislative activity in the 105th Congress.

Introduction While attacks on U.S. diplomatic facilities and personnel abroad are not infrequent, the severity of the September 11, 2012, attack on U.S. facilities in Benghazi, Libya, has caused a reexamination of measures in place to protect U.S. diplomatic personnel and facilities abroad. Ambassador Christopher Stevens was the first sitting U.S. ambassador to have been killed since 1979. Moreover, a concern exists that the attack may reflect a growing danger to U.S. diplomatic facilities—the result of an increasingly diffuse threat from extremists across the Middle East and of Arab revolutions that have decreased the capacity, and perhaps the will, of local governments to protect U.S. interests. Congressional and State Department actions will be critical to responding to this evolving threat and to preventing similar tragedies in the future. Congress has legislated extensive changes to the U.S. approach to securing facilities and personnel in at least two previous instances of attacks on U.S. diplomatic facilities abroad. The 1983-1984 bombings of U.S. facilities in Beirut, Lebanon, led to the adoption of the Omnibus Diplomatic Security and Antiterrorism Act of 1986, which, among other measures, established the State Department's Bureau of Diplomatic Security. Similarly, the 1998 bombings of U.S. embassies in Kenya and Tanzania led to, among other measures, a significant construction funding program under the Secure Embassy Construction and Counterterrorism Act of 1999 (SECCA). After the Benghazi attack, Congress initiated oversight through investigations by several committees and through a number of hearings featuring testimony from officials ranging from the working level to the Secretary of State. Members have also put forward a number of legislative proposals on issues ranging from the composition of Accountability Review Boards to procedures for awarding contracts for local security guards. Two of these measures have been considered and approved by committees. The Department of State undertook several measures in response to the attack, including immediate steps to bolster security at posts around the world; an investigation of the incident through an Accountability Review Board; and longer-term measures implementing the board's recommendations, including requests for significantly greater funding than in recent years. The following summarizes and tracks congressional and State Department efforts to make U.S. embassies and personnel around the world more secure. It will be updated as necessary to reflect further developments and actions on ongoing policy proposals. Department of State Actions in Response to the Benghazi Attack The protection of U.S. government employees and facilities under chief of mission authority overseas from terrorist, criminal, or technical attack is the responsibility of the Secretary of State. The Benghazi attack prompted the State Department to take several actions. In the immediate aftermath, the department ordered all posts to review their security posture and to take all necessary steps to enhance it if necessary. Shortly thereafter, five Interagency Security Assessment Teams (ISATs) were deployed to 19 posts in 13 countries to undertake urgent reviews of high-threat posts. In order to ensure consistent focus on the most endangered locations, State also reorganized its Diplomatic Security Bureau by establishing a new Deputy Assistant Secretary for High Threat Posts to oversee security arrangements for a number of so-designated countries. While press reports initially suggested the department had designated 17 High Threat Posts, State officials have suggested that this number is not static and that it would be reconsidered annually, at a minimum. As of September 2014, the number of High Threat Posts stood at 30. The Benghazi Accountability Review Board In addition to the above steps, in the first week of October 2012, then-Secretary of State Clinton convened an accountability review board (ARB) to investigate the Benghazi attack. The board was chaired by former Under Secretary of State Thomas Pickering and included five members, four of whom were designated by the Secretary of State and one by the intelligence community. On December 18, the Benghazi Accountability Review Board published its findings in an unclassified version of its report. The board concluded that, while responsibility for the attack rests solely and completely with the terrorists who perpetrated it, systemic failures in Washington led to key decisions that left the Special Mission in Benghazi with significant security shortfalls. Key leadership failures in the Bureau of Diplomatic Security (DS) as well as in the Bureau of Near Eastern Affairs (NEA) led to confusion over decision-making in relation to security and policy in Benghazi; these were likely factors in the insufficient priority given to the Benghazi mission's security-related requests, according to the board. Still, these leadership failures did not amount to a clear breach of duty by any single U.S. government employee, the board found. The board also determined that decisions by the department's senior leadership regarding the nature and extension of Special Mission Benghazi's unclear status left it outside normal procedures for funding and executing security measures, including office facility standards and accountability measures under the Secure Embassy Construction and Counterterrorism Act of 1999 and the Overseas Security Policy Board (OSPB). State Department Implementation of ARB Recommendations On the release of the ARB's report, the Department of State accepted the panel's recommendations and pledged to implement them fully. The department formed a task force to implement the board's 29 recommendations, as they were translated into 64 specific action items assigned to bureaus for implementation. In reviewing failures of leadership and management, the department removed four of its employees from the positions they held at the time of the attack. The officials removed from their positions include three officials from the Bureau of Diplomatic Security and one from the Bureau of Near Eastern Affairs. The four State Department employees, who had been on administrative leave, were returned to duty on August 20 and reassigned to other positions within the department. Prior to the officials' reinstatement, a number of Members of Congress had sought clarification on their administrative status, in order to assess whether the department had held the appropriate officials to account in a full and fair manner. In addition, while the ARB fixed responsibility for these failures at the level of Assistant Secretary and below, some congressional observers have suggested that more senior department officials should have been held more fully to account. By January 2013, then-Secretary of State Hillary Clinton reported to Congress that, of the ARB's recommendations, "more than 80 percent are on track to be completed by the end of March, with a number completed already." Later, Secretary of State John Kerry also stated that he is "committed to implementing every single one of the recommendations in the report of the Accountability Review Board and doing more." The department described its progress in implementing the ARB's recommendations in a fact sheet first released on May 20, 2013. The fact sheet has been updated repeatedly; the text of the most recent publicly released update is included is available as Appendix A . The document states that the department had addressed or was addressing all 24 unclassified recommendations. It also indicates that 113 new diplomatic security personnel (including 75 DS agents) had been hired by the Department of State in FY2013, with the remaining 38 expected to be hired in FY2014. On December 10, 2014, Assistant Secretary of State for Diplomatic Security Greg Starr testified that the Department had closed 25 of the 29 ARB recommendations. State has also sought to improve its ability to weigh the balance between risk and reward in high-threat, high-risk areas when beginning, restarting, continuing, modifying, or discontinuing operations at individual posts. The department established a Vital Presence Validation Process, which State officials suggest will offer a "transparent and repeatable process" providing a "documented, systematic, risk-based analysis" to guide decisions on overseas presence. The Department has begun using this process, for example in its decision to return a U.S. diplomatic presence to Bangui, Central African Republic, suspended from December 2012 to September 2014. According to Assistant Secretary Starr, the department "engaged in an analysis that determined that we should and could go back.... We worked with our colleagues at the Department of Defense to assess the security situation on the ground and develop a comprehensive plan for our return.... While we must closely monitor conditions on the ground, our return to Bangui demonstrates that our enhanced risk management procedures are working." In accordance with the Benghazi ARB's fourth recommendation, the department convened a panel of external security experts in April 2013 to identify best practices from other agencies and countries. The so-called Best Practices Panel , chaired by former Director of U.S. Secret Service Mark Sullivan, provided its report to the department on August 29, 2013. The report was released publicly by the department nearly one year later, on August 1, 2014, along with a fact sheet describing the department's implementation of the panel's recommendations. The panel observed that many security-related decisions were in the hands of the Department of State's Under Secretary for Management, a position overseeing what the panel viewed as a too-large number of support functions, creating what it deemed a "span of control" problem. Accordingly, the panel's chief recommendation was the elevation of the diplomatic security function through the creation of an Under Secretary for Diplomatic Security, which would focus all security issues through a single focal point at the senior executive level. While State accepted 38 of the recommendations from the panel and has reportedly implemented 30 of them fully, the department determined that establishing an Under Secretary for Diplomatic Security would be counter-productive. It asserted that such a move would deepen the "stove-piping" that the ARB and other observers lamented in the wake of the Benghazi attacks, and reinforce the perception that Diplomatic Security has full and sole responsibility for security, rather than ensuring that all parts of the department share this priority. Instead, Secretary of State Kerry has instituted a practice whereby the Assistant Secretary for Diplomatic Security has direct access to the Secretary of State to share security concerns "as threats and circumstances require." In addition, the department did not accept the panel's proposal that waivers to established security standards only be provided subsequent to the implementation of mitigating measures, arguing that in time-sensitive situations, exceptions might be appropriate when some mitigating measures are in place and others may be planned for the future. An additional panel of outside experts was charged by the department with a thorough "review [of] DS's organization and management structure." This panel, chaired by former Under Secretary of State for Management Grant Green, reportedly delivered its "Report on Diplomatic Security Organization and Management" to the Under Secretary of State for Management in May 2013. The report has not been made public by the Department, but the department's September 2014 fact sheet in Appendix A asserts that 30 of the 35 recommendations made by the report's authors were accepted by State. According to GAO, State has made organizational changes in response to the report, including the raising of three DS Assistant Director positions to Deputy Assistant Secretary positions. However, the department declined proposals to establish a Chief of Staff position in the DS Bureau and to restructure responsibilities for the new High Threat Programs Directorate, and deferred consideration of two recommendations regarding Bureau of Intelligence and Research activities until the bureau's vacant leadership slot is filled. Funding Requests The ARB report and other post-Benghazi assessments impacted the Department of State's funding requests for security for FY2013, FY2014, and FY2015. As part of what it termed an Increased Security Proposal (ISP), State in December 2012 submitted a revised FY2013 budget request to Congress outlining resource shifts totaling approximately $1.419 billion, primarily a reallocation of unobligated funds originally intended for programs in Iraq. The request sought $553 million for 35 new detachments of Marine Security Guards (roughly 225 Marines) to medium- and high-threat posts to serve as visible deterrents to hostile acts; $130 million to increase the size of the Diplomatic Security workforce by 155 DS personnel, mostly focused on medium- and high-threat posts; and $736 million to fund facility security upgrades and construction of new embassy compounds. The Administration's FY2014 budget request sought to sustain the initiatives launched under the FY2013 Increased Security Proposal, including expansion of the Bureau of Diplomatic Security and further growth in the number of Marine Security Guard detachments deployed to diplomatic facilities. The request for Worldwide Security Upgrades funding (for bricks and mortar security needs, including construction of secure new embassy compounds) was 108% higher than FY2012 funding. Requested Worldwide Security Protection funds (for security programs including a worldwide guard force) were 37% larger than FY21012 levels. President Obama issued a statement on May 16, 2013, calling on Congress to "fully fund Embassy security" and support implementation of the ARB recommendations. In its FY2015 budget, the Administration sought funding to continue to implement the initiatives launched under the Increased Security Proposal and meet the post-Benghazi Accountability Review Board's recommendations. The request included approximately $3.1 billion in Worldwide Security Protection (WSP) funds, to provide security personnel with technical tools and training; and approximately $1.5 billion in Worldwide Security Upgrades (WSU) funds to upgrade and maintain safe, secure diplomatic facilities. The request also featured $44 million to fund recurring costs for the 151 additional Diplomatic Security personnel the Department of State sought to hire after the Benghazi attacks. Among its funding-related prescriptions, the ARB recommended that "the State Department must work with Congress to restore the Capital Security Cost Sharing (CSCS) Program at its full capacity, adjusted for inflation to approximately $2.2 billion in fiscal year 2015, including an up to ten-year program addressing that need, prioritized for construction of new facilities in high risk, high threat areas." The Capital Security Cost Sharing Program requires all U.S. agencies with presence at diplomatic facilities abroad (including the State Department) to pay a share toward the cost of those facilities. The size of each agency's required contribution is directly linked with the number of positions it authorizes overseas. Within the FY2015 request for Embassy Security, Construction, and Maintenance (ESCM) funding was $986.5 million to provide for State's share of CSCS program. The amount requested was down from the $1.4 billion appropriated for this purpose for FY2014, a result of higher assessed contributions from other agencies into the common account. Department officials underlined that the CSCS request meets the full $2.2 billion level called for by the post-Benghazi ARB. Additional information about recent year funding requests and levels is available in CRS Report R42834, Securing U.S. Diplomatic Facilities and Personnel Abroad: Background and Policy Issues . Legislative Response to the Benghazi Attack Congressional activity in the 112 th and 113 th Congresses on the issue of the protection of U.S. personnel and facilities abroad has included a number of legislative actions and proposals, as well as a variety of hearings and investigations into the Benghazi attack by a number of different committees. Legislative Investigations and Oversight Congress has produced seven publicly released reports pertaining to the Benghazi attack. The first was presented in the 112 th Congress by the Senate Committee on Homeland Security and Governmental Affairs' Chairman Joseph Lieberman and Ranking Member Susan Collins on December 30, 2012. Their report found that the Department of State did not take sufficiently into account clear evidence of a worsening security situation in Benghazi and requests for additional support from U.S. personnel posted there. This situation was compounded by the evident inability of the Libyan government to perform its duty to protect U.S. diplomatic facilities and personnel. In this context, the department should have increased protective measures or withdrawn the U.S. presence there, even without specific intelligence about an imminent attack, the report concludes. The Senate report's recommendations included additional interagency joint assessments of the security requirements of high-risk U.S. diplomatic facilities; a funding process delivering sufficient, steady, and timely funding to secure diplomatic facilities and personnel worldwide; additional Department of Defense (DOD) assets and personnel devoted to the African continent; and clear and consistent communication by Administration officials about terrorist attacks. A second report was put forward on April 23, 2013, when the chairmen of five House committees active in the 113 th Congress in oversight of the Benghazi attack presented to the House Republican Conference an "Interim Progress Report" on their inquiries. Among the report's preliminary findings were that the senior leadership of the Department of State approved security reductions at the Benghazi diplomatic facilities prior to the 9/11/12 attack, and that the public presentation of the attack by the Administration was deliberately inaccurate in order to protect State Department interests. The report related the chairmen's view that continued examination and oversight by their respective committees of the Benghazi attack, and the Administration's response to it, remained necessary. A third report, released by House Oversight and Government Reform Committee Chairman Darrell Issa on September 16, 2013, focused exclusively on the conclusions of the State Department Accountability Review Board (ARB). According to the report, the ARB process fell short by failing to examine the role of officials above the mid-level who were involved in security decisions. The report described the ARB process as neither independent, nor exhaustive, and questioned the State Department's actions in the wake of the report. On January 15, 2014, the Senate Select Committee on Intelligence issued its Review on the Terrorist Attacks on U.S. Facilities in Benghazi, Libya, September 11-12, 2012 . The report concluded that the attacks were likely preventable, based on known security shortfalls at the State Department facility in Benghazi, and based on extensive intelligence reporting on terrorist activity in Libya. The report included 14 findings, ranging from the alarming pre-attack strategic intelligence picture, to the absence of U.S. military assets positioned to intervene rapidly; and 18 recommendations on issues including security standards, intelligence capabilities and processes, the use of local security guards, and the need to bring the attackers to justice, among others. A fifth report, authored by the Majority Staff of the House Foreign Affairs Committee, was released February 7, 2014. The report, Benghazi: Where is the State Department Accountability? , included a number of key findings. Among them: extensive threat reporting regarding Benghazi was well understood before the attack by senior officials in Washington, including then-Secretary Clinton; officials in Washington denied requests for additional security from personnel in Libya; the Accountability Review Board on the Benghazi attack was "seriously deficient in several respects, most notably in its failure to review or comment on the actions of the Department's most senior officials, including Secretary Clinton herself"; and the disciplinary actions affecting the four officials cited by the ARB did not comprise appropriate accountability. According to the report's key findings, the "talking points" controversy in the wake of the attack "revealed a Department leadership more interested in protecting its reputation than establishing facts and accountability." Finally, the report found that the fact that there had not been a permanent State Department Inspector General for a number of years at the time of the attack contributed to the absence of a culture of accountability at the department. The report called for the Administration to "recognize the failures of senior officials and hold them accountable." The majority Members of the House Armed Services Subcommittee on Oversight and Investigations released a sixth report, focused on the Defense Department (DOD) actions relating to the Benghazi attack, on February 10, 2014. Among the six key findings included in the report were military posture assessments prior to the 2012 anniversary of the 9/11/01 attacks did not adequately take into account the Libyan security situation; vulnerabilities in Benghazi resulted from an unchanged military force posture, no warnings of an imminent threat, and a reduction in DOD personnel in Libya favored by the Department of State; DOD officials rapidly assessed that the Benghazi events were a terrorist attack, and "the President subsequently permitted the military to respond with minimal direction"; the location of Benghazi, the posture of U.S. forces, and lack of clarity about events on the ground "severely degraded" the U.S. military's response to the attack, and military commanders "did not take all possible steps to prepare for a more extended operation." The report also found that U.S. military personnel in Tripoli at the time of the attack were not told to "stand down," but rather ordered into an alternative warfighting posture; still, the report suggests, the roles and responsibilities of these forces were insufficiently well understood in DOD's post-attack reviews. Finally, according to the report's findings, DOD was undertaking measures to remedy problems exposed by the Benghazi attack; however, these efforts were confronted with shrinking resources allocated to the U.S. military and a deteriorating global security environment. The activities of the Intelligence Community before, during, and after the attacks were the focus of a seventh report, released by the House Permanent Select Committee on Intelligence on November 21, 2014. The committee concluded that the CIA provided sufficient security for CIA facilities in Benghazi and provided significant assistance to the State Department on the night of the attacks. It found no evidence of a denial of military or other support to those under attack from what the committee describes as a mixed group of individuals, including those affiliated with al-Qa'ida. The committee also found that there was no intelligence failure prior to the attacks, in that there was no specific, tactical warning regarding the September 11 attacks. After the attacks, the early intelligence assessments and the Administrations' public narrative on the causes and motivations for the attack were not fully accurate, according to the committee, and the process used to generate talking points about the attack was flawed. Finally, the committee found no evidence that the CIA conducted any unauthorized activities in Benghazi; it also found no evidence of intimidation by the CIA of personnel deployed in Benghazi, or of attempts to dissuade them from telling their stories to Congress. A number of committees have held hearings relating to the Benghazi attack; a list of selected hearings focused on the Benghazi attack is available in Appendix B . On May 8, 2014, after a number of proposals ( H.Res. 36 , S.Res. 225 ) suggesting that effective oversight would require the creation of a select committee with additional, across-government subpoena powers, the House passed H.Res. 567 , establishing the select committee and setting out its composition, purpose, procedures, and organization. The House Select Committee on Benghazi, chaired by Representative Trey Gowdy, held its first hearing on September 17, 2014. Diplomatic Security Legislation in the 113th Congress In the 113 th Congress, two bills relating directly to embassy security matters were considered and approved by committees in the House and Senate (in addition to bills to appropriate funds for the Department of State, including diplomatic security accounts, that have also received House and Senate committee action): 1. H.R. 2848 , the Department of State Operations and Embassy Security Authorization Act, Fiscal Year 2014, introduced by House Foreign Affairs Committee Chairman Royce on July 30, 2013, considered and approved by voice vote by the House Foreign Affairs Committee on August 1, and passed by the House on September 29. 2. S. 1386 , the Chris Stevens, Sean Smith, Tyrone Woods, and Glen Doherty Embassy Security, Threat Mitigation, and Personnel Protection Act of 2013, introduced by Senate Foreign Relations Committee Chairman Menendez on July 30, 2013; adopted by voice vote and ordered reported favorably to the full Senate on August 1. Prior to the committees' consideration of these measures, a number of other legislative proposals related to the Benghazi attack and its implications for the protection of U.S. personnel and facilities abroad had been introduced and are listed in Appendix C . The two bills that were considered by committees, H.R. 2848 and S. 1386 , both would impact related policy matters. However, their provisions differ significantly, and the following sections compare their main elements. Funding H.R. 2848 authorized $2.65 billion for FY2014 for the Department of State's Embassy Security, Construction, and Maintenance (ESCM) account, and $2.18 billion for Worldwide Security Protection. It also permitted the transfer of additional funds to the ESCM account after consultation with appropriate committees. S. 1386 authorized for FY2014: $1.383 billion for the Capital Security Cost Sharing Program, of which $300 million would go to immediate threat mitigation at high-threat, high-risk posts; $5 million for language training for diplomatic security personnel at high-threat, high-risk posts; $100 million for improved training facilities for high-threat, high-risk post personnel, as well as $350 million for the acquisition, construction, and operation of a new Foreign Affairs Security Training Center, and $54.54 million of American Reinvestment and Recovery Act of 2009 ( P.L. 111-5 ) funds also to be applied to improved training facilities. H.R. 3547 , the Consolidated Appropriations Act of 2014, exceeded the Administration's request for Embassy Security, Construction, and Maintenance of $2.4 billion by $25 million in OCO funds, to be used to harden high-risk posts. It also provided a total of $2.77 billion for Worldwide Security Protection (of which $0.90 billion are OCO funds), specifying that the $585 million above the requested amount should be applied to the normalization of Iraq operations. When compared to FY2013 levels, however, the ESCM account showed a reduction of 5.5% (or approximately $155 million). Worldwide Security Protection funds for FY2014 grew by $517 million, or 23%, over FY2013 levels. H.R. 83 , the Consolidated and Further Continuing Appropriations Act, 2015, meets the Administration's $3.1 billion request for Worldwide Security Protection funds—growing the account by 12.7% over FY2014-enacted levels. While the Act exceeds the $1.47 billion request for Worldwide Security Upgrades by $23 million, this represents a reduction of 7.7% from FY2014 levels. Accountability Review Board Process While the Administration has asserted that the Benghazi Accountability Review Board was independent and thorough, some congressional observers have suggested that the ARB process is fundamentally flawed. Some observers have questioned whether an investigative body made up principally of current and former officials of the institution under investigation can truly be independent. Others argue that oversight of the ARB process is made more difficult by the absence of a requirement that ARB reports be provided directly to Congress. Finally, public scrutiny of the process is made more difficult by the classification of nearly all previous ARB reports, some suggest. A number of measures have been introduced in the House seeking to reform the process by which accountability review boards are conducted. H.R. 1768 , the Accountability Review Board Reform Act of 2013, would have amended the 1986 Diplomatic Security Act to increase the independence of ARBs from the State Department through, among other measures, changing the composition of the membership of ARBs (under current statute, four members named by the Secretary of State and one named by the Director of National Intelligence) to have fewer State-appointed members, and specifying conflict of interest guidelines. Although H.R. 2848 did not include these measures, Chairman Royce reportedly stated his intent to take up more comprehensive review of the ARB process in the fall of 2013. S. 1386 described the current ARB mechanism as an effective tool. Still, it proposed reforms to the membership of ARB panels, requiring that the Department of State's Inspector General serve as one of State's four appointees to ARBs. It would also have required that the staff supporting any given ARB should not be drawn from bureaus or units impacted by the incident under review. Finally, it called for ARB reports to be provided directly to Congress, not later than two days after they are provided to the Secretary of State (under current statute, the reports themselves are not required to be shared with Congress). Personnel Accountability The Benghazi Accountability Review Board found that significant leadership failures contributed to the gravity of the event; however, the board assessed that such failures did not amount to a clear breach of duty by any single U.S. government employee. It therefore did not recommend disciplinary action against any individual. The Benghazi ARB recommended clarifying the authority of future boards to empower them to recommend disciplinary action in cases of unsatisfactory leadership by senior officials. Both H.R. 2848 and S. 1386 took up this recommendation to broaden the standard by which future boards can recommend discipline. H.R. 2848 took up a measure originally introduced as H.R. 925 , the Securing Accountability in Foreign Embassies (SAFE Embassies) Act, which would have required an ARB to recommend investigatory or disciplinary action if it found that an individual's misconduct or unsatisfactory performance of duty significantly contributed to serious injury, loss of life, significant property destruction, or serious security breach at or related to a U.S. government mission abroad. The related measure in S. 1386 , originally proposed as Section 203 of S. 980 , appears somewhat narrower in scope than the House measure. It would have allowed ARBs to recommend disciplinary action on the basis of unsatisfactory leadership by a senior official with respect to a security incident involving loss of life, serious injury, or significant destruction of property at or related to a U.S. government mission abroad. Contracting The Department of State has requested authority to allow it to use best-value contracting for local guard contracts, rather than "lowest price technically acceptable" criteria. Current statute requires the department to award contracts using a lowest price technically acceptable selection process, with exceptions for Iraq, Afghanistan, and Pakistan. A "best value" approach would allow other factors, such as prior performance, to be included in the review of a bid. Legislative measures were introduced in both the House and Senate on this subject. H.R. 2848 took up a measure outlined in H.R. 731 , the Protecting Americans Abroad Act, which would have authorized the State Department to use a best value contracting award method for local guard forces when deemed necessary in high-risk areas. S. 1386 took up a similar provision (from S. 980 ) which would have allowed the Secretary of State to award contracts on the basis of best value; however, it would not be geographically limited. Both bills would also have required the department to report each instance of "best value" contracting to relevant committees. This measure was taken up as Section 7006 of H.R. 3547 , the Consolidated Appropriations Act of 2014, which authorized the Secretary of State to award local guard contracts for high-risk, high-threat posts on the basis of best value as determined by a cost-technical tradeoff analysis. The measure was repeated as Section 7006 of the Consolidated Appropriations Act of 2015, H.R. 83 . High-Threat Posts: Assessment and Reporting H.R. 2848 would have required the Secretary of State to submit a list of high-risk, high-threat posts within 30 days of the enactment of this section, in classified form. It also would have required the Secretary to regularly review existing and potential posts to determine whether they should be included in this category. Under the measure, when opening or reopening such a post, the Secretary must convene a working group that would evaluate the rationale for the post; ensure proper funding, physical security measures, and personnel are provided to the post; and establish "tripwires" that might trigger a change to the post's status (such as an evacuation of non-essential personnel, or a closure). The Secretary would also be required to notify Congress not less than 30 days before opening or reopening such a post. S. 1386 , on the other hand, would have required the Secretary to submit a report within 90 days evaluating high-threat, high-risk facilities, including detailed information on the threats to and staffing at the post, as well as host nation capabilities and willingness to defend it. It also would have required a summary of all security requests regarding each high threat, high risk post during the previous calendar year. The State Department Inspector General's Office would also have been charged with reviewing the designation of such posts, as well as contingency planning, risk mitigation and early warning systems pertaining to such posts, and reporting its assessments to Congress. Security Training H.R. 2848 would have required personnel assigned to high-risk, high-threat posts to receive security training to help them cope with potential attacks. In addition, it requires senior officials who might be in a management role at high-risk, high-threat posts to receive training on threat evaluation and the effective identification and application of resources to address those threats. Finally, it calls for diplomatic security personnel assigned to high risk, high threat posts to receive adequate language training to allow them to better manage discussions with locals regarding security matters. S. 1386 addressed similar ground regarding Department of State personnel training; however, it did so by authorizing $100 million for improved training facilities for high-risk, high-threat post personnel, as well as $350 million for the acquisition, construction, and operation of a Foreign Affairs Security Training Center. Funds ($54.54 million) from the American Reinvestment and Recovery Act of 2009 ( P.L. 111-5 ) would also have been applied to improved training facilities. The measure would also have authorized $5 million for language training for diplomatic security personnel at high-risk, high-threat posts. Marine Security Guard Program The Marine Security Guard Program is a collaborative effort between the Departments of Defense and State. In the wake of the Benghazi attack, the Secretary of Defense was directed to grow the Marine Security Guard program in order to increase the number of detachments at U.S. embassies, consulates, and other diplomatic facilities by up to 1,000 Marines during Fiscal Years 2014 through 2017, and reassess the program's focus on the protection of classified information. The President must also separate the program's budget request from that of the Marine Corps as a whole; and it requires reexamination of the Marine units' rules of engagement. The Department of State also intends to expand its participation in the Marine Security Guard program. Accordingly, S. 1386 would have required the Secretary of State (in consultation with the Secretary of Defense) to elaborate and implement a plan to incorporate the additional Marine Security Guard teams required by the FY2013 NDAA. Under the measure, the Secretary would have also borne responsibility (in consultation with the Secretary of Defense) for an annual review of the program's size and composition, as well as an assessment of the adequacy of the distribution of marine teams to posts, and an evaluation of the objectives of the program and its rules of engagement. H.R. 2848 called for a similar annual review of the program. Additional Measures The House and Senate measures each have additional provisions. H.R. 2848 required the Departments of State and Defense to jointly develop contingency plans for attacks at high-risk, high-threat posts; requires the Secretary of State to conduct a Strategic Review of the Bureau of Diplomatic Security; authorized the Secretary to make physical security enhancements at schools where children of government-employed U.S. citizens attend; and directed the Secretary to station key personnel at high-risk, high-threat posts for sustained periods of time. S. 1386 would also have specified a number of qualifications for the Deputy Assistant Secretary of State for High Threat, High Risk Posts; required regular briefings on State's Security Environment Threat List; required reporting on risks at posts in high counterintelligence threat nations; and required a report by the Comptroller General on the progress made by the Department of State in implementing the Benghazi ARB's recommendations. Appendix A. Department of State Fact Sheet on Benghazi ARB Implementation Title: Fact Sheet: Benghazi Accountability Review Board Implementation, as posted on the Department of State website, September 17, 2014 ______________________________________________________________________________ Following the September 11, 2012 attack on U.S. government facilities in Benghazi, Libya, the independent Benghazi Accountability Review Board (ARB) on December 19, 2012, issued 29 recommendations (24 of which were unclassified) to the Department of State. The Department accepted each of the ARB's recommendations and immediately began implementation work. Effective implementation will require fundamentally reforming the organization in critical ways – work which is already well underway – as well as sustained support from Congress. While risk can never be completely eliminated from our diplomatic and development duties, we must always work to minimize it. We owe that to the men and women working overseas to advance our interests, promote our values, and keep America safe. Below is a brief update on implementation of the 24 unclassified recommendations: Unclassified Recommendations of the ARB (Text abridged) and Department Actions OVERARCHING SECURITY CONSIDERATIONS 1. The Department must strengthen security for personnel and platforms beyond traditional reliance on host government security support in high risk, high threat posts. We have implemented an institutionalized, repeatable, and transparent process, called the Vital Presence Validation Process or VP2, to make risk-managed decisions regarding the U.S. presence at high-threat locations, including whether to begin, restart, continue, modify the current staffing footprint, or cease operations. This process enables us to make systematic, clear-eyed assessments about whether and how the United States should operate in dangerous overseas locations where U.S. interests are at stake. We have created a "Security Accountability Framework" that clearly defines key actors, their roles and responsibilities, and governance mechanisms. This framework provides an essential foundation for implementing our new risk management methodologies. We created a Deputy Assistant Secretary for High Threat Programs in the Bureau of Diplomatic Security (DS), who is responsible for ensuring that high-threat posts receive the focused attention they need. 2. The Board recommends that the Department re-examine DS organization and management, with a particular emphasis on span of control for security policy planning for all overseas U.S. diplomatic facilities. The Department established a six-person panel to thoroughly review Diplomatic Security's organization and management structure. The panel concluded its work on May 3, 2013, making 35 recommendations to improve Diplomatic Security operations and its management structure. The Department accepted 30 of these recommendations and is working to implementing them. Recommendations include: Reviewing Diplomatic Security personnel allocation both domestically and abroad to ensure priority positions overseas are filled first; and, Establishing a Diplomatic Security strategic planning unit. 3. Regional bureaus should have augmented support within the bureau on security matters, to include a senior DS officer to report to the regional Assistant Secretary. We have significantly improved the way that security professionals and policy experts exchange information. DS staff now attend regular Regional Bureau meetings, and Regional Bureau staff attend DS daily briefings to better communicate on security and policy issues. We have also taken steps to institutionalize the shared responsibility for security issues. Of note, the Department has adjusted the work requirements for senior level staff (Assistant Secretaries and Deputy Assistant Secretaries) to reflect everyone's shared responsibility for overseas security. 4. The Department should establish a panel of outside independent experts (military, security, humanitarian) with experience in high risk, high threat areas to identify best practices (from other agencies and other countries), and evaluate U.S. security platforms in high risk, high threat posts. The Department established a five-person panel to identify best practices used by other agencies and countries. The Best Practices Panel transmitted its final report to the Department in September 2013. The panel made 40 recommendations, and we are in the process of implementing 38 of 40 recommendations. Many recommendations built upon those made by the Benghazi ARB including: establishing a Department-wide risk management model and policy; increased hard-skills training for the foreign affairs community; and developing a security accountability framework. 5. The Department should develop minimum security standards for occupancy of temporary facilities in high risk, high threat environments, and seek greater flexibility to make funds rapidly available for security upgrades at such facilities. The Department has re-affirmed that Overseas Security Policy Board Standards apply to all facilities. Working with Congress, the Department identified flexible funding authorities in the Increased Security Proposal to make improvements to our overseas facilities and key authorities were enacted by Congress. More flexible transfer authority for Overseas Contingency Operations (OCO) funding was continued in subsequent annual appropriations and in the Presidents' Budget. 6. Before opening or re-opening critical threat or high risk, high threat posts, the Department should establish a multi-bureau support cell, residing in the regional bureau. The Department developed standard operating procedures for "Support Cells" for opened/reopened posts. The process has been incorporated into the Foreign Affairs Handbook at 2 FAM 420; the FAM covers both regular and high-threat posts, and clearly sets out the actions to be taken by relevant bureaus and offices. 7. All State Department and other government agencies' facilities should be collocated when they are in the same metropolitan area, unless a waiver has been approved. We have conducted a comprehensive review of all our overseas facilities and are developing long-term plans to relocate personnel at appropriate non-collocated facilities. Furthermore, whenever new facilities are planned and built, they are done so with all approved staff being collocated, unless a waiver is in place. 8. The Secretary should require an action plan from Diplomatic Security, Overseas Buildings Operations, and other relevant offices on the use of fire as a weapon against diplomatic facilities, including immediate steps to deal with urgent issues. The Department issued formal guidance to all posts on "weapons of opportunity" We have also expanded training that addresses survival in smoke and fire situations. Such information has been added in Crisis Management Training exercises, which are conducted at all high threat, high risk posts annually. In addition, DS agents currently receive medical training on the effects and treatment of smoke inhalation, injuries, and treatment, and participate in exercises that require students to escape from smoke-filled buildings. The Department continuously works with outside entities such as the U.S. Army and New York Fire Department to identify emerging threats and trends and to enhance our training. 9. The Department should revise its guidance to posts and require key offices to perform in-depth status checks of post tripwires. The Department reviewed and revised requirements for posts on how to respond to changing security benchmarks (i.e., "tripwires"). The Department established a Washington-based "Tripwires Committee" to review tripwires upon breach, to help ensure that posts and regional bureaus in Washington respond more quickly should security deteriorate at post. To allow Washington to track and respond to breached tripwires overseas, the Department developed an application called ALERT (Action Log for Emergency Response to Tripwires). The Department also uses ALERT to review all tripwires of high-threat, high risk posts on an annual basis. 10. The State Department must work with Congress to restore the Capital Security Cost Sharing (CSCS) Program [for embassy construction] at its full capacity, adjusted for inflation to approximately $2.2 billion in fiscal year 2015. The FY 2014 Consolidated Appropriations bill includes $2.2 billion in funding for the CSCS program. This includes reimbursements from other agencies and Overseas Contingency Operations (OCO) funding. For FY 2015, the President's Budget requests $2.2 billion for the CSCS program including reimbursements and OCO funding. 11. The Board supports the State Department's initiative to request additional Marines and expand the Marine Security Guard (MSG) Program – as well as corresponding requirements for staffing and funding. Working with the Department of Defense, we have deployed seventeen new Marine Security Guard detachments since the Benghazi attacks. We are working with the DOD to deploy an additional eighteen detachments in the coming years. The Marine Corps also established the MSG Security Augmentation Unit in Quantico, Virginia, which can provide MSGs on short notice at the request of Chiefs of Mission. These Marines are drawn primarily from the combat arms and military police occupational specialties, and have extra training in close-quarters battle, trauma, and weapons and tactics. Nine squads were established in January 2014. Many of these squads have already been dispatched repeatedly to augment security in response to changing threat environments. STAFFING HIGH RISK, HIGH THREAT POSTS 12. The Board strongly endorses the Department's request for increased DS personnel for high- and critical-threat posts and for additional Mobile Security Deployment teams, as well as an increase in DS domestic staffing in support of such action. With Congressional support, the Department created 151 new Diplomatic Security positions. 113 employees, including 75 new DS agents, were hired in 2013. An additional 9 have been hired in 2014. The remaining 29 employees are planned to be hired this year. 13. The Department should assign key policy, program, and security personnel at high risk, high threat posts for a minimum of one year. For less critical personnel, the temporary duty length (TDY) length should be no less than 120 days. All high threat posts now have a minimum of a one-year tour of duty. We ensure overlap between incumbent and incoming positions to facilitate continuity of operations at high threat posts. Temporary duty assignments at high-threat posts are set at a minimum of 120 days. 14. The Department needs to review the staffing footprints at high risk, high threat posts, with particular attention to ensuring adequate Locally Employed Staff (LES) and management support. High risk, high threat posts must be funded and the human resources process prioritized to hire Locally Employed Staff interpreters and translators. The Department surveyed every post to review staffing numbers of (including LES interpreters and translators) on staff, and found that there was adequate staffing. We continue to review staffing levels to ensure that security and other priority functions are being appropriately addressed . 15. With increased and more complex diplomatic activities in the Middle East, the Department should enhance its ongoing efforts to significantly upgrade its language capacity, especially Arabic, among American employees, including DS, and receive greater resources to do so. The Department is ramping up the language capacity of its American employees, including Diplomatic Security agents, especially in Arabic. Increasing language capacity takes time – certain languages take up to 2 years to learn to the required level of proficiency. In the short term, the Department is committed to better equipping the growing cadre of security experts to engage local populations and cooperate with host nation security forces. We have completed two 10-week sessions of Arabic "Awareness, Language, Emergency and Response Training" ALERT training and one session of Urdu since October 2013. We are preparing to offer more iterations of Arabic ALERT in 2014, and will offer additional languages. TRAINING AND AWARENESS 16. A panel of Senior Special Agents and Supervisory Special Agents should revisit DS high-threat training with respect to active internal defense and fire survival as well as Chief of Mission (COM) protective detail training. The Department established a panel of Supervisory Special Agents to participate in a Program Review of the High Threat Tactical Course; as a result, DS revised high-threat training and COM protective detail training and raised standards for passing the High Threat Tactical Course. The panel's findings resulted in the identification and development of 170 operational requirements, associated proficiency standards, and training plans needed by DS special agents operating in high-threat, high risk environments. These findings were codified into a new High Threat Training Strategy that encompasses a career-long cycle of instruction for all DS special agents and includes new training courses for entry-, mid-, and senior-level agents. 17. The Diplomatic Security Training Center and Foreign Service Institute should collaborate in designing joint courses that integrate high threat training and risk management decision processes for senior and mid-level DS agents and Foreign Service Officers and better prepare them for leadership positions in high risk, high threat posts. The Department has enhanced security training efforts, including by requiring personnel headed to high threat posts to receive additional, specialized security and fire survival training. The Diplomatic Security Training Center and Foreign Service Institute have formed a working group to coordinate ongoing collaboration efforts on high-threat training and risk management, including the integration of updated course materials in a broad range of existing training and development of new courses. SECURITY AND FIRE SAFETY EQUIPMENT 18. The Department should ensure provision of adequate fire safety and security equipment for safe havens and safe areas in non-Inman/SECCA facilities, as well as high threat Inman facilities. The Department has surveyed fire and life safety equipment requirements at all high-threat, high-risk U.S. diplomatic posts abroad. The Department has ensured that all high-threat, high-risk posts have adequate fire safety equipment and have procured additional personal protective equipment. We were able to do this with the Increased Security Proposal money funded by Congress in FY 2013, for which we are grateful. 19. There have been technological advancements in non-lethal deterrents, and the State Department should ensure it rapidly and routinely identifies and procures additional options for non-lethal deterrents in high risk, high threat posts and trains personnel on their use. The Department has addressed this recommendation. 20. DS should upgrade surveillance cameras at high risk, high threat posts for greater resolution, nighttime visibility, and monitoring capability beyond post. Over the next year, the Department will have upgraded all high-threat, high-risk facilities with more modern surveillance cameras. INTELLIGENCE AND THREAT ANALYSIS 21. Careful attention should be given to factors showing a deteriorating threat situation in general as a basis for improving security posture. Key trends must be quickly identified and used to sharpen risk calculations. The Department has addressed this recommendation. 22. The DS Office of Intelligence and Threat Analysis should report directly to the DS Assistant Secretary and directly supply threat analysis to all DS components, regional Assistant Secretaries, and Chiefs of Mission in order to get key security-related threat information into the right hands more rapidly. The DS Office of Intelligence and Threat Analysis, now reports directly to the Assistant Secretary for Diplomatic Security for threat reporting and supplies threat analysis to regional Assistant Secretaries and Chiefs of Mission. PERSONNEL ACCOUNTABILITY 23. The Board is of the view that findings of unsatisfactory leadership performance by senior officials in relation to the security incident under review should be a potential basis for discipline recommendations by future ARBs, and would recommend a revision of Department regulations or amendment to the relevant statute to this end. The Department is working with Congress to increase accountability. In January 2013, the Department proposed legislation to grant future Accountability Review Boards the authority to recommend disciplinary action on the basis of unsatisfactory leadership, and thus increase accountability for security incidents. 24. The Board was humbled by the courage and integrity shown by those on the ground in Benghazi and Tripoli, in particular the DS agents and Annex team who defended their colleagues… We trust that the Department and relevant agencies will take the opportunity to recognize their exceptional valor and performance, which epitomized the highest ideals of government service. The President and the Secretary of State have publicly mentioned the bravery and heroic efforts of our personnel on numerous occasions.The Department bestowed the Holbrooke award on Ambassador Chris Stevens; the Thomas Jefferson award to the personnel who gave their lives in September; the Secretary's award to one officer who was seriously injured; and the Secretary's Heroism Award to 12 personnel who defended the Benghazi facilities. Appendix B. Selected Congressional Hearings on Benghazi Attack, 112 th and 113 th Congresses Appendix C. Selected Diplomatic Security-Related Legislation, 112 th and 113 th Congresses (in Chronological Order)

The September 11, 2012, attack on U.S. facilities in Benghazi, Libya, prompted sustained congressional attention on the specific circumstances of the events in question, as well as broader questions regarding how U.S. diplomatic personnel and facilities abroad are secured. Ensuring that the Department of State is better prepared for the possibility of similar attacks in the future has been a central congressional concern. The Department of State undertook a number of measures in response to the attack, including immediate steps to bolster security at posts around the world; an investigation of the incident through an Accountability Review Board; and longer-term measures implementing the board's recommendations, including requests for significantly greater funding than in recent years. Congress has conducted oversight through investigations by a number of committees and through a number of hearings. The House of Representatives voted to create a select committee on the Benghazi attack on May 8, 2014; the committee held its first hearing on September 17, 2014. Members have also put forward legislative proposals on issues ranging from the composition of Accountability Review Boards to procedures for awarding local security guard force contracts. In the 113th Congress, two wide-ranging bills incorporating many of these areas have been considered: H.R. 2848, the Department of State Operations and Embassy Security Authorization Act, Fiscal Year 2014, and S. 1386, the Chris Stevens, Sean Smith, Tyrone Woods, and Glen Doherty Embassy Security, Threat Mitigation, and Personnel Protection Act of 2013. The 113th Congress, through the Consolidated Appropriations Act of 2014, fully funded the Administration's FY2014 request for diplomatic security-related accounts, providing approximately $5.4 billion. H.R. 83, the Consolidated and Further Continuing Appropriations Act, 2015, meets the Administration's $3.1 billion request for Worldwide Security Protection funds and exceeds the $1.47 billion request for Worldwide Security Upgrades by $23 million. This report briefly summarizes and tracks congressional and State Department actions in response to the attack, and will be updated as necessary to reflect further developments and actions on ongoing policy proposals. Readers seeking background information on recent embassy attacks, State Department policies and procedures relevant to embassy security, or information on recent year embassy security funding trends should consult CRS Report R42834, Securing U.S. Diplomatic Facilities and Personnel Abroad: Background and Policy Issues.

Political and Economic Situation An English-speaking Caribbean nation with a population of about 2.8 million, Jamaica has had a relatively stable parliamentary political system stemming from its history of British colonial rule, even though extensive political violence often marred national elections in the 1970s and 1980s. Two political parties—the People's National Party (PNP) and the Jamaica Labour Party (JLP) have dominated the political system since before the country's 1962 independence. In the 1970s and 1980s, the two parties had distinct ideological differences, with the PNP under Michael Manley (1972-1980) espousing democratic socialism and increasing state ownership of the economy, and the JLP under Edward Seaga (1980-1989) adopting a policy of economic liberalization and privatization. When Michael Manley returned to power in 1989, however, his PNP government did not roll back the JLP's pro-business polices, but instead adopted a similar approach. Since that time, there have been few ideological differences between the two parties. Percival J. "P.J." Patterson of the PNP, who took over as Prime Minister when Manley resigned in 1992 for health reasons, won three elections and served as head of government until his retirement in March 2006. He was replaced by Portia Simpson Miller of the PNP, who became Jamaica's first female Prime Minister. PNP rule under P.J. Patterson and later Simpson was characterized by a policy orientation of market liberalization, support for the private sector, and close ties with the United States. While Prime Minister Simpson had the support of rank-and-file PNP supporters, she only narrowly won a party leadership contest in 2007 over Minister of National Security Peter Phillips who had the support of party leaders. The PNP's 18-year stretch of governing ultimately ended in September 2007, when the JLP, headed by Bruce Golding as party leader, returned to power. One of the contributing factors to the change of government was that Prime Minister Simpson's government faced growing public dissatisfaction with increasing crime and violence. The JLP currently holds a narrow margin, 32 of 60 seats, in Jamaica's House of Representatives, the lower body in the country's bicameral parliament, while the PNP holds the remaining 28. The JLP ran on an anti-crime and anti-corruption platform, but the Golding government has continued to face challenges in both areas. 2010 Coke Extradition and Political Fallout In late May 2010, Jamaica's stability was challenged after the government of Prime Minister Golding agreed to extradite to the United States an at-large alleged drug kingpin, Christopher "Dudas" Coke, the reputed leader of the Shower Posse. The United States had originally requested Coke's extradition in August 2009, after a federal grand jury in New York had indicted him for narcotics and arms trafficking. Prime Minister Golding denied the request, with his government maintaining that evidence gained from wiretapping had been obtained illegally. There was increasing U.S. pressure in 2010 to extradite Coke, with the State Department's March 2010 International Narcotics Control Strategy Report (INCSR) stating that the Jamaican government's delays in extraditing Coke and others called into question the country's commitment to law enforcement cooperation with the United States. The report also maintained that the delay in extraditing Coke highlighted the "potential depth of corruption in the government" because of Coke's reported ties with the ruling party. At around the same time, reports surfaced that Prime Minister Golding had hired a U.S. lobbying firm (Manatt, Phelps, & Phillips) to lobby on behalf of the government of Jamaica to convince the United State not to seek the extradition of Coke. Golding subsequently confirmed in mid-May 2010 that he had approved the hiring of the lobbyists, not in his capacity as prime minister, but as leader of the JLP. It appears that the political fallout of this admission was a factor that led Golding to reverse course and issue the arrest warrant for Coke. In response, Coke's followers in the West Kingston neighborhood of Tivoli Gardens attacked several police stations on May 23. The Jamaican government responded by issuing a state of emergency in portions of the capital and deploying police and soldiers to West Kingston seeking to execute a warrant for Coke, whose armed supporters erected barricades and roadblocks to battle the security forces. In the ensuing violence over the next several days, 76 people were killed, including two policemen and a soldier. Security forces ultimately secured the areas of West Kingston by late May, but human rights organizations called for the government to conduct a thorough investigation regarding the deaths and determine whether the use of force was appropriate. Coke eluded capture until June 22, 2010, when he was arrested by police after his vehicle was stopped at a checkpoint. An evangelical preacher who was with Coke when he was captured maintained that the two were on their way to the U.S. Embassy as Coke had decided to turn himself over to U.S. authorities. Coke subsequently was extradited to the United States on June 24 and arraigned in U.S. Federal District Court in New York on June 25 for running a large marijuana and crack cocaine drug ring from Jamaica. Golding's admission to hiring the U.S. lobbying firm prompted considerable public criticism and calls for his resignation. The Prime Minister was also criticized for his handling of police operations and the extent of killings in the attempt to capture Coke. Nevertheless, the Prime Minister narrowly survived a no-confidence vote in parliament on June 1, by a vote of 30-28. The political fallout from the Coke extradition case and police operations will likely continue to pose challenges for the Golding government, especially as it implements fiscal austerity measures agreed to under an International Monetary Fund (IMF) stand-by arrangement. At this juncture, while the JLP's popularity has declined, this has not translated into a significant boost of support for the PNP, which continues to suffer from internal divisions and from poor public perceptions of its long period of rule from 1989 to 2007. Crime and Violence High rates of crime and violence have plagued Jamaica for many years. In the 1970s and 1980s, there was a high level of politically motivated violence surrounding national elections. After Jamaica's independence from Britain in 1962 and especially in the 1970s, political parties enlisted the support of armed local criminal gangs, also known as posses, to deliver votes at election time in so-called "garrison communities" in inner cities. These garrison communities had developed in the 1960s and 1970s when the ruling party would allocate housing units in large government built housing projects to their political supporters; the allocation of government housing in effect was used to create JLP and PNP strongholds. Gang leaders known as "dons" often dominated their communities and received government contracts and protection from the law in exchange for their commitment to the JLP or PNP. Garrison communities have been described as a "state within a state," where gangs exert control through violence and intimidation, but also by providing protection and services to the community. The political violence associated with these "garrison communities" reached a peak in the 1980 election when some 800 people were killed in clashes between rival groups. While political violence at election time has been reduced considerably, the 2007 general election was still marred by some violence with nine people killed, and voters living in "garrison communities" faced pressure and intimidation. Jamaican gangs have also been involved in drug and weapons trafficking, and have links abroad, largely in New York City and Toronto, Canada. In the 1970s, the gangs were largely involved in the trafficking of marijuana, but beginning in the 1980s gangs became involved in cocaine trade and weapons trafficking. As the gangs became connected to the international cocaine trade, their power appeared to emanate from the drug trade itself as opposed to their connection to the political parties or individual politicians. Likewise, the availability of guns began to grow as a result of the connection to the international drug trade. Since the 1990s, violent crime in the country has been associated in large part with drug trafficking. A 2007 joint United Nations/World Bank study maintained that the rise in crime and violence in the Caribbean in recent years, including Jamaica, can be explained by narcotics trafficking in and through the region. Jamaica currently has one of the world's highest murder rates, with over 1,583 murders committed in Jamaica in 2007, 1,611 murders in 2008 (the first full year under the Golding government), and 1,680 murders in 2009. About half of the murders in 2009 were reported to be related to intra-gang and internal gang feuds. The connection between gangs and the importation of guns has been a serious concern, with over 70% of murders involving guns, with the majority of weapons originating in the United States. The Golding government established a joint military/police task force in late 2007 to help deal with the violence, and in late 2008 said that it would introduce legislation to criminalize gang membership. In early May 2010, before the outbreak of violence associated with the Coke extradition, Jamaica's National Security Minister maintained that the government was preparing anti-gang legislation. In the aftermath of the violence, the government maintained that it would fast track anti-crime legislation. One of the most difficult challenges for Jamaica's political system is breaking the remaining linkages between the political parties and armed gangs. Prime Minister Golding's decision to extradite Christopher Coke, whose Shower Posse dominated Tivoli Gardens (in the Prime Minister's electoral district) and was a strong JLP supporter for many years, could prove to be a turning point in Jamaican politics. Some observers point out, however, that because a number of Jamaican politicians have links to "garrison communities," it will not be easy to break the entrenched linkages between armed gangs and the political parties. Moreover, even if the government is successful at dismantling criminal gangs, some question whether the Jamaican state will be able to step in to provide security and services that have been supplied by the gangs. Human Rights The State Department, in its March 2010 human rights report, maintained that the Jamaican government generally respects human rights, but that several serious problems remain, including unlawful killings committed by members of the security forces, abuse of detainees and prisoners by police and prison guards, poor prison and jail conditions, impunity for police who committed crimes, an overburdened judicial system and frequent lengthy delays in trials, violence and discrimination against women, trafficking in persons, and violence against persons based on their suspected or known sexual orientation. Police Violence and Extrajudicial Killings. At the same time that Jamaica has experienced high rates of crime and violence, the country's police forces have been criticized for many years for extrajudicial killings and indiscriminate use of force. In 2008, 224 people were fatally shot by police officers and in 2009, 253 people were killed as a result of police force. According to Amnesty International, in most cases the police justified the killings as the result of shoot-outs with gunmen, but the human rights organization maintains that in many cases they amounted to unlawful killings. When Jamaican security forces commenced operations in late May 2010 to secure the extradition of Christopher Coke, the Inter-American Commission on Human Rights (IACHR), international human rights organizations such as Amnesty International and Human Rights Watch, and Jamaican human rights groups such as Jamaicans for Justice (JFJ) expressed concern about the violence and called on the Jamaican government to conduct a thorough and impartial investigation into the death of civilians. At the OAS General Assembly in Lima held in early June 2010, the Jamaican government pledged that it would respect human rights as its security forces continued to search for Coke. In July 2009, Amnesty International issued an extensive report examining the Jamaican government's efforts to tackle deep-rooted violence, serious human rights violations, and impunity. The human rights organization lauded efforts by the Jamaican government to reform the police and justice system and tackle corruption, but also contended that success will involve reducing homicides and the number of killings by police, bringing to justice police and other state officials responsible for human rights violations, increasing public trust in the police and justice system, and improving the socio-economic situation and rights of those living in inner city communities. Abuses Based on Sexual Orientation. There has been concern in recent years about abuses against Jamaica's gay and lesbian community. Prime Minister Golding stirred controversy in May 2008, when he stated in an interview that he would not allow any gay people in his Cabinet, and maintained that "Jamaica is not going to allow values to be imposed on it from outside." Gay rights groups called on the Prime Minister to consider how the outside world perceives Jamaica through such statements. The Jamaica Forum for Lesbians, All Sexuals, and Gays (J-FLAG) reports human rights abuses, including arbitrary detention, mob attacks, stabbings, harassment of homosexual patients by hospital and prison staff, and targeted shootings of homosexuals. According to the State Department's 2009 human rights report, J-FLAG members have faced attacks on their property and home intrusions and death and arson threats; in one case, a firebombing at the home of two men left one of them with extensive burns. In September 2009, an honorary British consul in Montego Bay was strangled in bed, with a note left denouncing the victim as gay. According to the State Department, gay men were hesitant to report incidents against them because of fear for their physical well-being; lesbian women also were subject to sexual assault as well as other physical attacks. Human rights organizations also have criticized Jamaica's pervasive homophobia and targeted violence that has carried over to discrimination and even violence against people living with HIV/AIDS and organizations providing HIV/AIDS services. Jamaica's leading gay rights activist and co-founder of J-FLAG, Brian Williamson, was murdered in 2004, while a noted Jamaican AIDS activist, Steve Harvey, was murdered in 2005 in what appeared to be a hate crime. Williamson's murderer was convicted in 2006, while the trial for six suspects arrested for Harvey's murder initially began in 2007, but was then postponed, and has not yet recovered. Economic and Social Conditions Jamaica has a largely services-based economy, which accounts for 60% of gross domestic product. Tourism is the country's largest source of employment while most foreign exchange is derived from tourism, remittances, and bauxite/alumina production. From 1990-2007, economic growth averaged about 1.5%, not much above population growth. Major constraints for growth have included the country's vulnerability to external shocks (such as hurricanes, fluctuations in commodity export, import prices, and tourism demand), and a large public debt burden. With a per capita income of $4,879 (2008), Jamaica is classified by the World Bank as an upper middle income developing country, although this characterization masks pockets of urban and rural poverty. Nevertheless, the country has made significant progress in poverty alleviation. According to the World Bank, poverty declined from 30.5% in 1989 to 9.9% in 2007, and the country has made remarkable progress in the areas of financial sector reform and reform of the social sectors, including social safety nets, HIV/AIDS prevention, and education. Remaining significant social challenges include high levels of crime and violence and high unemployment, especially among the youth. The country still faces a significant HIV/AIDS epidemic, with an adult prevalence rate of 1.6%, and a considerably higher rate among vulnerable populations. The global financial crisis and recession in the United States and other countries has had a significant effect on the Jamaican economy, with reduced demand for Jamaican bauxite and alumina and declines in tourism. As a result, the economy contracted 0.9% in 2008 and 2.8% in 2009. The recession in Jamaica is continuing in 2010, with a forecast of 1.1% decline in the gross domestic product. Unemployment has increased since 2008, and is currently over 13%. The decrease in demand for mining exports led to the closure of two bauxite/alumina plants in 2009 resulting in layoffs and a decline in foreign exchange earnings. Tourism declined significantly in the first half of 2009, but rebounded in the second half of the year. There are concerns, however, that the recent outbreak of violence associated with the capture of Christopher Coke could have an effect on tourism. Remittances from Jamaicans living abroad have become a leading source of foreign exchange in recent years, amounting to about $2 billion in 2008, but falling to almost $1.8 billion in 2009. In 2010, however, remittances have begun to rebound. As noted above, one of the most difficult economic challenges for the Jamaica government has been dealing with a large debt burden (over $10 billion), which has limited the government's ability to respond to the effects of the global economic crisis with counter-cyclical policies. In February 2010, the IMF approved a $1.27 billion stand-by arrangement with Jamaica to help the country cope with the consequences of the global downturn and support the country's economic reforms. As of June 2010, total disbursements under the arrangement amounted to just over $700 million. According to the IMF, the pillars of the program include fiscal reform, public debt restructuring (to reduce the amount of maturing debt over the next three years), and financial sector reform. The economic program is also designed to ensure an increase in social spending for targeted social safety net programs. According to the IMF, the stand-by agreement will generate about $1.1 billion in funding from other international financial institutions, including the Inter-American Development Bank and the World Bank. Like most other Caribbean nations, with the exception of Trinidad and Tobago, Jamaica is dependent on oil imports for almost all of its energy consumption needs, importing some 78,000 barrels of oil per day. In an effort to combat rising oil prices, Jamaica was the first Caribbean nation in September 2005 to sign on to PetroCaribe, a Venezuelan program offering oil on preferential terms. Under the program, Jamaica imports up to 23,500 barrels per day of oil with 50% of the oil financed over 25 years at an annual rate of 1%. (In mid-2008, the program was altered to allow up to 60% of the oil to be financed when oil prices were over $100 a barrel.) Prior to PetroCaribe, Jamaica was already benefitting from preferential support from Venezuela under the Caracas Energy Accord begun in 2001, and from both Venezuela and Mexico under the San Jose Pact that began in 1980. The PetroCaribe accord, however, goes further than other preferential oil agreements because it includes financing for energy and economic development projects. For example, a PetroCaribe development fund is financing a wind farm expansion project in Jamaica's Manchester parish (see Figure 1 for a map of Jamaica). U.S. Relations U.S. relations with Jamaica are close, and are characterized by significant economic and cultural linkages and cooperation on a range of bilateral and transnational issues, including cooperation on anti-drug trafficking efforts. Both the U.S. Agency for International Development (USAID) and the Peace Corps have provided assistance to Jamaica since its independence in 1962. Some 10,000 Americans, many dual nationals, live in Jamaica, and over a million U.S. tourists visit the country each year. There had been increasing tension in U.S.-Jamaican relations in recent months because of the Golding government's reluctance to extradite Jamaican gang leader Christopher Coke to the United States on drug trafficking charges. But in the aftermath of the Jamaican government's efforts to capture Coke and extradite him to the United States in late June 2010, U.S. officials commended the Golding government for its efforts. When violence broke out in late May 2010 between government security forces and criminal gangs in the capital of Kingston and surrounding areas, the State Department issued a travel alert to let U.S. citizens know about the situation. The most recent travel alert was issued on June 24, 2010 and expires on July 23. It notes that the Jamaican government has imposed a state of emergency in Kingston, St. Andrew Parish, and St. Catherine Parish, including Spanish Town (see Figure 1 ), and that U.S. citizens in Jamaica should monitor local news and radio when venturing from their homes or hotels in the Kingston area. (See the full travel alert, available at http://travel.state.gov/travel/cis_pa_tw/pa/pa_4985.html .) U.S. Foreign Assistance Over the years, Jamaica has received considerable amounts of U.S. foreign assistance. Over $500 million was provided in the 1990s, while from FY2000-FY2006, U.S. foreign aid averaged almost $23 million annually. Most of this aid was Development Assistance (DA) and Economic Support Funds (ESF) for USAID to implement a variety of development projects. More recently, U.S. assistance to Jamaica has declined somewhat. From FY2007 through FY2010, U.S. assistance averaged about $12.7 million annually. For FY2011, the Obama Administration requested $13.1 million in assistance for Jamaica, with $10.8 million in DA implemented by USAID to support a wide variety of projects (such as community policing and other police reform programs, youth and education programs, local community-based organizations involved in providing social services, technical assistance for trade, investment and economic growth projects, and agriculture diversification); $1.5 million for Child Survival and Health (CSH) assistance for activities to combat HIV/AIDS; and $800,000 for International Military Education and Training (IMET). USAID work in Jamaica in recent years has focused on five program areas: 1) economic growth, including efforts to promote free market policies and improve worker skills; 2) rural development, with efforts focused on agribusiness, eco-tourism, and cottage industries that help preserve Jamaica's biodiversity; 3) health, especially projects supporting HIV/AIDS activities; 4) democracy, including efforts to help underserved communities beset with violent crime and to improve community policing initiatives; and 5) education, with efforts to improve literacy and other skills and to support the regional Caribbean Center for Excellence in Teacher Training (C-CETT) that supports education in eight Caribbean countries. Security assistance to Jamaica has included support to assist Jamaica with port and border security measures and to increase the counternarcotics and counterterrorism capabilities of the Jamaican security forces and their capability to protect Jamaican waters. Funding has also supported training for the Jamaica Defense Force to increase their readiness, interoperability among their services, and professionalism. In 2008, the U.S. Southern Command provided Jamaica with four high-speed interceptor boats under a maritime security assistance initiative known as Enduring Friendship. In addition to regular bilateral assistance funding, Jamaica is also likely to receive some of assistance under the Caribbean Basin Security Initiative (CBSI), a program begun in FY2010 as an offshoot of the Mérida Initiative for Mexico and Central America aimed at helping Caribbean nations reduce illicit trafficking, increase public safety and security, and promote social justice. Congress appropriated $37 million in assistance for the program in FY2010, and the Obama Administration has requested $79 million for FY2011. According to the State Department, CBSI funds will: combat illicit trafficking in drugs and small arms; develop and strengthen the capacity of regional defense, law enforcement, and justice sector institutions to detect, interdict and prosecute criminal elements in the Caribbean; increase skills and educational opportunities for populations vulnerable to criminal recruitment; foster community and law enforcement cooperation; and provide alternatives to at-risk youth. The United States has had a Peace Corps program in Jamaica dating back to 1962. There are currently about 70 volunteers in the country working to help in youth projects, HIV/AIDS education, water sanitation, and environmental education. Drug Trafficking Jamaica is the Caribbean's largest producer and exporter of marijuana, and is also a drug transit country for South American cocaine destined for the U.S. and other markets. The government cooperates closely with the United States on counternarcotics efforts, with the United States providing training and material support to elements of the Jamaica Constabulary Force (JCF) and Jamaica Defense Force (JDF) in order to strengthen their counternarcotics capabilities and promote greater bilateral cooperation. The U.S. Marshals Service has a regional office in Jamaica, and provides support to the Jamaica Fugitive Apprehension Team (JFAT) for training, equipment, guidance and operational support. Jamaica has extradited a number of wanted drug traffickers to the United States for prosecution, including 15 in 2009. The JDF Coast Guard participated in joint deployments with the United States in 2009 under the auspices of "Operation Riptide." The State Department's March 2010 International Narcotics Control Strategy Report (INCSR) maintained that while cooperation between U.S. and Jamaican law enforcement agencies remains strong, delays in proceeding with the extradition request for Christopher Coke and delays in other extradition requests called into question Jamaica's commitment to bilateral law enforcement cooperation. As noted above, with Coke's extradition in late June 2010, the State Department commended the Golding government for its action. In the 2010 INCSR, the State Department encouraged the Jamaican government to enhance its collaboration with the United States and other regional partners, to development a comprehensive gang reduction strategy, and pass legislation to criminalize participation in organized criminal gangs. The State Department also called for the Jamaican government to demonstrate its political will to address corruption by investigating, prosecuting, and convicting corrupt officials at all levels of government service. The INCSR maintained that "pervasive public corruption continues to undermine efforts against drug-related and other crimes, and plays a major role in the safe passage of drugs and drug proceeds through Jamaica." According to the report, the Jamaican government's ambitious anti-corruption and ant-crime legislative agenda remained stalled in parliament. In late May 2010, the Golding government maintained that it would fast-track several anti-crime and anti-gang measures. Criminal Deportees The deportation of Caribbean citizens from the United States at times has been a thorny issue in U.S. relations with the region, with challenges centered on criminal deportees and social stigma faced by the deportees when returning to Jamaica. Current Jamaican Minister of National Security Dwight Nelson maintains that the return of criminals from Britain, Canada, and the United States has contributed to gang activities in Jamaica. In recent years, U.S. criminal deportations to Jamaica numbered 1,178 in FY2007, 1,261 in FY2008, and 1,252 in FY2009. (It should be noted that Canada and Britain also have deported a large number of Jamaicans.) A 2007 joint UN/World Bank study concluded that evidence from Jamaica and other Caribbean countries shows that it is unlikely that the average deportee is committing violent crime, but that a minority may be causing serious problems both by direct involvement in crime and indirectly by providing a negative role model for youth. Some Jamaican politicians contend that the deportees have learned their criminal ways in the United States and that many have lived in the United States since they were young children. In contrast, noted Jamaican criminologist Bernard Headley contends that the majority of criminal deportees in Jamaica are not hardened criminals, and that only a minority of deportees were raised in the United States at a young age. At a June 2007 CARICOM meeting in Washington, DC, then-Prime Minister Portia Simpson Miller called for international assistance for rehabilitating and reintegrating the deportees into society, and mechanisms for effective monitoring. The UN/World Bank study cited above maintained that assisting reintegration efforts in the Caribbean for deported offenders could be a cost-effective way for deportee-sending countries to promote development and weaken international criminal networks. The study recommended improved coordination and information sharing on criminal deportees by sending countries; research on the link between deportees and crime; and the financing of deportee reintegration programs, including financial support from sending countries. In 2008, the United Kingdom began funding a three-year project for returning deportees from the UK after completing prison sentences. The project is designed to improve the deportees' integration into Jamaican society, and includes the renovation of facilities for short and long-term accommodations for deported males and support for the development of a deportee database. Trade and Investment Jamaica has been a beneficiary of the Caribbean Basin Initiative (CBI), a U.S. preferential trade program for imports from the region since 1984. It was designated a beneficiary of the Caribbean Basin Trade Partnership Act (CBTPA) in 2000, which effectively provides NAFTA-equivalent tariff treatment, including preferential treatment for qualifying textile and apparel producers. CBTPA benefits were scheduled to expire at the end of September 2010, but in May 2010 Congress approved an extension of the trade preferences through September 2020 ( P.L. 111-171 ). Despite Jamaica's participation in these preferential trade programs, its manufacturing exports to the United States have not increased significantly, in large part because of competition from such low-cost producers as the Dominican Republic and Honduras as well as competition from Asia. Nevertheless, the United States remains Jamaica's main trading partner, accounting for about 45% of Jamaican imports and 30% of its exports. Moreover, Jamaica has taken advantage of CBI tariff preferences for ethanol, which has spurred development of the industry. Because of the global economic downturn, however, Jamaican exports to the United States in 2009, valued at $468 million, reflected a 36% decline from the previous year while imports from the United States, valued at $1.4 billion in 2009, reflected a decline of almost 46%. Jamaica's top exports to the United States in 2009 were ethanol and aluminum (oxides and ores), which accounted for about 63% of the total, while major imports from the United States included oil, machinery (home, office, and construction), food and other consumer goods, and industrial supplies. As a member of the 14-member Caribbean Community (CARICOM), Jamaica participates in the Caribbean Regional Negotiating Machinery (CRNM), headquartered in Kingston, which has coordinated and managed the region's external trade negotiations since 1997. While CARICOM nations had participated in negotiations for the Free Trade Area of the Americas, and even held talks in 2006 with U.S. officials exploring the possibility of a free trade agreement between CARICOM and the United States, a number of Caribbean nations have expressed concerns about the impact of such agreements on the region. Many have argued for special and differential treatment for small economies that would include longer phase-in periods for opening their markets to some products, and some type of development component that would help smaller economies meet their needs for human resources, technology, and infrastructure. According to the U.S. Department of Commerce, Jamaica has a long history of attracting foreign direct investment from the United States. Currently there are more than 80 major U.S. investors in the country, and U.S. direct investment in Jamaica on a historical-cost basis was estimated at $901 million in 2008. Jamaica remains on the U.S. Watch List for those countries with problems in the protection of intellectual property rights. According to the Office of the United States Trade Representative (USTR), Jamaica's delay in enacting legislation to implement patent protection obligations under the World Trade Organization Trade-Related Aspects of Intellectual Property Agreement and the U.S.-Jamaica Bilateral Intellectual Property Agreement remains a U.S. concern. While the Jamaican government increased its enforcement activity and public awareness efforts in 2009, the United States urges it to reform its patent protection law in accordance with international standards. Appendix . Appendix A. Links to U.S. Government Reports Background Note , Jamaica Date: December 2009 Full Text: http://www.state.gov/r/pa/ei/bgn/2032.htm Congressional Budget Justification for Foreign Operations FY2011, Annex: Regi onal Perspectives (Jamaica, pp. 728-732 of pdf) Date: March 2010 Full Text : http://www.state.gov/documents/organization/137937.pdf Country Reports on Hum an Rights Practices 2009, Jamaica Date: March 11, 2010 Full Text: http://www.state.gov/g/drl/rls/hrrpt/2009/wha/136118.htm Country Reports on Terrorism 2008 (Western Hemisphere Overview) Date: April 30, 2009 Full Text : http://www.state.gov/s/ct/rls/crt/2008/122435.htm Doing Business in Jamaica: A Country Commercial Guide for U.S. Companies Date: February 18, 2010 Full Text : http://www.buyusainfo.net/docs/x_3846719.pdf International Relig ious Freedom Report 2009, Jamaica Date: October 26, 2009 Full Text: http://www.state.gov/g/drl/rls/irf/2009/127396.htm International Narcotics Control Strategy Report 20 10, Vol. I (Jamaica, pp. 388-392 of pdf) Date: March 2010 Full Text: http://www.state.gov/documents/organization/138548.pdf Trafficking in Persons Report 2009 (Jamaica , pp. 188-190 of pdf link) Date: June 14, 2010 Full Text: http://www.state.gov/documents/organization/142979.pdf

The Caribbean island-nation of Jamaica has had a relatively stable parliamentary political system stemming from its history of British colonial rule. Current Prime Minister Bruce Golding of the Jamaica Labour Party was elected in September 2007 when his party defeated the long-ruling People's National Party led by then-Prime Minister Portia Simpson. In late May 2010, however, Jamaica's stability was challenged after Prime Minister Golding agreed to extradite to the United States an at-large alleged drug kingpin and gang leader, Christopher Coke. The Jamaican government deployed police and soldiers seeking to execute a warrant for Coke, but his armed supporters erected barricades and roadblocks to battle the security forces. In the ensuing violence, 76 people were killed, including two policemen and a soldier. Human rights organizations have called on the government to conduct a thorough investigation into the killings, especially since Jamaica's police forces have been criticized for many years for extrajudicial killings and the indiscriminate use of force. Coke was ultimately captured and extradited to New York in late June 2010 to face drug and weapons trafficking charges. High rates of crime and violence have plagued Jamaica for many years. In the 1970s and 1980s there was a high level of politically motivated violence when political parties became allied with armed gangs to deliver votes at election time. Jamaica's gangs initially were involved in the trafficking of marijuana in the 1970s (Jamaica is the Caribbean's largest producer and exporter of marijuana), but in the mid-1980s became involved in cocaine trafficking, with Jamaica used as a transit country, as well as weapons trafficking. Since the 1990s, much of the violent crime in the country has been associated with this drug trafficking and related intra-gang and internal gang feuds. Jamaica's challenges include bringing down the high levels of gang violence, reforming the police and justice system to prevent extrajudicial killings by police and impunity, and breaking the linkages between the political parties and armed gangs. Jamaica's services-based economy has averaged only modest growth rates over the past two decades, and has been in recession since 2008 because of the global economic crisis, which hurt the tourism sector and reduced the price and demand for Jamaican bauxite/alumina exports. A difficult economic challenge for the government is dealing with a large external debt burden, which has limited the government's ability to respond to the effects of the global economic crisis. In February 2010, the International Monetary Fund approved a $1.27 billion stand-by arrangement to help the country deal with the consequences of the global economic downturn and support the government's fiscal, debt, and financial sector reforms. U.S. relations with Jamaica are close, and are characterized by significant economic and cultural linkages and cooperation on a range of bilateral and transnational issues, including cooperation on anti-drug trafficking efforts. Congress has regularly supported a variety of foreign assistance programs for Jamaica, and the country will likely receive funding under the Administration's new Caribbean Basin Security Initiative. There had been increasing tension in U.S.-Jamaican relations in recent months because of the Golding government's reluctance to extradite Christopher Coke to the United States, but in the aftermath of the Jamaican government's extradition, U.S. officials commended the Golding government for its efforts. For additional information, see CRS Report RL33951, U.S. Trade Policy and the Caribbean: From Trade Preferences to Free Trade Agreements, and CRS Report R41215, Latin America and the Caribbean: Illicit Drug Trafficking and U.S. Counterdrug Programs.

Introduction Wireless signals are subject to various types of interference, even when operating within assigned frequencies. The Federal Communications Commission (FCC) regulates commercial radio, television, commercial wireless services, and state and local public safety and other non-federal uses of radio frequency spectrum. Its primary tool in dealing with interference to wireless transmissions is to prevent it by the judicious allocation of radio frequencies, following band plans designed to preclude or minimize most types of interference. In the case of frequencies at 800 MHz, interference had been caused primarily by transmissions from commercial cell phone towers, many of which were part of Sprint Nextel's "push to talk" network. When the frequencies in the 800 MHz band were first assigned, the FCC did not anticipate that channels in that band intended for short messages over commercial mobile radio (used by taxi dispatchers, for example) would—with time, technology, and soaring consumer demand for wireless service—be converted to a heavily-trafficked national cell phone network. The commercial allocations at 800 MHz were closely interleaved with public safety allocations, with the expectation that the (presumably) low-usage commercial assignments would act as buffers to prevent interference with public safety channels. The FCC announced in 2004 that it had agreed upon a rebanding plan to consolidate public safety frequencies and those used by some other operators, such as utilities, in the lower part of the 800 MHz band, while moving some of the 800 MHz channels acquired by Nextel, and some other commercial users, to the higher end of the band. The band reconfiguration is expected to eliminate interference caused by the close proximity and interleaving of commercial and public safety channels. The decision reached by the FCC in general supported a rebanding plan first proposed by Nextel. After months of negotiations, clarifications and technical corrections, a modified plan was accepted in February 2005. The conversion process was scheduled to be completed by June 26, 2008. Disputes related to cost reimbursement have delayed the transition, however. Because waivers extending deadlines are granted on a case-by-case basis, the final completion date for the transition has remained uncertain. The FCC has ruled to establish December 9, 2013, as the final date for resolving all cost-sharing obligations. Highlights of the FCC Rebanding Plan The news release announcing the FCC decision regarding the decision for rebanding provided a summary of key points, some of which are highlighted below. These provisions, negotiated with Nextel, apply to Sprint Nextel effective as of the date of the merger. Separate "generally incompatible technologies" by eliminating interleaving. Move channels designated for interoperability to the lower end of the band, close to the planned public safety band at 700 MHz. Require public safety systems to relocate to channels at 809-815 MHz and 854-860 MHz. Require certain business and industrial users to relocate to channels at 809-815 MHz and 854-860 MHz. Require Enhanced Specialized Mobile Radio users, "ESMR," to relocate to 817-824 MHz and 862-869 MHz. Until the band relocation plan is complete, apply "Enhanced Best Practices" to define and correct interference that will place "strict responsibility on carriers to fix such interference." Require Nextel to give up some of its licenses at 800 MHz and all of its licenses at 700 MHz. Modify Nextel's licenses to provide the right to operate at 1910-1915 MHz and 1990-1995 MHz, "conditioned on Nextel fulfilling certain obligations specified in the Commission's decision." Value the 1.9 GHz spectrum rights to be assigned to Nextel at almost $4.9 billion, less the cost of relocating incumbent users in those channels. Credit Nextel the value of the spectrum rights it is relinquishing at 700 MHz and 800 MHz plus the "actual costs" to Nextel in relocating "all incumbents in the 800 MHz band." Require Nextel to make an "anti-windfall payment" to the Treasury at the conclusion of the relocation process that will equal the difference between the $4.9 billion valuation and the cumulative credits. Require Nextel to provide public safety users at 800 MHz and incumbent users at 1.9 GHz with "comparable facilities." Require Nextel to establish escrow accounts and a letter of credit in the amount of $2.5 billion, to "ensure that the band reconfiguration process will be completed." Provide an independent "Transition Administrator" to authorize disbursements, "subject to de novo Commission review." Costs of Rebanding The FCC rebanding plan required that Sprint Nextel pledge $2.5 billion in cash and letters of credit to cover relocation costs for public safety. Sprint Nextel's obligation to cover the costs of rebanding is not limited to $2.5 billion, however. Sprint Nextel is expected to pay all the agreed upon costs, even if this total exceeds $2.5 billion. The difference between the values of the spectrum Sprint Nextel is relinquishing and of the new spectrum it is receiving is an increase—a potential windfall—of approximately $2.8 billion. This is the value, before specified relocation costs, that Sprint Nextel might be obligated to pay the U.S. Treasury. If the rebanding plan costs reach $2.5 billion, the "anti-windfall payment" due the U.S. Treasury would be $300 million. If the costs exceed $2.8 billion, the Treasury receives nothing. If the costs are no more than $850 million (a preliminary estimate provided by Nextel), the payment to the Treasury could approach $2 billion. Therefore, all the relocation costs reimbursed by Sprint Nextel must be tallied and documented to be applied toward the potential anti-windfall payment. The final determination of the payment, if any, from Sprint Nextel is referred to as a true-up. Because the deadline for the completion of the rebanding has been extended several times, the deadline for the true-up has also been extended. The TA must file regular reports with the FCC with its recommendations as to whether it has sufficient information on the costs of rebanding to calculate the anti-windfall payment—if any—that Sprint Nextel will be obligated to pay, or whether the deadline must be postponed again. Transition Administrator The Transition Administrator (TA) is an independent organization set up in accordance with FCC rules. The responsibilities of the TA are to facilitate a smooth transition and to oversee the administration and financial management of the plan. The TA is also to monitor progress in the rebanding plans and to enforce the deadlines set by the FCC. It also files quarterly reports on Frequency Realignment Agreements (FRAs) plans filed with the TA. It is the TA that requests estimates of rebanding costs from public safety and private wireless networks covered by the plan, and decides whether or not to provide funds in advance. Disagreements about the implementation of the plan that the TA cannot resolve on its own or through mediation will in most cases be referred to the FCC. The TA consists of a team provided by Deloitte Consulting LLP, Squire, Sanders, & Dempsey LLP, and Baseline Wireless Services, LLC.

In mid-2005, wireless communications managers commenced the process of moving selected public safety radio channels to new frequencies. This step was part of a rebanding plan to mitigate persistent problems with interference to public safety radio communications. The majority of documented incidents of interference was attributed to the network built by Nextel Communications, Inc (now Sprint Nextel). As part of an agreement originally made between Nextel and the Federal Communications Commission (FCC), some public safety wireless users have moved or will move to new frequencies, with the wireless company paying all or part of the cost. The rebanding agreement was not affected by the merger between Nextel and Sprint Corporation. In return for the expenditures, and reflecting the value of spectrum that Sprint Nextel relinquished as part of the band reconfiguration, the FCC assigned new spectrum licenses to the wireless company. The FCC set the "windfall" value of the new licenses, after allowing for the value of the licenses being relinquished, at $2.8 billion. The costs that Sprint Nextel incurs in the rebanding process are being applied to the $2.8 billion windfall. If the total is less than $2.8 billion, Sprint Nextel will be required to make an "anti-windfall" payment to the U.S. Treasury for the difference. If the costs exceed $2.8 billion, Sprint Nextel is obligated to pay them without any new concessions from the FCC. The rebanding plan is being implemented by the 800 MHz Transition Administrator (TA), created by the FCC for this purpose. The TA's ongoing responsibilities are to set priorities, establish schedules, and oversee reimbursement to parties for eligible expenses associated with relocation. Disagreements about the implementation of the plan that the TA cannot resolve on its own or through mediation are in most cases referred to the FCC. From the outset, there have been debates about the transition plan, such as maintaining interoperability, scheduling, and reimbursement for costs incurred. As the band reconfiguration proceeds, debates have often become protracted negotiations—and even litigatious disputes—slowing the transition process. The original plan set a deadline of June 2008 to complete the transition, with the calculation—or true-up—of the anti-windfall payment to occur six months later. The deadline has been extended several times while issues regarding the transition process were resolved. Consequently, the deadline for the true-up has also been extended, most recently until December 9, 2013.

Introduction The 109th Congress is considering legislation to reauthorize and amend programs that werecreated or revised in the 1996 welfare reform law. (1) Early in the 109th Congress, the Senate Finance and Health,Education, Labor, and Pensions Committees approved and reported their welfare reauthorizationlegislation (respectively, S. 667 and S. 525 ). Neither bill has yet seenaction in the full Senate. In the House, a welfare reauthorization proposal ( H.R. 240 ), introduced by the HouseRepublican Leadership, has also failed to reach the floor. On November 18, 2005, the House passed its budget reconciliation bill ( S. 1932 ), which includes welfare reauthorization legislation similar to that which passed the House in2002 and 2003. (The House-passed version of S. 1932 is H.R. 4241 asamended and approved by the House.) Welfare reauthorization legislation was not included in theSenate-passed reconciliation bill. This report compares the welfare reauthorization policies proposed in the Senate committeebills with those included in the House-passed budget reconciliation bill. It is not a comparison ofwelfare provisions in the House and Senate reconciliation bills. (Such a comparison, which displaysHouse-passed welfare provisions with corresponding "No Provision" entries for the Senate-passedversion of reconciliation, is available from the Congressional Research Service upon request.) The original funding authority for the block grant of Temporary Assistance for NeedyFamilies (TANF), the Child Care and Development Block Grant (CCDBG), abstinence education,and transitional medical assistance (TMA) under Medicaid expired on September 30, 2002. Fundingand program authority for TANF, mandatory child care, abstinence education, and TMA have beencontinued by special temporary extension legislation since then, with the latest extension set toexpire on December 31, 2005. CCDBG discretionary funding has been provided, absentauthorization, in annual appropriation bills. Also included in "welfare reauthorization" legislationhave been initiatives to create a responsible fatherhood grant program, revise the Child SupportEnforcement program, amend child welfare programs, and make some changes to SupplementalSecurity Income, as well as create new "superwaiver" authority. Summary of Similarities and Differences in the Bills Most of the welfare reauthorization provisions approved early in 2005 have counterparts inthe House budget reconciliation bill. There are notable exceptions. S. 667 (the FinanceCommittee bill) would extend the abstinence education state grant program and revise and extendTMA through FY2010, whereas the House budget reconciliation bill includes none of thoseprovisions. Further, the House reconciliation bill, unlike the Senate committee bills or the earlierHouse Republican Leadership welfare reauthorization bill ( H.R. 240 ), includes someadditional provisions that would reduce spending, including proposals to reduce federal matchingfunds for state Child Support Enforcement programs and to revise foster care and adoption assistanceeligibility rules to negate a court ruling that expanded eligibility for these programs in certain states. Table 1 summarizes what provisions are included in the Senate committee bills and theHouse reconciliation bill. Note that when provisions are included in both, they still may differsignificantly in their details. These differences are the subject of the remainder of this report. Table 1. Welfare Reauthorization Provisions Included in SenateCommittee Bills and House Budget Reconciliation Bill Source: Congressional Research Service (CRS). Temporary Assistance for Needy Families Block Grant The Senate-committee and House welfare reauthorization proposals have many similarities,with both extending basic TANF funding at current levels through FY2010 and incorporatingPresident Bush's proposal to provide categorical "marriage promotion" grants. (2) Both bills also raise TANFwork participation standards, though the two differ in terms of how much more work would berequired and what activities count toward the participation standards. TANF Funding Provisions. Both theSenate-committee and House bills have very similar funding provisions, although they do differ insome details. The major differences between the two proposals are in the contingency fund andbonuses. Basic Funding. The 1996 welfare reform law ( P.L.104-193 ) entitled states to a basic TANF block grant equal to peak expenditures in the pre-1996welfare programs during the FY1992 to FY1995 period. It also established a maintenance of effort(MOE) requirement that states continue to spend at least 75% (80% if a state failed TANF workparticipation requirements) of what they spent in these programs in FY1994. Cash welfare caseloadswere at their peak in the mid-1990s; both the basic TANF grant and the MOE are legislatively fixed: they did not change when cash welfare caseloads declined in the mid- and late-1990s, nor did theyincrease when caseloads in some states increased during the recent economic slump. Neither thebasic TANF block grant nor the MOE has been adjusted for inflation. Both the Senate-committee and House proposals would continue both the basic block grantand the MOE at their current funding levels (without inflation or caseload adjustment) throughFY2010. Supplemental Grants. During the consideration oflegislation that led to the 1996 welfare law, fixed funding based on historical expenditures wasthought to disadvantage two groups of states: (1) those that experience relatively high populationgrowth; and (2) those that had historically low grant levels relative to poverty in the state. Therefore,additional funding in the form of supplemental grants was provided to states that met criteria of highpopulation growth and/or low historic grants per poor person. Supplemental grants have beenprovided to 17 states: Alabama, Alaska, Arizona, Arkansas, Colorado, Florida, Georgia, Idaho,Louisiana, Mississippi, Montana, New Mexico, Nevada, North Carolina, Tennessee, Texas, andUtah. Currently, supplemental grants total $319 million per year. Both the Senate and Houseproposals would continue supplemental grants for the same 17 states at the current funding levelthrough FY2009 (unlike other grants, which expire in FY2010). Contingency Funds. The fixed basic grant underTANF also led to concerns of inadequate funding during economic downturns. TANF includes acontingency fund, which is designed to provide extra matching grants to states that meet criteria ofeconomic need (based on unemployment rates and food stamp caseloads) and have stateexpenditures in excess of their FY1994 level. The two bills differ substantially in their proposed revisions to the TANF contingency fund. The House budget reconciliation bill would continue the fund under existing rules, with somerelatively minor modifications: allowing some additional state spending to count toward meetingthe FY1994 funding level threshold and modifications to increase grants for states that qualify forfunds for only part of the year. The Senate Finance Committee proposal fully revamps the contingency fund. It wouldeliminate the requirement that states increase expenditures from their own funds above the regularTANF MOE level and would eliminate the matching requirements. Instead, it requires that unspentTANF balances be below a certain threshold to qualify for contingency funds. The Senate committeeproposal would base contingency grants on a portion of the estimated cost of increased cashassistance caseloads. It also would revise the criteria of economic need for a state. Bonus Funds. Current TANF law provides "bonusfunds" to states that rank high on a set of outcomes that seek to measure whether they are achievingthe block grant's goals. It has a "High Performance Bonus" of $200 million per year for states thatrank high in achieving employment and certain other outcomes, as well as a second $100 million peryear bonus paid to the five states with the greatest reduction in out-of-wedlock birth ratios that alsohave a decline in abortions. The Senate Finance Committee bill scales back bonuses, by eliminating the $100 million peryear bonus for reductions in out-of-wedlock births, and reducing and refocusing the "HighPerformance Bonus" on employment outcomes. Funding reductions are used to "pay for" grants topromote healthy marriages and responsible fatherhood initiatives (see a discussion of theseinitiatives, below). The House budget reconciliation bill eliminates both TANF bonuses, in part topay for grants to promote healthy marriage and in part achieving budget reductions. Uses of Grants and Program Requirements. Federal TANF grants and MOE funds can be used for a wide range of benefits, services, andactivities to assist low-income families with children and to further TANF goals of reducingout-of-wedlock births and promoting two-parent families. TANF grants can also be transferred toother block grant programs: up to 30% of the grant can be transferred to the Child Care andDevelopment Fund (CCDF) and to the Social Services Block Grant. The limit on transfers to SSBGalone is set at 4.25% (though annual appropriations have restored the SSBG transfer limit to itsoriginal limit of 10% set in the 1996 welfare law). Within the overall 30% limit, federal TANFfunds may also be used as the state match for federal reverse commuter grants if the program benefitswelfare families. Both bills would set the SSBG transfer limit permanently at 10%. The House budgetreconciliation bill would raise the overall transfer limit to 50%; the Senate Finance Committeeproposal would retain the current 30% transfer limit. Both bills include provisions to ease some rules regarding use of TANF funds. Both Houseand Senate committee bills would: Allow states to use carryover TANF funds for any TANF benefit and service. Current law restricts the use of carryover funds for the provision of"assistance." Narrow the definition of "assistance" to exclude all child care andtransportation aid. TANF funds spent on assistance trigger certain program requirements, such aswork requirements, time limits, assignment of child support payments, and data reporting. Undercurrent regulations, child care and transportation aid for nonworking families is counted as assistanceand triggers these requirements. The bills would eliminate such aid from the definition of"assistance," freeing from these requirements nonworking families that receive only child care ortransportation aid. Work Requirements. Both the Senate FinanceCommittee bill and the House budget reconciliation bill incorporate the Bush Administration's"universal engagement" proposal, which requires states to develop a self-sufficiency plan for allTANF adult recipients to monitor progress toward that plan. The House budget reconciliation billalso requires states to end benefits ("full family sanction") for families that fail to comply with workparticipation rules. Both the Senate Finance Committee bill and House budget reconciliation bill wouldsubstantially revise TANF work participation standards. Both bills would raise work participationstandards that states must meet from the current law's standard of 50% to 70%, raise the requiredhours of working to receive full credit and provide partial credit for participating families that do notmeet the full credit standard, and revise the list of activities that recipients may participate in forstates to receive credit toward TANF standards. However, the bills differ in how they do these threethings. Participation Standards. Current law requires statesto have a specified percentage of their families with an adult recipient (or minor head of household)participating in creditable work activities. The current participation standard is 50%. States aresubject to an additional participation rate standard for two-parent families, currently 90%. Theparticipation rate standards may be reduced for caseload reductions (not attributable to policychanges) that occurred since enactment of welfare reform (FY1995). This "caseload reductioncredit" has had a large effect on participation standards, reducing the standard considerably from itsstatutory rate. In FY2003, the standard was reduced to 0% for 20 states. Both the Senate Finance Committee bill and the House budget reconciliation bill would raisethe work participation standard for all families to 70% by FY2010, and eliminate the separatestandard for two-parent families. Both bills would also change the credits that reduce these standardsfrom their statutory rate (i.e., reduce the 70% standard to a lower rate), but they do so in differentways. The House bill would retain, but revise, the current law caseload reduction credit so thatcaseload change would be measured from a more recent year (rather than the pre-welfare reformcaseload level of 1995). Ultimately, caseload reduction would be measured based on the most recentfour years. The House bill also includes a provision to give an additional credit to states thatachieved a caseload reduction of 60% or more from FY1995 to FY2001. The Senate Finance Committee bill retains the current caseload reduction credit for FY2006and FY2007, but beginning in FY2008 would replace the caseload reduction credit with a credit foremployed welfare leavers. The bill would also cap all credits against the participation standard, sothat the minimum effective standard would be 10% in FY2006, 20% in FY2007, 30% in FY2008,40% in FY2009, and 50% in FY2010. There is no such minimum effective standard in the Housebill. Hours Standards. Current law requires that a familybe considered participating only if it participates for a minimum number of hours per week in amonth. Under current law, 20 hours are required for single parents with a pre-school child (underthe age of 6), and 30 hours are required for other families. Higher hours are set for the purposes ofthe two-parent work participation rate. Both the Senate Finance Committee bill and the House budget reconciliation bill raise thehours standards. The House bill incorporates a 40-hour workweek standard for full credit, but wouldalso provide "partial" credit for families with at least 24 hours of participation. No speciallower-hour standard would be provided for single parents with preschoolers. The Senate Finance Committee bill also raises the hours standard for full credit, but to alesser extent than proposed in the House bill. Single parents with a pre-school child would be givenfull credit for participation at 24 hours per week, and other single-parent families would be given fullcredit at 34 hours per week. Partial credit for single parent families would be provided at 20 hoursper week. Higher hours requirements would apply to two-parent families. Creditable Activities. Current law lists 12 activitiesthat may be counted toward TANF work participation standards. The bulk of countable participationis in a subset of "core" activities focused on work, time-limited job search (countable for six weeksin a fiscal year, 12 weeks if criteria of economic need are met), time-limited vocational educationaltraining (12 months in a lifetime), and community service and work experience. In meeting thegeneral 30-hour-per-week standard, hours in educational activities are countable only for familieswho are also participating in at least 20 hours per week of "core" activities. Post-secondaryeducation, other than that considered "vocational educational training," does not count towardcurrent law federal TANF work participation standards. The House budget reconciliation bill and the Senate Finance Committee bill differsignificantly on the types of activities that are countable as core activities toward the participationstandards. The House bill narrows the list of core activities by eliminating job search and vocationaleducation. Instead, the bill would give states almost total discretion to define activities that wouldbe countable for three months in a 24-month period (four months to complete training), but oncethose months are exhausted, the only activities that would count toward the "core" work participationstandards are work, on-the-job training, community service, or work experience. Moreover, sincejob search and vocational education would be countable as sole or primary activities only during thethree (or four) months that the state would have discretion, any weeks of participation in job searchreduce the number of weeks that vocational education counts toward the participation standards. On the other hand, the Senate Finance Committee bill retains the current law list of coreactivities. It too provides states additional discretion by permitting states to count an expanded listof activities for three months in a 24-month period (longer for rehabilitative activities). However,this additional discretion is provided in addition to, rather than instead of, six weeks of job searchand 12 months of vocational educational training, which are retained as "core" activities. Both the House budget reconciliation bill and the Senate Finance Committee bill would givestates additional discretion in defining activities countable once a family has met the "core" workrequirement (generally, 24 hours per week in core activities). The House bill would allow states todefine activities for families with at least 24 hours in core activities; the Senate Finance Committeebill would allow states to count an expanded set of activities for single-parent families with at least24 hours per week in core activities. The Senate Finance Committee proposal includes some additional options for countingparticipation in activities toward TANF work standards. It would allow states to have up to 10% oftheir caseload enrolled in a special program of two- or four-year undergraduate education orvocational educational training. This program is modeled after the "Parents as Scholars" programthat has operated in Maine using TANF MOE funds. It also allows for participation in rehabilitativeactivities for disabled persons (including treatment of drug and alcohol abuse) if they combinerehabilitation with at least 10 hours of "core" activities and if the state develops a collaborativerelationship between agencies and entities providing rehabilitative services and the state TANFagency. Additionally, the Senate Finance Committee bill allows caring for a disabled family memberto count as a work activity under certain circumstances. Marriage Promotion Grants and Family FormationIssues. Current law allows states to use TANF funds for any activity "reasonablycalculated" to achieve a TANF purpose. One of the statutory purposes of TANF is to enddependency of needy parents on government benefits, and one of the stated means to end suchdependency is "marriage." Another of the statutory purposes of TANF is to promote the formationand maintenance of two-parent families. "Promoting marriage" is a currently allowable use of TANFfunds. Both the Senate Finance Committee and House budget reconciliation bills would carve outspecial "marriage promotion grants" from existing TANF funding. Both bills include $100 millionin competitively awarded matching funds for states, territories, and tribes for marriage promotionactivities. The bills would allow states to use other federal TANF funds or state funds as the matchfor these new marriage promotion grants. Both bills also would provide an additional $100 million for research and demonstrations. The House budget reconciliation bill would require that these funds be used "primarily" for marriagepromotion; the Senate Finance Committee bill would require that 80% of these funds be used formarriage promotion. Marriage promotion activities listed in both bills are: public advertising campaigns on thevalue of marriage and skills needed to increase marital stability and health; education in high schoolson the value of marriage; marriage education and marriage and relationship skills programs fornonmarried parents or expectant parents; pre-marital education on marriage for engaged couples;marriage enhancement and marriage skills training for married couples; divorce education programs;and marriage mentoring programs. Programs to reduce the disincentives to marriage in need-basedprograms could be funded from these grants only if offered in conjunction with other marriageactivities. Both bills have requirements that grantees of marriage promotion grants consider domesticviolence issues and that participation in marriage promotion activities be voluntary. The Senatecommittee bill also includes a prohibition (not in the House bill) against states sanctioning familiesreceiving TANF assistance for not participating in marriage promotion activities. Child Care While the House budget reconciliation legislation consolidates a package of provisionsembodying "child care reauthorization" in a single bill (3) , at this point, on the Senate side, reauthorization provisions remaindivided between the two bills, S. 667 and S. 525 (The Caring for ChildrenAct of 2005). The Finance Committee-passed bill (S. 667) contains the proposedmandatory funding appropriation for Child Care and Development Block Grant (CCDBG) programs,while the HELP Committee-passed bill (S. 525) includes proposed discretionary fundingauthorization, and all provisions relating to the reauthorization of the CCDBG Act. Therefore, inthe child care section of Table 2 , most provisions in the Senate column are drawn from S.525, with the notable exception of the mandatory (or "entitlement") funding provision,which falls under the Finance Committee's jurisdiction, and is therefore included in S. 667. A summary of provisions included in both the House bill and Senate committee legislation follows,with more detail found in Table 2 . Discretionary Authorization. The discretionaryportion of child care funding is authorized by the Child Care and Development Block Grant Act (asamended in 1996). Under current law, discretionary CCDBG funding is authorized at $1 billionannually. However, actual appropriation levels, determined during the annual appropriationsprocess, have exceeded the authorized level (e.g., FY2005 = $2.1 billion). Both the House budgetreconciliation bill and S. 525 propose to authorize discretionary funding at $2.3 billionin FY2006, rising by $200 million each year, up to $3.1 billion in FY2010. Mandatory Appropriation. Mandatory fundingfor the CCDBG was preappropriated in Section 418 of the Social Security Act for FY1997-2002,as part of the welfare law of 1996 ( P.L. 104-193 ). A series of temporary extensions have continuedthat funding at the FY2002 rate of $2.717 billion since the close of FY2002. (The most recentextension runs through December 31, 2005.) The House budget reconciliation bill proposes to increase mandatory child care funding by$500 million over five years (FY2006- FY2010), appropriating $2.917 billion for FY2006, $2.767billion for FY2007, $2.817 billion for FY2008, $2.867 billion for FY2009, and $2.917 billion forFY2010. (This reflects half of the $1 billion increase that had earlier been proposed in H.R. 240 .) The Senate committee bill, S. 667 , proposes to increasemandatory funding by $6 billion over five years (FY2006-FY2010), appropriating $3.617 billion forFY2006; $3.717 billion for FY2007; $3.917 billion for FY2008; $4.017 billion for FY2009; and$4.317 billion for FY2010. Puerto Rico would receive $75 million of the $6 billion, whereas undercurrent law (as well as the House bill), Puerto Rico receives no mandatory child care funding. Authority to Transfer TANF Funds. Undercurrent law, states have the authority to transfer up to 30% of their annual TANF block grant to theCCDBG (only 20% if they choose to transfer 10% to the Social Services Block Grant). S. 667 would maintain current law, whereas the House bill would allow states totransfer up to 50% of their annual TANF grants to the CCDBG. Use of Funds for Direct Services. Current lawincludes no provision requiring a given percentage of funds appropriated under the CCDBG Act tobe spent on direct services. S. 525 would require that after the reservation of set-asides,at least 70% of the funds remaining be used to fund direct services (as defined by the state). TheHouse bill has no comparable provision. Option to Use Excess Funds for Increasing PaymentRates. S. 525 would allow states that receive funding above theirFY2005 levels to use a portion of the excess to support payment rate increases for providers and toestablish tiered payment rates. On a related note, the bill (S. 525) would also add to thestatute stricter requirements to set payment rates in accordance with biennial market rate surveys. Quality Set-Aside. Current law requires that atleast 4% of each state's total CCDBG expenditures (from all sources -- e.g., mandatory,discretionary, matching funds) be used for quality activities, described as providing comprehensiveconsumer education to parents and the public, activities that increase parental choice, and activitiesdesigned to improve the quality and availability of child care in the state. Both the House budget reconciliation bill and the HELP Committee's S. 525 would raise the percentage of CCDBG funds that must be spent for quality activities to a minimumof 6%. Definition of "Quality Activities". Both billsprovide greater detail than current law in terms of defining what is classified as a "quality activity." In each, categories of activities are outlined to include school readiness activities (including activitiesto enhance early literacy); training and professional development for staff; and initiatives orprograms to promote or increase retention of qualified staff. The categories reflect a new emphasison school readiness as a goal of the CCDBG. The Senate committee bill ( S. 525 ) alsospecifies that quality funds could be spent on evaluating and assessing the quality of programs, andtheir effectiveness in improving overall school preparedness. While S. 525 clearly statesthat quality funds must be spent for any of the six listed purposes, the House bill provides threebroad categories, similar in topic to those in S. 525, with a fourth, more general categoryof "other activities as approved by the state." Eligibility. Federal law currently requires thatchildren eligible for services under the CCDBG must have family income that does not exceed 85%of the state median (for a family of that size). However, states have the discretion to adopt incomeeligibility limits below this federal maximum. Both the House budget reconciliation bill and S. 525 propose to eliminate the federal maximum of 85% of state median income (SMI)from the CCDBG law, replacing it with a provision allowing states to set income eligibility levels(with no federal ceiling), with priorities based on need. State Plan Requirements. Under current CCDBGlaw, states are required to submit plans every two years, certifying that their CCDBG programsinclude specified elements addressing areas such as parental choice, parental access, consumereducation, licensing, and health and safety requirements. Both the House budget reconciliation bill and the HELP Committee's S. 525 would amend current law to require that additional elements be certified in their state plans. Areasthat would be modified or added relate to providing consumer education information; describing ordemonstrating state coordination of child care services with other early childhood educationprograms; certifying compliance with the quality set-aside percentage requirement; and addressingspecial needs child care. Unlike the House bill, S. 525 includes provisions requiring that in their stateplans, states demonstrate that the process for redetermining eligibility occur no more frequently thanevery six months (with limited exceptions), and also that the state plan describe any trainingrequirements in effect for child care providers. The Senate committee bill would also put into statutethe requirement that the provider payment rates, described in the state plan, be set in accordance witha statistically valid and reliable biennial survey of market rates (without reducing the number offamilies served). State plans would also be required to include the results of those surveys and tocontain a description of how the state will provide for timely payment to providers. Results of thesurvey would also be required to be made available to the public no later than 30 days after thesurvey's completion. Data Collection and Reporting Requirements. Current law specifies a set of data reporting requirements for states to collect in the administrationof their CCDBG programs. States collect data on a monthly basis and submit to the Department ofHealth and Human Services (HHS) disaggregated data on a quarterly basis. An aggregate report is required to be submitted to HHS on an annual basis. S. 525 would retain the quarterly reporting in current law, but would amend thelist of data elements that states would be required to collect on a monthly basis. (See Table 2 fordetails.) It would also eliminate the separate annual report, instead requiring that the fourth quarterlyreport include information on the annual number and type of child care providers and the methodof payment they receive. S. 667 would also extend CCDBG reporting to TANF-fundedchild care. The House bill would retain current law, containing none of these provisions. Waivers in Response to Gulf Hurricanes. TheHouse budget reconciliation bill would provide the Secretary of HHS with the authority to waive ormodify certain CCDBG provisions for states affected by Hurricanes Katrina and Rita. Provisionsthat could be waived include those relating to the federal income eligibility limits, the workrequirements, states' use of quality funds, and any provision that prevents children designated asevacuees from receiving priority services over any children not already receiving CCDBG services. No similar provisions are included in S. 525 . Other Provisions. Titles II and III of S. 525 propose provisions that stand apart from CCDBG law or Section 418 of theSocial Security Act. Title II of the bill contains provisions to enhance security at child care centersin federal facilities, and Title III would establish a small business child care grant program, throughwhich competitive grants would be awarded to states for establishment and operation ofemployer-operated child care programs. The House budget reconciliation bill includes no similarprovisions. Responsible Fatherhood To improve the long-term outlook for children in single-parent families, federal, state, andlocal governments, along with public and private organizations, are supporting programs andactivities that promote the financial and personal responsibility of noncustodial fathers to theirchildren and increase the participation of fathers in the lives of their children. These programs havecome to be known as "responsible fatherhood" programs. Most fatherhood programs include mediacampaigns that emphasize the importance of emotional, physical, psychological, and financialconnections of fathers to their children. Most fatherhood programs also include parenting education; responsible decision-making; mediation services for both parents; providing an understanding of theCSE program; conflict resolution, coping with stress, and problem-solving skills; peer support; andjob-training opportunities (skills development, interviewing skills, job search, job-retention skills,job-advancement skills, etc.). Sources of federal funding for fatherhood programs include TANF block grant funds, TANFstate Maintenance-of-Effort (MOE) funding, welfare-to-work funds, Child Support Enforcement(CSE) funds, and Social Services Block Grant (Title XX) funds. Even so, the federal governmentdoes not currently earmark a specific amount of funding exclusively for responsible fatherhoodprograms. Beginning with the 106th Congress, both the House and Senate have introduced a numberof bills that contain responsible fatherhood provisions, but so far none of the bills have been passedby both Houses of Congress. In the 109th Congress, both S. 667 and the House budgetreconciliation bill would include funding for responsible fatherhood grant programs. S. 667 as approved by the Senate Finance Committee would establish fivecomponents for the responsible fatherhood program for FY2006 through FY2010. It would (1)appropriate $20 million for a grant program for up to 10 programs; (2) appropriate $30 million forgrants for eligible entities (local government, local public agency, community-based or nonprofitorganization, or private entity, including any charitable or faith-based organizations, or Indian tribeor tribal organization) to conduct demonstration programs; (3) authorize $5 million for a nationallyrecognized nonprofit fatherhood promotion organization to develop and promote a responsiblefatherhood media campaign and establish a national clearinghouse to help states and communitiesin their efforts to promote both marriage and responsible fatherhood; (4) authorize a $20 millionblock grant for states to conduct responsible fatherhood media campaigns (authorize $1 million ofthe $20 million for an evaluation); and (5) authorize $1 million for a nationally recognized nonprofitresearch and education fatherhood organization to establish a national resource center for responsiblefatherhood. The House Budget Reconciliation proposal as approved by the Committee on Ways andMeans would establish four components for the responsible fatherhood program for FY2006 throughFY2010. It would (1) authorize competitive grants for responsible fatherhood projects to public andnonprofit community entities, including religious organizations, and to Indian tribes and tribalorganizations, for demonstration service projects and activities designed to test the effectiveness ofvarious approaches to accomplish the four specified responsible fatherhood program objectives --eligible entities would be allowed to apply for either full service grants or limited purpose grants of$25,000 or less per fiscal year; (2) authorize funding for two multicity, multistate fatherhooddemonstration projects to be developed and conducted by a national nonprofit fatherhood promotionorganization; (3) authorize funding for an evaluation of the competitive grant projects and themulticity, multistate demonstration projects; and (4) authorize the Secretary of HHS by grant, contract, or cooperative agreement to carry out projects and activities of national significance relatingto fatherhood promotion -- such projects or activities could include collection and dissemination ofinformation, media campaigns, technical assistance to public and private entities, and research. Thebill would authorize $20 million for each of the years FY2006 through FY2010, and stipulates thatno more 15% of the annual appropriations can be used for the multicity, multistate demonstrations,the evaluations, and the projects of national significance. The Committee on Education and the Workforce shared jurisdiction with the Committee onWays and Means with respect to fatherhood programs. The Committee on Education and theWorkforce's fatherhood program is identical to that of the Committee on Ways and Means exceptthat it would include five components rather than four and stipulate that no more than 35% of the$20 million annual authorization could be used for the multicity, multistate demonstrations, theeconomic incentives demonstrations, the evaluations, and the projections of national significance. In addition to the four components in the Ways and Means Committee proposal, the Committee onEducation and the Workforce's proposal would authorize the HHS Secretary to make grants availablefor FY2006 through FY2010 for two to five demonstration projects that test the use of economicincentives combined with a comprehensive approach to addressing employment barriers toencourage noncustodial parents to enter the workforce and to contribute financially and emotionallyto their children. The fatherhood demonstration projects would be developed and conducted by anational nonprofit fatherhood promotion organization that meets the qualifications specified in thebill. The bill would stipulate that out of the set-aside monies, at least $5 million is to be allocatedfor the economic incentive demonstration project. ( Note: All of the responsible fatherhoodprovisions in both House Committee bills are included in the House-passed budget reconciliationbill.) Child Support Enforcement The CSE program, Part D of Title IV of the Social Security Act, was enacted in January 1975( P.L. 93-647 ). The CSE program is administered by the Office of Child Support Enforcement(OCSE) in the Department of HHS, and funded by general revenues. All 50 states, the District ofColumbia, Guam, Puerto Rico, and the Virgin Islands operate CSE programs and are entitled tofederal matching funds. The following families automatically qualify for CSE services (free ofcharge): families receiving TANF benefits (Title IV-A), foster care payments (Title IV-E), orMedicaid coverage (Title XIX). Collections on behalf of families receiving TANF benefits are usedto reimburse state and federal governments for TANF payments made to the family. Other familiesmust apply for CSE services, and states must charge an application fee that cannot exceed $25. Child support collected on behalf of nonwelfare families goes to the family (usually through the statedisbursement unit). Services. The CSE program provides sevenmajor services on behalf of children: (1) parent location, (2) paternity establishment, (3)establishment of child support orders, (4) review and modification of support orders, (5) collectionof support payments, (6) distribution of support payments, and (7) establishment and enforcementof medical support. Enforcement Techniques. Collection methodsused by CSE agencies include income withholding, intercept of federal and state income tax refunds,intercept of unemployment compensation, liens against property, security bonds, and reporting childsupport obligations to credit bureaus. All jurisdictions also have civil or criminal contempt-of-courtprocedures and criminal nonsupport laws. Building on legislation ( P.L. 102-521 ) enacted in 1992, P.L. 105-187 , the Deadbeat Parents Punishment Act of 1998, established two new federal criminaloffenses (subject to a two-year maximum prison term) with respect to noncustodial parents whorepeatedly fail to financially support children who reside with custodial parents in another state orwho flee across state lines to avoid supporting them. P.L. 104-193 required states to implement expedited procedures that allow them to secureassets to satisfy an arrearage by intercepting or seizing periodic or lump sum payments (such asunemployment and workers' compensation), lottery winnings, awards, judgements, or settlements,and assets of the debtor parent held by public or private retirement funds, and financial institutions. It required states to implement procedures under which the state would have authority to withhold,suspend, or restrict use of driver's licenses, professional and occupational licenses, and recreationaland sporting licenses of persons who owe past-due support or who fail to comply with subpoenasor warrants relating to paternity or child support proceedings. It also required states to conductquarterly data matches with financial institutions in the state in order to identify and seize thefinancial resources of debtor noncustodial parents. P.L. 104-193 authorized the Secretary of Stateto deny, revoke, or restrict passports of debtor parents. P.L. 104-193 also required states to enact andimplement the Uniform Interstate Family Support Act (UIFSA), and expand full faith and creditprocedures. P.L. 104-193 also clarified which court has jurisdiction in cases involving multiple childsupport orders. Financing. The federal government currentlyreimburses each state 66% of the cost of administering its CSE program. It also refunds states 90%of the laboratory costs of establishing paternity. In addition, the federal government pays states anincentive payment to encourage them to operate effective programs. P.L. 104-193 required the HHSSecretary in consultation with the state CSE directors to develop a new cost-neutral system ofincentive payments to states. P.L. 105-200 , the Child Support Performance and Incentive Act of1998, established a new cost-neutral incentive payment system. The statutory limit of CSE incentivepayments for FY2005 is $446 million. S. 667 and House Budget Reconciliation Bill: MajorProvisions Related to Child Support Enforcement. Over the years, the CSEprogram has evolved into a multifaceted program. While cost-recovery still remains an importantfunction of the program, other aspects of the program include service delivery and promotion ofself-sufficiency and parental responsibility. The CSE program has helped strengthen families by securing financial support for childrenfrom their noncustodial parent on a consistent and continuing basis and by helping some families toremain self-sufficient and off public assistance by providing the requisite CSE services. Childsupport payments now are generally recognized as a very important income source for single-parentfamilies. On average child support constitutes 17% of family income for households that receiveit (2001 data). Among poor families who receive it, child support constitutes about 30% of familyincome (2001 data). Both S. 667 and the House budget reconciliation bill would seek to improve theCSE program and raise collections so as to increase the economic independence of former welfarefamilies and provide a stable source of income for all single-parent families with a noncustodialparent. Although both bills share identical objectives with respect to simplifying CSE assignmentand distribution rules and strengthening the "family-first" policies started in the1996 welfare reformlaw, the approaches used differ. Both bills would revise some CSE enforcement tools and addothers. This section of the report does not discuss all of the CSE provisions included in S.667 and the House bill. For a description of all of the CSE provisions in S. 667as reported by the Senate Finance Committee and the House budget reconciliation bill, see Table2 in the last section of this report. The Congressional Budget Office (CBO) estimates that the Senate FinanceCommittee-reported bill would increase federal outlays in the CSE program by $628 million overthe period FY2006-FY2010, whereas the House budget reconciliation bill would reduce federaloutlays in the CSE program by $4.899 billion over the period FY2006-FY2010. The following twoCSE provisions in the House bill comprise most of the budget reductions (i.e., savings): a phased-inreduction of the matching rate for administrative expenses from 66% to 50%, which saves $3.8billion over the five-year period; and an elimination of the federal match when states spend CSEincentive payments (i.e., reinvest CSE incentive payments back into the program), saving $1.6billion over the five-year period. Assignment of Child Support Rights. As a conditionof receiving TANF benefits, a family must assign their child support rights to the state. Assignmentrules determine who has legal claim on the child support payments owed by the noncustodial parent. The child support assignment covers any child support that accrues while the family receives TANFbenefits as well as any child support that accrued before the family started receiving TANF benefits. Assigned child support collections are not paid to families, but rather this revenue is kept by statesand the federal government as partial reimbursement for welfare benefits. Nonwelfare families whoapply for CSE services do not assign their child support rights to the state and thereby receive all ofthe child support collected on their behalf. An extremely important feature of the assignment process is the date on which an assignmentwas entered. If the assignment was entered on or before September 30, 1997, then pre-assistanceand during-assistance arrearages are "permanently assigned" to the state. If the assignment wasentered on or after October 1, 1997, then only the arrearages which accumulate while the familyreceives assistance are "permanently assigned." The family's pre-assistance arrearages are"temporarily assigned" and the right to those arrearages goes back to the family when it leaves TANF(unless the arrearages are collected through the federal income tax refund offset program). Under S. 667 as reported by the Senate Finance Committee, the child supportassignment would only cover any child support that accrues while the family receives TANFbenefits. This would mean that any child support arrearages that accrued before the family startedreceiving TANF benefits would not have to be assigned to the state (even temporarily) and therebyany child support collected on behalf of the former-TANF family for pre-assistance arrearages wouldgo to the family. The House bill includes a similar provision. Distribution of Child Support. Distribution rulesdetermine the order in which child support collections are paid in accordance with the assignmentrules. In other words, the distribution rules determine which claim is paid first when a child supportcollection occurs. The order of payment of the child support collection is of tremendous importancebecause in many cases past-due child support (i.e., arrearages) are never fully paid. TANF Families. While the family receives TANF benefits, the state ispermitted to retain any current support and any assigned arrearages it collects up to the cumulativeamount of TANF benefits which has been paid to the family. The 1996 welfare law ( P.L. 104-193 )repealed the $50 required pass through and gave states the choice to decide how much, if any, of thestate share (some, all, none) of child support payments collected on behalf of TANF families to sendthe family. States also decide whether to treat child support payments as income to the family. While states have discretion over their share of child support collections, P.L. 104-193 requiredstates to pay the federal government the federal government's share of child support collectionscollected on behalf of TANF families. This means that the state, and not the federal government,bears the entire cost of any child support passed through to (and disregarded by) families. As ofAugust 2004, 18 states were continuing the $50 (or higher in one state) pass-through and disregardpolicy that had been in effect pre-1996. Both bills would provide incentives (in the form of federal cost sharing) to states to directmore of the child support collected on behalf of TANF families to the families themselves (oftenreferred to as a "family-first" policy), as opposed to using such collections to reimburse state andfederal coffers for welfare benefits paid to the families. However, the approaches of the bills differwith respect to the amount of federal cost-sharing provided and whether to help states pay for thecurrent cost of their CSE pass-through and disregard policies or to encourage states to establish suchpolicies or increase the pass-through and disregard already in place. Under S. 667 as reported by the Senate Finance Committee, the federalgovernment would share in the costs of the entire amount of pass-through and disregard policies usedby states. S. 667 would allow states to pay up to $400 per month in child support collectedon behalf of a TANF (or foster care) family ($600 per month to a family with two or more children)to the family and would not require the state to pay the federal government the federal share of thosepayments. In order for the federal government to share in the cost of the child support pass-through,the state would be required to disregard (i.e., not count) the child support collection paid to thefamily in determining the family's TANF benefit. Unlike S. 667 , the House bill is intended to provide states with an incentive toincrease their pass-through and disregard policies. The House budget reconciliation bill would allowstates to increase the amount of collected child support they pay to families receiving TANF benefitsand would not require the state to pay the federal government the federal share of the increasedpayments. The subsidized child support pass-through payments would be the amount above anypayments the state was making on December 31, 2001. The House bill would limit the federalgovernment's cost-sharing of the new pass-through payments to the greater of $100 per month or $50per month more than the state previously was sharing with the family. In order for the federalgovernment to share in the cost of an increase in the child support pass-through, the state would berequired to disregard (i.e., not count) the child support collection paid to the family in determiningthe family's TANF benefit. Former TANF Families. Pursuant to the 1996 welfare reform law ( P.L.104-193 ), beginning on October 1, 2000, states must distribute to former TANF families thefollowing child support collections first before the state and the federal government are reimbursed(the "family-first" policy): (1) all current child support, (2) any child support arrearages that accrueafter the family leaves TANF (these arrearages are called never-assigned arrearages), plus (3) anyarrearages that accrued before the family began receiving TANF benefits. (Any child supportarrearages that accrue during the time the family is on TANF belong to the state and federalgovernment.) One of the goals of the 1996 welfare reform law with regard to CSE distribution provisionswas to create a distribution priority that favored families once they leave the TANF rolls. Thus,generally speaking, under current law, child support that accrues before and after a family receivesTANF goes to the family, whereas child support that accrues while the family is receiving TANFgoes to the state. This additional family income is expected to reduce dependence on publicassistance by both promoting exit from TANF and preventing entry and re-entry to TANF. S. 667 as reported by the Senate Finance Committee would give states the optionof distributing to former TANF families the full amount of child support collected on their behalf(i.e., both current support and all child support arrearages -- including arrearages collected throughthe federal income tax refund offset program). S. 667 would simplify the CSE distributionprocess and eliminate the special treatment of child support arrearages collected through the federalincome tax refund offset program. Under S. 667 the federal government would share withthe states the costs of paying child support arrearages to the family first. Similarly, the House bill would give states the option of distributing to former TANF familiesthe full amount of child support collected on their behalf. Under the House bill, the federalgovernment would share with the states the costs of paying child support arrearages accrued whilethe family received TANF as well as costs associated with passing through to the family childsupport collected through the federal income tax refund offset program, if the state chose the"family-first" option. Expansion of Collection/Enforcement Tools. Bothbills would include identical or similar provisions with respect to (1) lowering the threshold amountfor denial of a passport to a noncustodial parent who owes past-due child support; (2) easing thecollection of child support from veterans' benefits; (3) allowing states to use the federal income taxrefund offset program to collect past-due child support for persons not on TANF who are no longerminors; (4) authorizing the HHS Secretary to compare information of noncustodial parents who owepast-due child support with information maintained by insurers concerning insurance payments andto furnish any information resulting from a match to CSE agencies so they can pursue child supportarrearages; and (5) allowing an assisting state to establish a child support interstate case based onanother state's request for assistance (thereby enabling an assisting state to use the CSE statewideautomated data processing and information retrieval system for interstate cases). Additional provisions that would expand and/or enhance the ability of states to collect childsupport payments are contained in S. 667 as reported by the Senate Finance Committee. They include (1) authorizing the HHS Secretary to act on behalf of states to seize financial assets(held by a multi-state financial institution) of noncustodial parents who owe child support; (2)facilitating the collection of child support from Social Security benefits; (3) requiring that medicalsupport for a child be provided by either or both parents; and (4) requiring the CSE agency to notifyhealth care plan administrators under certain circumstances when a child loses health care coverage. Other Provisions. Both bills include provisions thatwould (1) require states to review and if appropriate adjust child support orders of TANF familiesevery three years; (2) require the HHS Secretary to submit a report to Congress on the proceduresstates use to locate custodial parents for whom child support has been collected but not yetdistributed; (3) establish a minimum funding level for technical assistance; (4) establish a minimumfunding level for the Federal Parent Locator Service; and (5) designate Indian tribes and tribalorganizations as persons authorized to have access to information in the Federal Parent LocatorService. S. 667 includes provisions that would (1) increase funding for the CSE accessand visitation program; (2) require states to adopt a later version of the Uniform Interstate FamilySupport Act (UIFSA) so as to facilitate the collection of child support payments in interstate cases;and (3) allow the state of Texas to continue to operate its CSE program for automatic monitoring andenforcement of court orders on behalf of nonwelfare families without applying for a federal waiver. The House budget reconciliation bill includes provision that would (1) establish a $25 annualfee for individuals who have never been on TANF but receive CSE services and who received atleast $500 in any given year; (2) gradually reduce the general CSE federal rate of 66% to 50% (overthe period FY2007-FY2010); and (3) eliminate the federal match on CSE incentive payments thatstates, in compliance with federal law, reinvest back into the CSE program. Other Programs In addition to reauthorizing and modifying the programs discussed above, the Senate welfarereauthorization bill ( S. 667 ) and the House budget reconciliation bill would modifysome other programs: Transitional Medical Assistance (TMA) , which is a program that extends atleast six and up to 12 additional months of Medicaid coverage for families leaving welfare for work. Authority for the TMA program is scheduled to expire on December 31, 2005 at which time, absentcongressional action, four months of Medicaid coverage to such families would be provided. S. 667 would extend 12-month TMA through the end of FY2010 and provide stateoptions to reduce required beneficiary reporting of income to continue to receive TMA after sixmonths and allow for up to 24 months of TMA. The House reconciliation bill would not extendTMA beyond December 31, 2005. (4) State abstinence education grants. The program providing grants to statesfor abstinence-only education is scheduled to expire on December 31, 2005. S. 667 would extend this program through FY2010. The House budget reconciliation bill would not includean extension of this program. Child welfare programs. Both S. 667 and the House budgetreconciliation bills would extend the authority for states to operate child welfare "waiver" programsthrough FY2010. The House bill would add additional instructions to HHS regarding waiverapproval policies and availability of waiver reports. The Senate committee bill would allow Indiantribes to receive direct federal funding to operate foster care and adoption assistance programs andwould also permit Puerto Rico to receive limited additional federal foster care funds. The Housebudget reconciliation bill includes two provisions intended to reduce federal outlays for foster careand adoption assistance: 1) it seeks to nullify a court rule (known as the Rosales case) that expandseligibility for foster care in certain states; and 2) it limits the period of time partial federalreimbursement of foster care costs can be provided for children who are placed with relatives whoare not licensed to provide foster care, and it requires states seeking this partial federal matching onbehalf of children who are at "imminent risk" of removal from their homes to redetermine the statusof these children as "candidates" for foster care every six months. Supplemental Security Income (SSI). Both S. 667 and the Housebudget reconciliation bill would require that a certain percentage of disability determinations by statedisability agencies be reviewed by the federal government. S. 667 would also extend theperiod of SSI eligibility for refugees and asylees from seven to nine years. The House bill attemptsto achieve budget reductions by requiring that certain back payments be paid in installments overtime, rather than in one lump sum. Detailed Comparison of Senate Committee Bills and the House Budget ReconciliationBill Table 2 provides a detailed comparison of welfare and related provisions in the two Senatecommittee bills ( S. 667 and S. 525 ) and the House budget reconciliationbill. For the Senate proposals, the table notes both the bill and section numbers. The House budgetreconciliation bill is organized by Titles reflecting each House committee's legislative changes. Thewelfare and related proposals are found both in Title II, from the Education and WorkforceCommittee, and Title VIII of the bill, from the Ways and Means Committee. In most respects, thecommittees reported identical legislative language. In those cases, Table 2 provides both sectionreferences for identical provisions. In cases where the two committees reported different provisions,the table separately indicates the Education and the Workforce and Ways and Means provisions. The House budget reconciliation bill is an omnibus bill that includes many provisionsunrelated to welfare reform programs. Those provisions are not discussed in this report and notshown on the table. Further, S. 667 makes a number of changes to the earned incomeand child tax credits. The tax provisions of S. 667 are also not addressed in this report orshown on the table. Table 2. Comparison of Current Law with S. 667/525 and the House Budget Reconciliation Bill WelfareProvisions

The 109th Congress is considering legislation to reauthorize and amend programs that werecreated or revised in the 1996 welfare reform law. Early in 2005, the Senate Committees on Financeand Health, Education, Labor, and Pensions (HELP) reported their welfare reauthorization legislation(respectively, S. 667 and S. 525 ). These bills have yet to see floor actionand remain pending in the Senate. The House passed welfare reauthorization as part of its spendingbudget reconciliation bill (the House-passed version of S. 1932 ). The Senate-passed spending reconciliation bill does not include welfare reauthorization provisions. Both the Senate Finance Committee bill and the House reconciliation bill would reauthorizethrough FY2010 and revise the block grant of Temporary Assistance for Needy Families (TANF). They both revise TANF work participation standards aimed to require more families on the welfarerolls to work or participate in job preparation activities. The Senate committee bill would allow abroad range of activities engaged in by recipients to count toward meeting these standards, while theHouse bill would narrow the focus of activities to work or "workfare" outside of a four-monthperiod. Both the Senate committee and House reconciliation bills also would establish $200 millionper year in grants to promote "healthy" marriages. Both the Senate committee and House reconciliation bills would extend and increase fundingfor mandatory child care, though the size of the funding increase is a major difference between thetwo proposals -- $6 billion over five years in the Senate committee bill and $0.5 billion over fiveyears in the House bill. Both would also reauthorize the Child Care and Development Block Grant(CCDBG), increasing its authorization to $3.1 billion by FY2010, and would revise CCDBG rules,including those related to making school-readiness a program goal and increasing the percentage offunds to improve the quality of child care. Both the Senate committee and House reconciliation bills would revise the Child SupportEnforcement program to provide financing options for states to pay more collected child support tofamilies on TANF or who have left the rolls. (Generally, federal and state governments keep childsupport collected for TANF families as reimbursement for their welfare costs.) The Senatecommittee bill would provide partial federal funding for child support passed through to families --up to $400 per month for one child and $600 per month for two or more children. The House billwould provide partial federal funding to states that increase the amount of passed-through childsupport. The House reconciliation bill also would reduce federal funding to the states to operatetheir child support programs. Both Senate committee and House bills would also establish"responsible fatherhood" programs to fund activities to increase the participation of noncustodialparents in their children's lives. The Senate committee bill would provide $50 million per year inmandatory funding (and authorize another $26 million per year); the House reconciliation bill wouldauthorize (but not provide funding) for up to $20 million per year. This report will be updated asneeded.

Most Recent Developments September 22, 2008: The United States launches negotiations to join the Trans-Pacific Economic Partnership Agreement. July 29, 2008: A WTO negotiating ministerial ends without agreement on Doha Round modalities in Geneva. July 14, 2008: The United States and Malaysia held a round of FTA negotiations. June 25, 2008: Korean government announces resumption of U.S. beef imports from cattle less than 30 months of age. April 18, 2008: The United States and South Korea reach an agreement to fully open the Korean market to U.S. beef exports. April 10, 2008: The House passed a rule ( H.Res. 1092 ) to suspend trade promotion authority procedures governing the consideration of legislation implementing the U.S.-Colombia FTA by a vote of 224-195. April 8, 2008: Legislation implementing the U.S.- Colombia FTA was introduced in the House ( H.R. 5724 ) and the Senate ( S. 2830 ). Introduction For over 50 years, U.S. trade officials have negotiated multilateral trade agreements to achieve lower trade barriers and rules to cover international trade. During the 108 th Congress, U.S. officials negotiated and Congress approved four bilateral free-trade agreements with Australia, Chile, Morocco, and Singapore. In the 109 th Congress agreements were concluded and Congress approved the Central American-Dominican Republic FTA and bilateral agreements with Bahrain and Oman. The Bush Administration is making bilateral and regional free-trade agreements more important elements of its trade policy. The multilateral arena is no longer the only means, or perhaps even the principal means, by which the United States is pursuing liberalized trade. Trade agreements are negotiated by the executive branch, although Congress has the ultimate Constitutional authority to regulate interstate and foreign commerce. Trade promotion authority (TPA) requires that the President consult with and advise Congress throughout the negotiating process. After the executive branch signs an agreement, Congress may consider implementing legislation if any statutory changes are required under the agreement. There is no deadline for submission of the legislation, but once a bill is submitted, TPA requires a final vote within 90 legislative days. U.S. Negotiating Strategy U.S. negotiating strategy is based on a concept known as "competitive liberalization." As explained by the Administration, this strategy is designed to push forward trade liberalization on multiple fronts: bilateral, regional, and multilateral. It is meant to further trade negotiations by liberalizing trade with countries willing to join free trade agreements, and to put pressure on other countries to negotiate in the WTO. According to former United States Trade Representative (USTR) Robert B. Zoellick, we want to strengthen the hand of the coalition pressing for freer trade. It would be fatal to give the initiative to naysayers abroad and protectionists at home. As we have seen in the League of Nations, the UN, the IMF and the World Bank, international organizations need leaders to prod them into action. Critics assert that the emphasis on regional and bilateral negotiations undermines the World Trade Organization (WTO) and increases the risk of trade diversion. Trade diversion occurs when the existence of lower tariffs under a trade agreement cause trade to be diverted away from a more efficient producer outside the trading bloc to a producer inside the bloc. What also results from the plethora of negotiated FTAs, according to one economist, "is a 'spaghetti bowl' of rules, arbitrary definitions of which products come from where, and a multiplicity of tariffs depending on source." More recently, new USTR Susan Schwab described the negotiation of bilateral and regional FTAs as a way to "establish the breadth and scope of potential multilateral agreements in years to come by setting precedents and by demonstrating the real benefits of free and fair trade." The manner in which the Administration chooses potential FTA partners has been the subject of scrutiny by some Members of Congress. Traditionally, regional and bilateral trade agreements have been negotiated for a mixture of economic, political, and development reasons. The U.S.-Canada Free-Trade Agreement (FTA) was primarily economic in nature: recognizing the largest bilateral trade relationship in the world between two countries at a similar stage of development. The partnership with Mexico to create NAFTA brought in a country at a different stage of development and gave attention to trade as a lever to encourage economic advancement. It also had a geopolitical rationale of encouraging stability in the U.S. neighbor to the south. The FTA with Israel was seen by supporters as an affirmation of U.S. support for the Jewish state, while the FTA with Jordan could be seen as a reward for Jordan's cooperation in the Middle East peace process. In May 2003, then-USTR Zoellick enumerated several factors used to evaluate countries seeking to negotiate trade agreements with the United States, but he said there were no formal rules or procedures to make the determination. A GAO study released in January 2004 reported that an interagency process had been established to assess FTA partners using six factors. These factors include a country's readiness in terms of trade capabilities, the maturity of its political and legal system, and the will to implement reforms; the economic benefit to the United States; the country's support of U.S. trade liberalization goals; a partner's compatibility with U.S. foreign and economic policy interests; congressional or private sector support; and U.S. government resource constraints. The ability of the United States to attract future FTA negotiating partners may now depend on the reauthorization of trade promotion authority, which lapsed on July 1, 2007. Some Members of Congress have questioned the manner in which potential FTA partners are chosen. Senator Baucus, now Chairman of the Senate Finance Committee, criticized the Administration for overlooking high volume trading partners in Asia and was quoted saying that "this Administration's trade policy is dictated largely by its foreign policy, not by economics." In addition, some business groups have expressed a desire to concentrate more on the multilateral negotiations of the WTO, which potentially could yield greater commercial gains. The Administration cites the negotiation of free trade agreements in multilateral, regional, and bilateral settings as an integral part of its strategy to enhance prosperity and freedom for the rest of the world. In its September 2002 National Security Strategy, the Administration seemed to equate the concept of 'free trade' with a basic freedom or moral principle, "the freedom for a person or a nation to make a living." According to this document, free-market economic and trade policies, more than development assistance, provides nations with the ability to lift themselves out of poverty and to ensure stability. Although the Administration is pursuing trade agreements on multiple fronts, some critics question whether the United States should be negotiating trade agreements at all. They contend that American jobs are lost because of cheaper imports, and that relocation of U.S. production to other countries has been facilitated by trade agreements. Some argue that trade agreements do not adequately address the problem of countries with lower labor and environmental standards that are able to produce at lower cost. Some critics believe that the U.S. economy will be harmed by the Administration's pursuit of free-trade agreements. With party control switching in the 110 th Congress, Democratic leaders have sought to make changes in U.S. trade negotiating strategy. On March 27, 2007, House Ways and Means Committee Chairman Rangel and Trade Subcommittee Chairman Levin unveiled a set of Democratic trade principles, including some that likely will require, if implemented, the modification of the currently notified FTAs with Colombia, Panama, Peru, and South Korea. After several weeks of negotiations, congressional leaders and the Bush Administration announced a conceptual agreement on May 10 on several issues that may clear the way for consideration of the Peru and Panama agreements. The conceptual template provides for enforcement of international labor standards in an FTA partner's domestic laws and regulations, adherence of FTA partners to certain multilateral environmental agreements, an assurance that trade agreements accord "no greater substantive rights" to foreign investors in the United States than U.S. investors in the United States, a clarification that each agreement's "essential security" provision is not subject to challenge, insurance that government procurement policies promote basic worker's rights, and the incorporation of certain flexibilities concerning test data and the approval of pharmaceutical products in developing countries. The result of the competitive liberalization strategy is that the United States has been involved in an unprecedented number of trade negotiations during this Administration. The United States has concluded agreements with Peru, Colombia, Panama, and South Korea. Legislation to implement these agreement likely will be considered by the 110 th Congress under the timetable set forth by trade promotion authority (see Table 1 ). During the 109 th Congress, the United States ratified FTAs with Bahrain, Oman, and a combined FTA with the Dominican Republic and the countries of the Central American Common Market (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua). Implementing legislation for these agreements has been passed by the United States, but the agreements have not yet entered into force with Oman or Costa Rica. TPA Notification and Consultation Requirements Later sections of this report refer to formal notifications by the Administration to Congress. Under trade promotion authority (TPA) legislation passed in 2002 (Title XXI, P.L. 107-210 ), the President must notify Congress before starting negotiation of a trade agreement and before signing a completed agreement. TPA legislation applies to trade agreements entered into before July 1, 2007. If the Administration meets the notification requirements, consults as required, and satisfies other conditions in the TPA legislation, the 2002 legislation calls on Congress to consider implementing legislation for a trade agreement under expedited ("trade promotion" or "fast-track") procedures. The following briefly reviews the notification and consultation requirements. Before the Start of Negotiations Before starting negotiations, the Administration must notify Congress at least 90 calendar days in advance. (This requirement was waived for certain negotiations that were underway before enactment of the TPA legislation.) Before and after submitting this notice, the Administration must consult with the relevant congressional committees and the Congressional Oversight Group (COG). The Administration must comply with certain additional consultation and assessment requirements for agricultural, textile and apparel, and fish and shellfish negotiations. During Negotiations In the course of negotiations, the USTR must consult closely and on a timely basis with the COG and all committees of jurisdiction. Guidelines developed by the USTR, in consultation with the House Ways and Means Committee and the Senate Finance Committee (the revenue committees), cover briefings of the COG, access by COG members and staff to documents, and coordination between the USTR and the COG at critical periods of the negotiations. Before Signing the Agreement At least 180 calendar days before signing a trade agreement, the President must report to the revenue committees on proposals that might require amendments to U.S. trade remedy laws. At least 90 calendar days before entering into a trade agreement, the President must notify Congress of the intention to enter into the agreement. No later than 30 days after this notification, private sector advisory committees must submit reports on the trade agreement to Congress, the President, and the USTR. Also at least 90 calendar days before entering into a trade agreement, the President must provide the International Trade Commission (ITC) with the details of the trade agreement and request an assessment. The USTR must consult closely and on a timely basis (including immediately before initialing an agreement) with the revenue committees, the COG, and other congressional advisers, and with the agriculture committees when an agreement relates to agricultural trade. Entering Into the Agreement Within 60 days of entering into the agreement, the President must submit a list of required changes to U.S. law that likely would be necessary to bring the United States into compliance with the agreement. Not later than 90 calendar days after the President enters into an agreement, the ITC must report to the President and to Congress on the likely impact of the agreement on the U.S. economy and on specific industrial sectors. There is no deadline for submission of an implementing bill. However, once the President send a draft implementing bill (with the final text of the agreement and supporting materials), it is introduced and referred to the House Ways and Means Committee and Senate Finance Committee. Each committee has 45 days to report the legislation or it is discharged to the full chamber. As implementing legislation likely will have revenue provisions (and thus must originate in the House), the Senate committee may alternatively consider the House-passed legislation within 15 days of receiving it from the House. After the legislation is reported (or discharged), each chamber has 15 days to vote the legislation up or down with no amendments and 20 hours of debate. Thus, after introduction Congress has a maximum of 90 legislative days to consider the implementing bill, although the process may be shortened if the two chambers act concurrently. Agreements Reached Colombia Negotiations with Colombia started as a regional agreement with the countries of the Andean Community, but subsequently pursued separate tracks. The United States signed a deal with Colombia on February 27, 2006; President Bush notified Congress of his intent to enter into an agreement with Colombia on August 24 and the agreement was signed on November 22, 2006. Colombia was the 30 th largest trading partner of the United States in 2007 with bilateral trade totaling $17.1 billion ($7.2 billion in exports and $9.9 billion in imports). Leading U.S. imports include petroleum, coffee, spices, apparel, cut flowers, gold, and precious and semi-precious stones. Prominent U.S. exports to Colombia are heavy construction and drilling equipment, chemicals, cellular and line telephony equipment, plastics, and cereal grains. As with Peru, many of Colombia's exports to the United States enter duty free under the Andean Trade Promotion and Drug Eradication Act (ATPDEA) ( P.L. 107-210 ), which was recently extended to February 29, 2007, and the GSP. The recent trade policy template, discussed above, calls for the inclusion of its provisions to the Colombia agreement. However, a letter informing Ambassador Schwab of the Agreement from Chairmen Rangel and Levin to USTR Schwab highlighted the need to address "systemic and persistent violence against trade unionists and other human rights defenders" in Colombia. On June 29, 2007, House Democratic leaders, citing the necessity of "sustained results on the ground" against such violence, announced that they would not support the Colombia FTA "at this time." On April 8, 2008, the President sent legislation implementing the U.S.-Colombia FTA ( H.R. 5724 , S. 2830 ) to Congress under trade promotion authority. Two days later, the House adopted a rule ( H.Res. 1092 ) to suspend TPA rules governing consideration of H.R. 5724 by a vote of 224-195. Panama During a hemispheric trade summit in Miami on November 18, 2003, then-USTR Zoellick announced that the Administration had formally notified Congress of its intent to begin negotiations for an FTA with Panama. Those bilateral negotiations formally began on April 25, 2004, in Panama City, Panama. In announcing the proposed FTA, the USTR cited Panama's return to democracy, its position as a regional financial and commercial center, and its assistance with counternarcotics, anti-terrorism, and anti-money laundering efforts. However, the negotiations stalled primarily over agriculture and government procurement issues, and were further delayed in the run-up to an October 2006 referendum on enlarging the Panama Canal. On December 19, 2006, USTR announced the completion of negotiations, subject to further discussions on labor issues. President Bush notified Congress of his intention to sign the agreement on March 30, 2007. However, the labor and environmental provisions of the Panama agreement were left open pending agreement with Congress. The trade policy template agreed upon by congressional leaders and the Administration on May 10 was incorporated into the agreement, and Panama signed the agreement on June 28, 2007. The Panamanian National Assembly ratified the accord on July 11, 2007. Consideration of the agreement by Congress has been complicated by the September 1, 2007, election of Pedro Miguel Gonzales as President of Panama's National Assembly. He is wanted by U.S. authorities in connection with the murder of a U.S. soldier in Panama City in 1992. On September 25, Ways and Means Chairman Rangel reportedly referred to the Gonzales issue as an "800-pound gorilla with Panama right in the middle of the living room.... This guy murdered a U.S. soldier. It kind of makes labor and worker rights look kind of small." Panama was the 62 nd largest trading partner of the United States in 2007 with total trade of $3.9 billion. U.S. imports of $361 million were led by shrimp, fresh fish, precious or semi-precious metals, refined petroleum, and sugar. U.S. exports in 2007 totaled $3.5 billion and were comprised of refined petroleum, aircraft, medicaments, corn, computer parts and accessories and telecommunications equipment. Many Panamanian goods enter duty-free through the Caribbean Basin Initiative and the GSP. South Korea The Administration notified Congress on February 3, 2006, of its intent to begin FTA negotiations with South Korea. After eight formal rounds of negotiation, and nearly round-the-clock sessions at the end March 2007, the United States and South Korea concluded an FTA on April 1. The Administration simultaneously notified Congress of its intention to enter into this agreement. South Korea is the seventh largest trading partner of the United States with two-way trade totaling $78.4 billion in 2007—$33.0 billion in exports and $45.4 billion in imports. Motor vehicles, computers and computer equipment, and consumer electronics are major import categories; major U.S. exports include electrical and industrial machinery, aviation, chemicals, and aircraft. To achieve the agreement, negotiators resolved several thorny issues of agriculture, auto tariffs, intellectual property rights, services trade, and the Kaesong industrial complex. Both sides will remove their auto and light truck tariffs, immediately or over time, and Korea agreed to remove its engine-displacement tax. However, no guaranteed market access for U.S. autos was provided in the agreement, as was sought by some Members of Congress. In other areas, products from the Kaesong industrial complex in North Korea are not covered by the agreement, and South Korea agreed to adopt strengthened laws concerning intellectual property rights, especially patent and data protection for U.S. pharmaceuticals. In addition, South Korea accepted liberalization of certain service sectors including financial services, legal services, and U.S. ownership of telecommunications companies. The House version of the trade policy template agreed on May 10 contained a note indicating that Korea's "systematic barriers" to trade in automotive, manufactures, agriculture, and services "will have to be addressed." Concerning agriculture, Korea will not provide additional access for rice, but other U.S. agricultural exports will either become duty free immediately or tariffs will be phased out over a 10-year period. Tariffs on beef will be removed over a 15-year period, but the agreement did not address the health restrictions imposed on U.S. beef. Korea closed its market to U.S. beef due to an outbreak of bovine spongiform encephalopathy (BSE) in 2003. The ban was lifted on boneless beef imports from cattle under 30 months of age in September 2006, but imports were halted again in October 2007 after bone fragments were found in shipments. On April 18, 2008, the two sides reached an agreement to allow deboned, bone-in, offals and variety beef products, and processed beef products from cattle under 30 months of age immediate entry and from cattle over 30 months after the imposition U.S. feedstock safeguards to prevent a recurrence of BSE. Mounting public protests in Korea, including riots in Seoul on May 30-June 1, caused the government to delay the imposition of the protocol on under 30-month imports until June 25 2007, and has put off accepting beef over 30-months. Agreements Under Negotiation The WTO Doha Round At the fourth Ministerial meeting of the World Trade Organization (WTO) in Doha, Qatar, on November 9-14, 2001, trade ministers from over 140 member countries of the World Trade Organization agreed to launch a new round of multilateral trade negotiations. The negotiations became known as the Doha Development Agenda, because of the possibility of increased participation of developing-country members, which now account for about four-fifths of the WTO members. The work program combined ongoing negotiations on agriculture and services liberalization with new negotiations on trade barriers for industrial products, WTO rules on dumping and subsidies, several topics that developing countries had sought such as easier access to medicines under the existing WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and so-called "Singapore issues" (investment, competition, transparency in government procurement, and trade facilitation). On August 1, 2004, negotiators in Geneva reached agreement on a framework for the conduct of future negotiations. This framework had been the goal of the unsuccessful fifth Ministerial, held in Cancun, Mexico, in September 2003. The framework provides a blueprint for future negotiations on agriculture, non-agricultural market access (NAMA), and services. Ministers also agreed to begin negotiations on trade facilitation, but the other so-called Singapore issues of government procurement, investment, and trade and competition policy were dropped from the Doha round negotiations. Members acknowledged that the December 31, 2004, deadline for completion of the round would not be met, and the framework set no new deadline. The deadline for submitting an agreement to be considered under TPA has now passed. For an agreement to be considered under TPA, Congress must have been notified by April 2, 2007. At this point, the parties likely will seek to achieve some measure of progress in the negotiations in the hope that the 110 th Congress may renew or extend TPA. However, the House leadership announced that their "legislative priorities do not include the renewal of fast-track (i.e., TPA) authority" on June 29, 2007. Following agreement on any negotiating modalities, countries must apply the formulas adopted, including any flexibilities, to their tariff schedules, must verify the schedule of concessions of other countries, and engage in bilateral negotiations over those schedules. This process is expected to take several months. The WTO's sixth Ministerial was held in Hong Kong from December 13-18, 2005. Although certain concrete steps were taken on assistance to least developed countries (LDCs), an end date of 2013 for agricultural exports subsidies, and the use of a "Swiss" formula in the NAMA negotiations, broader agreement on the modalities of the talks remain elusive. A new deadline for agriculture and industrial market modalities was set for April 30, 2006, but that deadline, like all the others, came and went. An end of June 2006 summit of trade negotiators likewise failed in their attempt to achieve agriculture and industrial market access modalities. On July 24, 2006, Director-General Pascal Lamy "suspended" the negotiations after a July 23 session of the G-6 negotiating group (United States, European Union, Japan, Australia, Brazil, and India) ended in deadlock. Lamy made no indication on when, or if, the negotiations would resume. Subsequently, several WTO groups such as the G-20 and the Cairns Group of agricultural exporters have met to lay the groundwork to restart the negotiations. On January 31, 2007, Lamy announced the talks were back in "full negotiating mode" with the prospect of formal negotiating sessions resuming in Geneva. Although members of the G-6 negotiating group on April 12, 2007, pledged to complete the negotiations by the end of 2007, negotiations between the United States, European Union, Brazil, and India again failed to reach an agreement on key agricultural and industrial market access modalities at a meeting in Potsdam, Germany, on June 21, 2007. During the summer and fall of 2007, the chairmen of the agriculture, industrial, and rules negotiating groups released new draft texts. Revisions to these texts were released on February 8, 2008. While elements of each of these texts have proved controversial, they have served to continue the engagement of the various parties in Geneva at a time when many have predicted the demise of the round. However, another "make-or-break" summit of trade ministers in Geneva broke up on July 29, 2008 without achieving a breakthrough on modalities. This time, negotiations broke up over the "special safeguard mechanism," a device that would have allowed developing countries to reinstate protective tariffs on agricultural products in the event of import surges. The Trans-Pacific Economic Partnership/New Zealand/Brunei On September 22, 2008, the United States announced the launch of negotiations to join the Trans-Pacific Strategic Economic Partnership (P-4), an FTA currently comprised of Brunei Darussalam, Chile, New Zealand, and Singapore. Entering into the P-4 agreement entails the negotiation of FTAs with New Zealand and Brunei Darussalam, as the United States currently has FTAs in effect with Chile and Singapore. While the FTA between the P-4 countries was concluded in 2006, the investment and financial services chapters are still under negotiation, and the United States joined those discussions in February 2008. In addition, U.S. FTA partner Australia has also expressed interest in joining the agreement. Historically there has been some resistance to an FTA with New Zealand, due to its refusal to support the United States in the Iraq war. However, New Zealand's participation in coalition peacekeeping and reconstruction activities in Afghanistan as well as cooperation with the United States in other geopolitical issues of common concern has diminished that resistance. In addition, New Zealand has encouraged U.S. participation in the P-4 negotiations, which trade minister Philip Goff described as "an unparalleled opportunity to influence the evolving regional trade and economic architecture" in Asia. An FTA with New Zealand likely will entail tough negotiations on sensitive U.S. agriculture sectors such as beef, lamb, and dairy products, although many of these issues were also negotiated for the U.S.-Australia FTA. The National Milk Producer's Federation has sought an exclusion for the dairy industry, and beef cattle groups are reportedly concerned with the future of the tariff-rate quota (TRQ) on beef imports from New Zealand. New Zealand was the 54 th largest trading partner of the United States in 2007 with two-way trade of $5.8 billion. U.S. imports of $3.1 billion were led by meat, dairy products, wood products, and machinery. U.S. exports of $2.7 billion were led by machinery, aircraft and parts, electronic equipment and vehicles. Brunei is a relatively minor trading partner of the United States (112 th largest) with total trade of $480.1 million in 2007 ($138.4 in exports, $341.7 in imports). Free Trade Area of the Americas In 1994, 34 Western Hemisphere nations met at the first Summit of the Americas, envisioning a plan for a Free Trade Area of the Americas (FTAA) by January 2005. The FTAA is a regional trade proposal among 34 nations of the Western Hemisphere that would promote economic integration by creating, as originally conceived, a comprehensive (presumably WTO-plus) framework for reducing tariff and nontariff barriers to trade and investment. The United States traded $1,066.4 billion worth of goods with the FTAA countries in 2007: $426.6 billion in exports and $649.8 billion in imports. Formal negotiations commenced in 1998, and five years later, the third draft text of the agreement was presented at the Miami trade ministerial held November 20-21, 2003. The FTAA negotiations, however, have been deadlocked, with Brazil and the United States, the co-chairs of the Trade Negotiations Committee (TNC) that oversees the process, at odds over how to proceed. Deep differences remain unresolved as reflected in the Ministerial Declaration, which has taken the FTAA in a new direction. It calls for a two-tier framework comprising a set of "common rights and obligations" for all countries, augmented by voluntary plurilateral arrangements with country benefits related to commitments. The fourth Summit of the Americas took place in November 2005 at Mar del Plata, Argentina, but there was no agreement on reviving negotiations. Progress on the FTAA still depends on Brazil and the United States agreeing on a common set of obligations and defining parameters for plurilateral arrangements. This goal remains elusive, despite ongoing communications between their trade representatives. In the meantime, the trade dynamics of the region are changing, with many in the region heading toward bilateral agreements with the United States, the EU, and each other. Brazil and other Mercosur countries may have to evaluate the welfare tradeoffs of entering a deeper versus a shallower two-tier FTAA, or no FTAA at all, given the agreements forming around them. In March 2005, the Government Accountability Office (GAO) issued a report criticizing the handling of the FTAA negotiations by its two co-chairs, the United States and Brazil. It faulted two mechanisms intended to facilitate progress as having failed to revitalize the talks, the two-tiered negotiating structure and the co-chairmanship of the U.S. and Brazil. It also faulted the two nations for placing a higher priority on other trade negotiations, such as the Doha Round and other regional FTAs. Bilateral Negotiations Malaysia The Administration announced FTA negotiations with Malaysia on March 8, 2006. Despite five rounds of negotiations, the USTR announced on March 23, 2007 that an agreement would not be reached in time to be considered under TPA. However, negotiations have continued in 2008, the most recent being held on July 14. Malaysia is the 15 th largest trading partner of the United States with two-way trade totaling $43.0 billion in 2007—$10.2 billion in exports and $32.8 billion in imports. Major exports to Malaysia include electronic circuitry, computer parts and equipment, scientific equipment, aircraft, and machinery. U.S. imports from Malaysia include computers and parts, electrical machinery, telecommunications equipment, furniture, and rubber products. In the negotiations, the United States is seeking the removal of import licensing restrictions on motor vehicles, removal of government procurement restrictions, increased IPR protection, and liberalized protected financial services. Government procurement restrictions, in which a certain share of Malaysian business is reserved for ethnic Malays, has been identified as a major obstacle in the negotiations. A second major disagreement is the scope of services liberalization. The United States is reportedly insisting on using a negative list modality for the services negotiations, which would result in liberalization of all services not specifically exempted. Conversely, the Malaysians are seeking a positive list—each service sector would require specific identification and agreement to be covered. Thailand On February 12, 2004, the Administration officially notified Congress of its intent to negotiate an FTA with Thailand. Negotiations began formally on June 28, 2004, in Hawaii and the latest round of talks took place in January 2006, in Chiang Min, Thailand. These negotiations were accompanied by demonstrations in Thailand over proposed IPR provisions, and by the subsequent resignation of the chief Thai negotiator. Talks were put on hold by Thailand in March 2006 prior to a snap election in April, the results of which were later invalidated by Thailand's judiciary. On September 19, 2006, Thailand experienced a military coup which overthrew the government of Thaksin Shinawatra. While the United States strongly condemned the coup, the negotiations reportedly were not formally suspended, though they remain in limbo. In June 2006, Ways and Means Committee Member Phil English announced his opposition to the U.S.-Thailand FTA, claiming that "Thailand continues to demonstrate that it does not share common views with the United States with respect to ... a country's right to police its markets effectively from predatory or illegally traded imports." The Administration sees the potential benefits of an FTA with Thailand as: (1) promotion of U.S. exports, notably benefitting U.S. farmers and the auto and auto parts industries; (2) protection of U.S. investment; and (3) advancement of the Enterprise for ASEAN Initiative (mentioned later in this issue brief) and the U.S.-Singapore FTA. It also emphasized Thailand's importance on military, security, and political issues. Thailand was the 22 nd largest U.S. trading partner in 2007 with two-way trade at $30.5 billion—$22.7 billion in U.S. imports, $7.8 billion in U.S. exports. Leading U.S. imports were computers and parts, television receivers, and jewelry; and leading exports were integrated circuits, semiconductors, computers, and computer parts. The continuation of a 25% U.S. tariff on light trucks, intellectual property rights protections, services, and sugar are issues in the negotiations. United Arab Emirates On November 15, 2004, the USTR sent formal notification to Congress that the Administration intended to pursue FTA negotiations with both the United Arab Emirates (UAE) and Oman. Talks began in March 2005. The USTR said that both of these FTAs would be a move toward the President's plan for a Middle East Free Trade Area. (See " Other Potential Trade Agreements " below.) No negotiations have taken place since March 2006 in the aftermath of the Dubai ports controversy when a Dubai firm attempted to assume management contracts stemming from its investment in a company operating ports in the United States. This controversy may affect the type of investment and government procurement provisions that are included in this FTA. In 2007, the United States imported $1.3 billion from the UAE and exported $10.9 billion to the Emirates making it the 38 th largest trade partner of the United States. The leading U.S. import was crude petroleum. Leading U.S. exports were aircraft, cars, and machinery. Other Potential Trade Agreements Middle East-North African Free Trade Agreement On May 9, 2003, President Bush announced an initiative to create a U.S.-Middle East Free Trade Agreement by 2013. This initiative would create a multi-stage process to prepare countries in the region for an FTA with the United States. Countries would begin the process by negotiating accession to the World Trade Organization and subsequently by concluding Bilateral Investment Treaties (BIT) and Trade and Investment Framework Agreements (TIFA) with the United States. As domestic reforms progress, countries would then negotiate FTAs with the United States, possibly linking to other existing or in-progress FTAs, such as with Jordan, Morocco, Bahrain, Oman, or the United Arab Emirates. Qatar and Kuwait have also been mentioned as a near-term FTA candidates. The USTR has stated that FTAs with Middle Eastern countries are consistent with the 9/11 Commission recommendation that the United States encourage development in the Middle East by expanding trade. The Administration's rationale for this potential FTA is to provide the incentive for the transformation of the economies of the Middle East and their integration into the world economy. One study reports that, since 1980, the share of world exports emanating from middle eastern countries has dropped from 13.5% to 4%, and that per capita income has fallen by 25% in the Arab world. Enterprise for ASEAN This initiative, announced by President Bush on October 26, 2002, provides the impetus for the negotiation of bilateral FTAs with individual countries of the Association of Southeast Asian Nations, or ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam). The first stage of this process is expected to be the negotiation of a region-wide trade and investment framework agreement (TIFA), which is seen as the first step in the process of negotiating individual FTAs with ASEAN member states. Thailand is the first candidate for an FTA under this initiative (see earlier section on " Thailand "). As seen by the Administration, the principal benefits to the United States of FTAs with ASEAN member states are the potential to reduce high tariffs on agricultural products and to eliminate restrictive tariff-rate quotas on other U.S. exports, while the major benefit to ASEAN countries would be improved access to the U.S. market. The initiative is also seen as a way of countering growing Chinese influence in the region. Two-way trade with ASEAN countries reached $166.9 billion in 2007, consisting of imports of $111.7 billion and exports of $55.2 billion. Egypt Egypt was the 51 st largest trading partner of the United States with U.S. imports in 2007 of $2.4 billion, U.S. exports of $5.3 billion, and two-way trade totaling $7.7 billion. Major export to Egypt include cereals, aircraft and parts, machinery, vehicles and parts, telecommunications equipment, and arms; imports include textiles, apparel, carpets, petroleum, and iron and steel. With a population of 65.3 million, Egypt is the largest country in the Middle East. Egypt has been a member of the World Trade Organization since 1995, and it has concluded a TIFA with the United States. Egypt's central position in the Arab world has led to speculation that the United States would seek to launch FTA negotiations. The two sides reportedly have established a number of exploratory "subcommittees" to prepare for the negotiations. In November 2004, a House Ways and Means Committee delegation led by former Chairman Thomas found reforms in customs administration, tariff reduction, and tax reform encouraging, but they cited continuing intellectual property rights violations and Egyptian restrictions on U.S. agricultural imports as impediments to an agreement. In addition, discriminatory taxes on imports and poor labor rights standards have also been mentioned as impediments to an agreement. In January 2005, the Pharmaceutical Research and Manufacturers of America (PhRMA) indicated that it opposed launching FTA negotiations with Egypt after the Egyptian Ministry of Health granted marketing approval to generic drugs without, PhRMA alleges, providing legally required data exclusivity periods. The United States has reportedly suspended consideration of an FTA with Egypt due to continuing human rights issues, including imprisonment of a presidential candidate in the 2005 elections and concerns over the treatment of Sudanese refugees. Taiwan An FTA with Taiwan has been advanced by proponents in the last several years. In the 110 th Congress, H.Con.Res. 137 (Berkley) was introduced on May 1, 2007 calling for the launch of FTA negotiations with Taiwan. Taiwan is the ninth largest U.S. trading partner with total two-way trade in 2007 of $62.7 billion. The United States is now Taiwan's second largest trading partner after mainland China. In 2007, the United States imported $38.1 billion in merchandise from Taiwan with computers, circuitry, vehicle parts, television transmission, and telecommunications equipment leading. U.S. exports to Taiwan, which totaled $24.6 billion, included integrated electronic circuits, electrical machinery, aircraft parts, corn, and soybeans. While the Bush Administration has indicated support for the concept of a U.S.-Taiwan FTA, it cites several outstanding trade disputes, including Taiwan's enforcement of intellectual property rights, the imposition of excessive standards, testing, certification and labeling requirements, and Taiwanese rice import quotas. In addition, the negotiation of an FTA with Taiwan likely would encounter the ire of the mainland Chinese government, which considers Taiwan to be a province of China. Taiwan acceded to the WTO on January 1, 2002, and signed a Trade and Investment Framework Agreement with the United States in 1994.

The Bush Administration has made bilateral and regional free-trade agreements (FTAs) an important element of U.S. trade policy, a strategy known as "competitive liberalization." This strategy, it argues, will push forward trade liberalization simultaneously on bilateral, regional, and multilateral fronts. It is meant to spur trade negotiations by liberalizing trade with countries willing to join FTAs, and to pressure other countries to negotiate multilaterally. Critics contend, however, that the accent on regional and bilateral negotiations undermines the multilateral forum and increases the risk of trade diversion away from competitive countries not in the trade bloc. On May 10, 2007, Congressional leaders and the Bush Administration announced a conceptual agreement on changes to currently notified free trade agreements (FTA). Negotiations have been concluded with Peru, Colombia, Panama, and South Korea in time to be considered by Congress under U.S. trade promotion authority. Legislation to implement the Peru FTA was approved by Congress and signed into law by the President on December 14, 2007 (P.L. 110-138). Legislation to implement the Colombia FTA was introduced in each chamber under TPA rules on April 8, 2008 (H.R. 5724, S. 2830). On April 10, the House voted to suspend TPA rules with regard to this agreement (H.Res. 1092). Several other trade initiatives are under discussion, including a U.S.-Middle East FTA and negotiations with countries in the 'P-4' group (Chile, New Zealand, Singapore, Brunei). Legislation to implement the Central American-Dominican Republic Free Trade Agreement (CAFTA-DR) and FTAs with Bahrain and Oman were approved by the 109th Congress. The broadest trade initiative being negotiated is the Doha Round of multilateral trade negotiations in the World Trade Organization (WTO). In November 2001, trade ministers from WTO member countries agreed to launch a new round of trade talks covering market access, trade remedies, and developing-country issues. Nearly seven years of negotiations have occurred since then without a breakthrough on 'modalities,' the methods and formulas by which negotiations are conducted, with the recent Geneva negotiating Ministerial conducted between July 21 and 29 likewise failing to reach agreement. In September 2008, the United States entered into negotiations with the Trans-Pacific Strategic Economic Partnership (P-4) countries of Brunei, Chile, Singapore, and New Zealand for a common FTA. U.S. trade promotion authority (TPA) expired on July 1, 2007. Potential agreements resulting from current trade negotiations (Colombia, Panama, and South Korea) may be considered by Congress under TPA legislation enacted in 2002. Under the legislation, if the President meets notification requirements and other conditions, Congress will consider a bill to implement a trade agreement under an expedited procedure (no amendment, deadlines for votes). The notification requirements include minimum 90-day notices before starting negotiations and before signing a trade agreement. However, TPA governs internal rules of each chamber and may be altered by each chamber at any time.

Overview and Issues for Congress State and local governments issue debt for most large public capital projects such as new schools, public buildings, and roads. On occasion, state and local governments will issue debt for projects whose purpose is less public in nature, such as privately owned and operated multifamily residential housing. Nevertheless, these projects are often afforded the same tax privilege as debt issued for strictly government owned and operated projects. Congress limits the use of tax-exempt bonds for private activities because of concern about the overuse of tax-exempt, private activity bonds. The tax-exempt bonds issued for qualified private activities are limited by the type of activity financed and the volume of debt used for such activities. Overview The federal tax code classifies state and local government bonds as either governmental bonds or private activity bonds. Generally, the interest on state and local governmental bonds is exempt from taxation whereas the interest on private activity bonds is not tax-exempt. However, the federal tax code allows state and local governments to use tax-exempt bonds to finance certain projects that would otherwise be classified as private activities. The private activities that can be financed with tax-exempt bonds are called "qualified private activities." The current tax exemption for qualified private activities has evolved over time. Two events, however, critically shaped the current treatment of private activity bonds. First, in 1968, Congress passed the Revenue and Expenditure Control Act of 1968 (P.L. 90-364), which established the basis for the current definition of private activity bonds. Second, after persistent challenges to the right of the federal government to restrict state and local government debt following the 1968 act, the Supreme Court agreed to hear a case in 1988 that changed the nature of the federal tax treatment of state and local government debt. In that case, the state of South Carolina challenged the Tax Equity and Fiscal Responsibility Act of 1982 ( P.L. 97-248 ). The 1982 act required that state and local government tax-exempt debt must be registered. The registration requirement was viewed by the states, South Carolina in particular, as an unconstitutional intrusion on the ability of states to issue debt. The Supreme Court held that the registration requirement for nonfederal government debt, though federally tax-exempt, was constitutional. In somewhat of a surprise to observers at the time, the Court went beyond the registration ruling and also held the following: The owners of state [and local] bonds have no constitutional entitlement not to pay taxes on income they earn from the bonds, and states have no constitutional entitlement to issue bonds paying lower interest rates than other issuers. The ruling confirmed that Congress can restrict issuance of state and local tax-exempt debt and could even rescind the tax exemption altogether. Nevertheless, outright repeal of the tax exemption is unlikely. Instead, Congress has used legislative action to modify the existing rules and definitions governing tax-exempt bonds for private activities. Generally, Congress limits the amount of tax-exempt debt that can be used for private activities and restricts the type of private activities that can be financed with tax-exempt bonds. Congress can, and does, encourage selected private activities by exempting the activity from the volume cap or by allowing tax-exempt financing for the private activity. Issues for Congress As noted above, Congress uses two primary means to restrain the use of state and local debt for private activities: an annual state volume limit (or separate national aggregate limit) and restrictions on the type of qualified private activities. The private activity bond volume limit, which originated in the Deficit Reduction Act of 1984 ( P.L. 98-369 ), was implemented because "Congress was extremely concerned with the volume of tax-exempt bonds used to finance private activities." The limit and the list of qualified activities were both modified again under the Tax Reform Act of 1986 (TRA 1986, P.L. 99-514 ). At the time of the TRA 1986 modifications, the Joint Committee on Taxation identified the following specific concerns about tax-exempt bonds issued for private activities: the bonds represent "an inefficient allocation of capital"; the bonds "increase the cost of financing traditional governmental activities"; the bonds allow "higher-income persons to avoid taxes by means of tax-exempt investments"; and the bonds contribute to "mounting [federal] revenue losses." The inefficient allocation of capital arises from the economic fact that additional investment in tax-favored private activities will necessarily come from investment in other public projects. For example, if bonds issued for mass commuting facilities did not receive special tax treatment, some portion of the bond funds could be used for other government projects such as schools or other public infrastructure. The greater volume of tax-exempt private activity bonds then leads to the second Joint Committee on Taxation concern listed above, higher cost of financing traditional government activities. Investors have limited resources, thus, when the supply of tax-exempt bond investments increases, issuers must raise interest rates to lure them into investing in existing government activities. In economic terms, issuers raising interest rates to attract investors are analogous to a retailer lowering prices to attract customers. The higher interest rates make borrowing more expensive for issuers. The final two points are less important from an economic efficiency perspective but do cause some to question the efficacy of using tax-exempt bonds to deliver a federal subsidy. Tax-exempt interest is worth more to taxpayers in higher brackets, thus, the tax benefit flows to higher-income taxpayers, which leads to a less progressive income tax regime. The revenue loss generated by tax-exempt bonds also expands the deficit (or shrinks the surplus). A persistent budget deficit ultimately leads to generally higher interest rates as the government competes with private entities for scarce investment dollars. Higher interest rates further increase the cost of all debt-financed state and local government projects. Supporters of tax-exempt bonds for private activities counter that the benefit from tax-exempt bonds exceeds both the explicit (the revenue loss) and implicit (the inefficient allocation of capital) costs of the tax exemption. The debate surrounding use of tax-exempt bonds will continue well beyond the current Congress. Proponents and opponents of tax-exempt bonds generally, and private activity bonds specifically, both explore methods of modifying the rules for private activity bonds to advance their respective positions. Because the rules and definitions for private activity bonds are complex, uncertainty about the potential effects of the proposed modifications to those rules is common. This report will not attempt to either justify or criticize the existence of or use of tax-exempt private activity bonds. Instead, the report provides a brief review of bond fundamentals and a more detailed examination of the rules and definitions surrounding private activity bonds to help clarify the impact of the of those modifications. Fundamentals of Private Activity Bonds Interest Rates on Tax-Exempt vs. Taxable Bonds Tax-exempt bonds for governmental purposes and for qualified private activities are special because, unlike corporate bonds or U.S. Treasury bonds, the bond buyer does not have to include the interest income from the bond in federal gross taxable income. The bond buyer is willing to accept a lower interest rate because the interest income is not subject to federal income taxes. The lower interest rate arising from the tax-exempt status subsidizes state and local investment in capital projects. For example, if the taxable bond interest rate is 5.00%, the after-tax return for a taxpayer in the 37% income tax bracket who buys a taxable bond is 3.15%. Thus, a tax-exempt bond that offers a 3.15% interest rate would be just as attractive to the investor as the taxable bond, all else equal. Researchers can derive an implied marginal tax rate based on current market data for taxable and tax-exempt debt. For more on tax-exempt bonds generally, see CRS Report RL30638, Tax-Exempt Bonds: A Description of State and Local Government Debt , by [author name scrubbed]. Interest Rate Spread The "interest rate spread" is the difference between the interest rate on tax-exempt bonds and some other taxable bond. Table 1 below compares tax-exempt bonds to high-grade corporate bonds over the past 35 years. The difference between the two interest rates is smaller empirically than the previous example because a large share of tax-exempt bond buyers is below the 37% marginal income tax bracket. Individuals in income tax brackets below 37% would require a higher tax-exempt bond interest rate because lower tax rates mean less tax savings from tax-exempt bonds. The lower tax bracket taxpayers bid up the tax-exempt bond interest rate closer to the taxable bond interest rate. Generally, the two rates move in tandem, with the taxable corporate bond interest rate always higher than the tax-exempt municipal bond interest rate. In December of 2008, during unprecedented turmoil in financial markets and the economy, the average high-grade corporate bond rate was 5.05% and the average high-grade municipal (tax-exempt) bond rate was 5.56%. The lower interest rate for taxable corporate bonds than for tax-exempt bonds in December 2008 was a short-lived phenomenon that can be traced to the interaction of at least two factors. First, the Federal Reserve Bank (Fed) was injecting as much liquidity into the economy as possible, setting interest rates at their lowest level ever. This tended to keep market interest rates on taxable debt low. Second, state and local governments were facing significant fiscal stress and the bond market reacted by requiring a risk premium on its debt. The risk premium means a higher interest rate for municipal debt. In addition, the municipal bond insurance market collapsed, further elevating the perceived risk of municipal bonds. Since then, the spread has moved closer to historical levels with average tax-exempt bond interest rates at 3.00% and taxable bonds at 3.67% for 2016. The ratio of tax-exempt debt to taxable debt is still very high at 0.82. Tax-Exempt Bonds and the Alternative Minimum Tax Before enactment of a temporary provision in the American Recovery and Reinvestment Act of 2009, (ARRA; P.L. 111-5 ), the alternative minimum tax (AMT) treated the interest income from qualified private activity bonds differently than the interest income from governmental bonds. The AMT is an income tax that is levied in parallel with the income tax and is intended to ensure that taxpayers with many deductions and exemptions pay a minimum percentage of their gross income in taxes. Before ARRA, the interest income from tax-exempt private activity bonds was included in the alternative minimum tax (AMT) base and thus taxable. The temporary provision suspending the AMT taxability expires on January 1, 2011. Because private activity bonds are now included in the AMT, the bonds carry a higher interest rate (approximately 50 basis points) than do tax-exempt government-purpose bonds, all else equal. However, the private activity bond rate is still lower than the taxable bond rate. For more on the AMT, see CRS Report R44494, The Alternative Minimum Tax for Individuals: In Brief , by [author name scrubbed]. Repealing the AMT or exempting some bonds issued for qualified private activities from the AMT would increase investor demand for those bonds. The increased attractiveness of those bonds would eventually lead to lower interest costs for the issuer of qualified private activity bonds. What Is a Private Activity Bond? A private activity bond is one that primarily benefits or is used by a private entity. The tax code defines private business (or private entity) use as "use (directly or indirectly) in a trade or business carried on by any person other than a governmental unit. For purposes of the preceding sentence, use as a member of the general public shall not be taken into account." Two conditions or tests are used to assess the status of a bond issue with regard to the private entity test. Satisfying both conditions would mean the bonds are taxable private activity bonds. Bonds are private activity bonds and not tax-exempt if both of the following conditions are met: (1) [use test] more than 10% of the proceeds of the issue are to be used for any private business use ,... [and] (2) [security test] if the payment on the principal of, or the interest on, more than 10% of the proceeds of such issue is (under the terms of such issue or any underlying arrangement) directly or indirectly— (A) secured by any interest in (i) property used or to be used for a private business use, or (ii) payments in respect to such property, or (B) Or [if the payment is] to be derived from payments (whether or not to the issuer) in respect of property, or borrowed money, used or to be used for a private business use. If a bond issue passes both tests, the bonds are taxable and would carry a higher interest rate. Nevertheless, bond issues that pass both tests can still qualify for tax-exempt financing if they are identified in the tax code as qualified private activities. Thus, when those in the bond community refer to tax-exempt private activity bonds, the more technically correct reference is tax-exempt, qualified private activity bonds. There is also a private loan financing test. Under this test, a bond is not tax-exempt if more than the lesser of 5% or $5 million of the proceeds of the issue is to be used directly or indirectly to make or finance loans to persons other than governmental persons. For example, an issuer could not use the proceeds from a tax-exempt bond to loan money to small businesses for capital improvements. What Are the Qualified Private Activities? A number of qualified private activities are granted special status in the tax code (see Table 2 ). These activities are called "qualified private activities" because they qualify for tax-exempt financing even though they would likely "pass" the two-part private activity test or the private loan test, which would otherwise disallow tax-exempt financing. The list of qualified private activities has gradually expanded to 27 activities from the 12 that were originally defined by the Revenue and Expenditure Control Act of 1968. The Tax Reform Act of 1986 kept most of the activities listed in the 1968 act and reorganized the private activity bond section of the federal tax code. To qualify for tax-exempt financing, at least 95% of the net bond proceeds must be used for qualified purposes. Issuance costs such as brokerage and accounting fees are generally not treated as a qualifying purpose. Furthermore, the amount of net bond proceeds used to finance issuance costs may not exceed 2%. The Revenue and Expenditure Control Act of 1968 The 1968 act legislated that the interest payments on industrial development bonds (IDBs, the original private activity bonds) were to be included in taxable income. This was a shift from the previous Internal Revenue Service (IRS) position, which held that the interest on these bonds was not taxable income. The motivation behind the change offered in the 1968 act was based "on the theory that industrial development bonds described in the proposed [IRS] regulations were not 'obligations of a State or any political subdivision' within the meaning of section 103 since the primary obligor was a not a State or political subdivision." The 1968 act also (1) established the basis for the current private use and private security tests; (2) created exceptions to the taxability provision for small issuers; and (3) specified a group of private activities that would qualify for tax-exempt bond financing. The Tax Reform Act of 1986 The 1986 act, which rewrote the Internal Revenue Code of 1954, renewed most of the previously defined private activities identified in the 1968 act. Notably, TRA 1986 added one private activity, qualified hazardous waste facilities, and limited the exemption for some previously acceptable private activities, including construction of sports facilities and privately owned (as opposed to government owned) airports, docks, wharves, and mass-commuting facilities. In Table 2 , the activities that must be government owned to qualify for tax-exempt financing are identified in italics. After enactment of TRA 1986, there were several other additions to the list of qualified private activities. The date of introduction for each qualified private activity is included in the last column of Table 2 . Empowerment Zones and New York Liberty Zones In addition to private activities listed in Table 2 , Congress has at times created special zones where tax-exempt private activity bonds could be issued for qualified economic development projects in that zone. The Empowerment Zone/Enterprise Community (EZ) program was implemented in rounds and each round was subject to different debt rules. Round I EZ bonds were subject to the state volume cap, and each zone could have only $3 million of EZ bonds outstanding. There were also limits on the amount of Round I EZ bonds any one borrower could have outstanding. An EZ borrower could have an aggregate of $20 million outstanding for all EZ projects throughout the country. Round II EZs (and all EZs established after December 31, 2001) were subject to designation "lifetime" caps depending on the urban vs. rural designation and population for urban EZs. For the lifetime of the EZ designation, rural EZs could issue up to $60 million; urban EZs with population less than 100,000 could issue up to $130 million; and urban EZs with population greater than 100,000 could issue up to $230 million. In contrast to Round I EZs, there were no limits on the amount any one entity could borrow for Round II EZs. Designation of Empowerment Zones and the authority to issue EZ bonds expired on December 31, 2016. The New York Liberty Zone (NYLZ) was established in the wake of the September 11, 2001, terrorist attacks upon New York City. The tax benefits created to foster economic revitalization within the NYLZ included a "Liberty Bond" program. The program allowed New York State (in conjunction and coordination with New York City) to issue up to $8 billion of tax-exempt, private activity bonds for qualified facilities in the NYLZ. Qualified facilities followed the exempt facility rules within Section 142 of the IRC. The initial deadline to issue these bonds was January 1, 2005, however, the deadline was extended three times until January 1, 2014. The most recent extension was made by P.L. 112-240 . The Safe, Accountable, Flexible, Efficient, Transportation Equity Act of 2005 This legislation created a new type of tax-exempt private activity bond for the construction of rail to highway (or highway to rail) transfer facilities. The national limit is $15 billion and the bonds are not subject to state volume caps for private activity bonds. The Secretary of Transportation allocates the bond authority on a project-by-project basis. Gulf Opportunity Zone Act of 2005 The hurricanes that struck the gulf region in late summer 2005 prompted Congress to create a tax-advantaged economic development zone intended to encourage investment and rebuilding in the gulf region. The Gulf Opportunity Zone (GOZ) comprised the counties where the Federal Emergency Management Agency (FEMA) declared the inhabitants eligible for individual and public assistance. Based on proportion of state personal income, the Katrina-affected portion of the GOZ represented approximately 73% of Louisiana's economy, 69% of Mississippi's, and 18% of Alabama's. Specifically, the Gulf Opportunity Zone Act of 2005 (GOZA 2005; P.L. 109-35 ) contains two provisions that expanded the amount of private activity bonds outstanding and language to relax the eligibility rules for mortgage revenue bonds. The most significant is the provision to increase the volume cap (see Table 2 ) for private activity bonds issued for Hurricane Katrina recovery in Alabama, Louisiana, and Mississippi (identified as the Gulf Opportunity Zone, or "GO Zone"). GOZA 2005 added $2,500 per person in the federally declared Katrina disaster areas in which the residents qualify for individual and public assistance. The increased volume capacity added approximately $2.2 billion for Alabama, $7.8 billion for Louisiana, and $4.8 billion for Mississippi in aggregate over the next five years through 2010. The legislation defines "qualified project costs" that can be financed with the bond proceeds as (1) the cost of any qualified residential rental project (26 §142(d)) and (2) the cost of acquisition, construction, reconstruction, and renovation of (i) nonresidential real property (including fixed improvements associated with such property) and (ii) public utility property (26 §168(i)(10)) in the GOZ. The additional capacity originally had to be issued before January 1, 2011, but was extended to January 1, 2012, by P.L. 111-312 . The original provision was estimated to cost $1.556 billion over the 2006-2015 budget window, while extending the issuance deadline by one year was estimated to cost $0.226 billion over the 2009-2020 budget window. The second provision allows for advance refunding of certain tax-exempt bonds. Under GOZA 2005, governmental bonds issued by Alabama, Louisiana, and Mississippi could be advance refunded an additional time and exempt facility private activity bonds for airports, docks, and wharves once. Private activity bonds are otherwise not eligible for advance refunding. Following is a brief description of advance refunding and how the GOZA 2005 provision conferred a significant tax benefit to the Gulf states. Refunding is the practice of issuing new bonds to buy back outstanding bonds to potentially lower interest costs. Advance refunding is the practice of allowing the new bonds to be outstanding for longer than 90 days. Advance refunding, thus, allows for the existence of two sets of federally tax-exempt bond issues to be outstanding at the same time for a single project. P.L. 115-97 , the 2017 tax revision, disallows the federal income exclusion of interest income earned from an advance refunding bond for bonds issued after December 31, 2017. GOZA 2005 allowed the states of Alabama, Louisiana, and Mississippi to advance refund $1.125 billion, $4.5 billion, and $2.25 billion, respectively. This provision was estimated to cost $741 million over the 2006-2015 budget window. For more on advance refunding, see CRS Report RL30638, Tax-Exempt Bonds: A Description of State and Local Government Debt , by [author name scrubbed] and [author name scrubbed]. The Housing and Economic Recovery Act of 2008 In response to the housing crisis of 2008, Congress included two provisions in the Housing and Economic Recovery Act of 2008 (HERA; P.L. 110-289 ) that are intended to assist the housing sector. First, HERA provided that interest on qualified private activity bonds issued for (1) qualified residential rental projects, (2) qualified mortgage bonds, and (3) qualified veterans' mortgage bonds would not be subject to the AMT. In addition, HERA also created an additional $11 billion of volume cap space for bonds issued for qualified mortgage bonds and qualified bonds for residential rental projects. The cap space was designated for 2008 but could be carried forward through 2010. The American Recovery and Reinvestment Act of 2009 In response to the financial crisis and economic recession, Congress included several bond-related provisions in the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ). The following three provisions were intended to make bond finance less expensive for the designated facilities. One expanded the definition of qualified manufacturing facilities (under §144(a)(12)(C)) to include the creation and production of intangible property including patents, copyrights, formulae, etc. Before ARRA, only tangible property was eligible. The second created a new category of private activity bond called "recovery zone facility bonds." The bonds were to be used for investment in infrastructure, job training, education, and economic development in economically distressed areas. The bonds, which were subject to a separate national cap of $15 billion allocated to the states based on the decline in employment in 2008, were to be issued in 2009 and 2010. A third provision provided $2 billion for tribal governments to issue tax-exempt bonds for economic development purposes. The tax code currently allows tribal governments to issue debt for "essential government services" only. Many economic development projects would not qualify absent this ARRA provision. IRS Review of Tax-Exempt Status The IRS often reviews the tax-exempt status of outstanding bonds issued for qualified private activities. If the bonds that were originally issued as tax-exempt are found to no longer qualify (meaning that they pass both the security and use tests), the interest on the bonds becomes taxable. Technically, bond holders are the recipient of the tax benefit and are responsible for remitting forgone taxes to the Treasury when a tax-exempt bond fails to qualify. A retroactive taxability finding means all previous tax benefits to the bond holder would have to be returned to the Treasury. A prospective taxability finding means all future interest payments would be taxable to the bond holder. However, in most cases, the IRS will settle the apparent violation by requiring that the issuer, not the bond holders, pay a monetary penalty and that the issuer change the circumstances that led to the noncompliance finding. What Is the Private Activity Volume Cap?36 The federal government has limited the amount of private activity bonds that states can issue to a subset of the 27 activities listed in Table 2 and to EZ bonds. The third column of Table 2 identifies the 14 activities (of the 27) that are subject to an annual state volume cap. The annual cap was increased from the greater of $50 per capita or $150 million in 2000, to the greater of $105 per capita or $311.38 million in 2018 (and is adjusted annually for inflation). For small states, the $311.38 million minimum provides a more generous volume cap than the per capita allocation. Figure 1 lists the volume cap amount in 2018 for all states and territories and compares the 2018 cap to state personal income in 2016. Of the 14 activities subject to an annual volume cap, two are treated differently than the others, and four others are subject to a separate cap. First, states are required to count only 25% of the bonds issued for high-speed intercity rail facilities (26 U.S.C. 142(I)) against the annual cap. If the facility is government owned and operated, no cap allocation is required. Second, bonds issued for solid waste disposal facilities (26 U.S.C. 142(a)(6)) are not subject to the cap if the facility is government owned and operated. Qualified public educational facilities (26 U.S.C. 142(k)) are subject to a separate annual cap, which is the greater of $10 per capita or $5 million. Three activities—bonds for green buildings (26 U.S.C. 142(l)), highway-freight transfer facilities (26 U.S.C. 142(m)), and recovery zone facilities (26 U.S.C. 1400U-3)—are subject to a separate cap. Green buildings are subject to a $2 billion lifetime (not annual) cap, and transfer facilities are subject to a lifetime cap of $15 billion. The $15 billion of recovery zone facility bonds were allocated to the states by formula then further suballocated to local jurisdictions, also by formula. Generally, a jurisdiction received an allocation that matches its ratio of the total decrease in employment relative to the national decline in employment in 2008. The total 2018 private activity bond volume cap for all states and the District of Columbia is more than $37.5 billion. California is allowed to issue over one-tenth of total new volume in 2018 or $4.15 billion. However, as measured against total California personal income, the new volume cap is considerably less than the national average. For every $100 of 2016 personal income in California, approximately $0.19 of private activity debt can be issued in 2018, whereas the U.S. average is $0.35. In contrast, Vermont could issue up to $1.00 of private activity debt for every $100 of personal income. The less populous states are more likely not to use the entire annual cap amount for this reason. See Table A-1 for more details on 2017 and 2018 state private activity bond caps. This disparity arises from the two-part volume capacity calculation, which provides for a minimum of $311.38 million, regardless of state population. In addition, states that have total personal income below the national average would also have a relatively high debt allowance as measured against personal income. Figure 1 provides a comparative measure of the state-by-state volume capacity based on 2016 state personal income. PAB Use by Type of Activity Each state independently determines the allocation of its volume capacity. Table 3 identifies the total distribution for private activities for 2015, not just those bonds subject to the cap. The data roughly reflect the cap allocation preferences of the states and their subdivisions for those activities subject to the cap. Roughly half of the available volume capacity in any given year is carried forward to the following year. Unused volume capacity can be carried forward for up to three years, as long as the state identifies the project for which the cap space is dedicated. Bond capacity that has not been used after three years is then abandoned. Other Restrictions on Private Activity Bonds The use of private activity bonds is also limited by other technical restrictions. In general, loosening the restrictions would allow issuers to reduce administrative and compliance costs. However, the relaxed restrictions would exacerbate the concerns (i.e., the economically inefficient allocation of capital) surrounding tax-exempt bonds that were discussed earlier in the report. Following is a list of the more technical rules along with the section in the tax code where the rule appears. The maturity of the bonds cannot be greater than 120% of the economic life of the asset purchased with the bonds (26 U.S.C. 147(b)); less than 25% of the bond proceeds can be used to acquire land (except for qualified first-time farmers) (26 U.S.C. 147(c)); proceeds of the bond issue cannot be used to purchase existing property unless greater than 15% of the cost of acquiring the property is spent on rehabilitating the property (26 U.S.C. 147(d)); public approval of bonds, either through public hearing and notice or voter referendum, is required for private activity bonds (26 U.S.C. 147(f)); issuance costs cannot be any greater than 2% of the bond proceeds (3.5% for mortgage bond issues of less than $20 million) (26 U.S.C. 147(g)); and private activity bonds cannot be advance refunded. Conclusion and Further Reading The history, tax laws, financial properties, and economic effects of tax-exempt bonds are all exceedingly complex and continually evolving. This report is intended to clarify part of the tax-exempt bond labyrinth. Nevertheless, the reader may wish to explore tax-exempt bonds in more depth or from a more general, less technical perspective. The following reading list should equip the reader with a good foundation for pursuit of either objective. Bruce Davie and [author name scrubbed], "Tax-Exempt Bonds after the South Carolina Decision," Tax Notes , vol. 39, no. 13, June 27, 1988, p. 1573. Peter Fortune, "Tax-Exempt Bonds Really Do Subsidize Municipal Capital!," National Tax Journal , vol. 51, no. 1, March 1998, p. 43. Roger H. Gordon and Gilbert E. Metcalf, "Do Tax-Exempt Bonds Really Subsidize Municipal Capital?," National Tax Journal , vol. 44, no. 4, part 1, December 1991, p. 71. Walter Hellerstein and Eugene W. Haper, "Discriminatory State Taxation of Private Activity Bonds After Davis ," State Tax Notes , April 27, 2009, p. 295. George J. Marlin and Joe Mysak, The Guidebook to Municipal Bonds: The History, The Industry, The Mechanics (New York: The American Banker/Bond Buyer, 1991). Joe Mysak, Encyclopedia of Municipal Bonds : A Reference Guide to Market Events, Structures, Dynamics, and Investment Knowledge (New York: Bloomberg, 2012). Judy Wesalo Temel, The Fundamentals of Municipal Bonds, 5 th Edition (New York: John Wiley and Sons, 2001). [author name scrubbed], The Private Use of Tax-Exempt Bonds: Controlling Public Subsidy of Private Activity (Washington, DC: The Urban Institute Press, 1991). Appendix.

The federal tax code classifies state and local bonds as either governmental bonds or private activity bonds. Governmental bonds are intended for governmental projects, and private activity bonds are for projects that primarily benefit private entities. Typically, the interest earned by holders of governmental bonds is exempt from federal income taxes. The federal tax code allows state and local governments to use tax-exempt bonds to finance certain projects that would be considered private activities. The private activities that can be financed with tax-exempt bonds are called "qualified private activities." Congress uses an annual state volume cap to limit the amount of tax-exempt bond financing generally and restricts the types of qualified private activities that would qualify for tax-exempt financing to selected projects defined in the tax code. The economic rationale for the federal limitation on tax-exempt bonds for private activities stems from the inefficiency of the mechanism to subsidize private activity and the lack of congressional control of the subsidy absent a limitation. This report explains the rules governing qualified private activity bonds, describes the federal limitations on private activity bonds, lists the qualified private activities, and reports each state's private activity bond volume cap. Since private activity bonds were defined in 1968, the number of eligible private activities has been gradually increased from 12 activities to 27. The state volume capacity limit has increased from $150 million and $50 per capita in 1986 to the greater of $311.38 million or $105 per capita in 2018. Because of the $311.38 million floor, many smaller states are allowed to issue relatively more private activity bonds (based on the level of state personal income) than larger states. Also, more recent additions to the list of qualified activities have been exempt from a state-by-state cap and subject to a national aggregate cap. For more on tax-exempt bonds generally, see CRS Report RL30638, Tax-Exempt Bonds: A Description of State and Local Government Debt, by [author name scrubbed]. This report will be updated as legislative events warrant.

Election Results Center-left presidential candidate Alvaro Colom of the National Union for Hope (UNE) defeated General Otto Pérez Molina of the right-wing Patriot Party (PP) in the November 4, 2007 run-off elections, which were considered free and fair. Voter turnout fell to under 50%, down from nearly 60% in the September 9 first round of voting, as anticipated by many observers who note that Guatemalan voters are often more interested in local races. Colom received 52.8% of the run-off vote to Pérez Molina's 47.2%. President-elect Colom will take office on January 14, 2008. After his victory, President-elect Colom told a local radio station that he plans "to convert Guatemala into a social democratic country with a Mayan face." Voting patterns reflected the country's urban-rural divide. Pérez Molina defeated Colom in Guatemala City and its surrounding areas, where 25% of Guatemalan voters reside. Colom dominated the countryside and won in 20 of the nation's 21 departments. Colom's party, UNE, gained seats in the country's National Assembly, winning 48 of the legislative body's 158 seats. Since his party does not have a majority in the legislature, Colom's success will likely depend on his ability to forge alliance with other parties. Guatemala held general elections on September 9, 2007, the third wave of democratic elections since the end of its 36-year civil conflict in which an estimated 200,000 people were killed. The current President, Óscar Berger, of the Grand National Alliance (GANA), was barred from seeking reelection by a constitutional prohibition. Both the European Union and the Organization of American States sent electoral observers to monitor the elections. Although the electoral campaigns were marred by violence, both missions expressed satisfaction that the elections were relatively free and fair and that voter turnout was largely unimpeded. Rural voting increased due to an increased number of polling stations. However, there were irregularities such as the burning of one polling station in El Cerinal, southeast of Guatemala City. The missions also expressed concern about the lack of information available in Mayan languages as well as the low number of women elected to Congress. Congressional Elections5 The UNE won 48 seats, increasing its representation by one third. GANA came in second with 37 seats, followed by PP with 30 seats. The FRG's position in congress was decreased from 29 to 15 seats. Former President Efraín Ríos Montt was elected to a four-year term in congress, granting him immunity from prosecution on genocide charges he faces in Spain until the end of his term. While the UNE gained a significant increase in its representation in the National Assembly, it controls less than one-third of seats, meaning that President-elect Colom will have to negotiate with other parties in the 158-seat legislature to pass his agenda. Background President Óscar Berger won the November 2003 elections and took office on January 14, 2004. During Berger's presidency, the Guatemalan economy has expanded, but drug trafficking and organized crime have overwhelmed the country's weak institutions. Guatemala's GDP grew by 4.6% in 2006, the highest rate since 1998, helped by increased remittances; high prices for primary exports, such as sugar and cardamom; and increased investor confidence due in part to implementation of the U.S. Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). Under Berger's leadership, the legislature passed a law against organized crime and secured legislative approval of the creation of an International Commission Against Impunity in Guatemala (CICIG). Because of GANA's minority presence in Congress, however, Berger has struggled to secure timely passage of needed tax reforms, and the 2007 budget. Some assert that his government has not made significant progress on implementation of reforms agreed upon in the 1996 peace accords. The Guatemalan peace accords were signed in 1996, but required reforms were not fully implemented and security forces were not purged, leaving intact the institutional framework through which organized crime has infiltrated the political process. Murders have increased, reaching 6,033 in 2006, higher than any single year during the civil conflict. The murder rate is disproportionately high in Guatemala City, eastern departments, and along the Mexican border. The root problem lies in the lack of employment and educational opportunities; many youth search for other means of living, including gangs and organized crime. The majority of violence is attributed to drug trafficking and organized crime, with nearly 90% of cocaine heading for the United States passing through Central America. The infiltration of security forces by organized crime was highlighted earlier this year after the murder of three Salvadoran deputies and their driver. The four police officers accused of the crime were assassinated while in prison. This situation led to the resignation of several high-ranking security officials. All levels of the 2007 electoral campaigns were affected by political violence, making this election the bloodiest in Guatemala's history since 1985. In the period leading up to the September 9 general election there were 119 violent acts resulting in 51 deaths, including the murders of candidate's relatives and party activists. The torture and killing of one candidate's 14-year-old daughter highlighted the brutality of the campaigns. This was not an isolated incident with two other candidates' sons killed, bringing the number of relatives killed to six. The UNE party, of front runner 'lvaro Colom, suffered the most losses with 18 murders, followed by the ruling party GANA with 7 murders. Violence appeared to lessen in the period between the first and second round of voting. During that time five political candidates and supporters were killed. Among those killed was Aura Salazar, a close advisor of Pérez Molina. Colom's campaign strategist, José Carlos Marroquín, resigned in October reportedly due to threats from organized crime groups. Prosecuting murders is rare in Guatemala, and to date it is not clear who is responsible for many of them or what role, if any, organized crime and drug traffickers played in the campaign violence. Presidential Candidates 'lvaro Colom Caballeros Three-time presidential candidate 'lvaro Colom moderated his leftist platform over the last two elections and ran as a center-left candidate for the UNE. Colom studied industrial engineering at the University of San Carlos before becoming a businessman and eventually a politician. He has held an array of positions, including Vice Minister of Economy in 1991, director of the National Foundation for Peace, from 1991 to 1997, and executive director of the Presidential Office of Legal Assistance and Land Conflict Resolution in 1997. In 1999, he ran for president under the New National Alliance (ANN), a faction of the leftist Guatemalan National Revolutionary Unit (URNG), a former guerrilla group that was assimilated into the political process by the 1996 Peace Accords. In 2003, Colom ran on the ticket of UNE, softening his leftist rhetoric, and contested Óscar Berger in a second round of voting. Colom now identifies himself as a moderate social democrat like President Lula da Silva of Brazil. He also supports the more radical policies of Hugo Chávez of Venezuela and Evo Morales of Bolivia, but states that he does not see their reforms as the route for Guatemala. During the campaign, President-elect Colom stated that he would focus his policies on social development and expanding education. Colom indicated he would create a social dialogue, cooperating with other parties in the Guatemalan Congress to tackle the pressing issues that Guatemala is currently facing. 'lvaro Colom called for a holistic approach to curb the country's rampant violence, crime, delinquent youth, and impunity. He promised to prioritize security within 100 days of taking office, along with strengthening the supreme court in order to put an end to impunity. Colom took a "zero tolerance" stance on corruption and organized crime, which previously led to the dismissal of one UNE congressman, Manuel Castillo, due to alleged drug trafficking links. Castillo was also recently linked to the murders of three Salvadoran deputies and their drivers and the subsequent murders of four accused police officers. The Castillo case and an allegation made by Rolando Morales, a member of UNE and president of the congress in 2004, that Colom's wife took US$1.5 million from the congressional budget to fund a company controlled by her sister, has raised suspicion among his critics about Colom's integrity and possible connections to organized crime. Otto Pérez Molina Otto Pérez Molina, a retired general and former head of military intelligence, campaigned as the "General of Peace," emphasizing his role as a military representative during peace negotiations in the 1990s. Pérez Molina founded the Patriot Party in 2001, which, in 2003, joined together with the National Solidarity Party and Reformer Movement to form the Grand National Alliance (GANA), currently the ruling party. Pérez Molina was originally selected for GANA's ticket, but he and the PP subsequently left the alliance. PP backed Pérez Molina in the 2007 presidential race. The focus of Pérez Molina's campaign was his hardline or "iron fist" security policy. He wanted to put more soldiers on the streets in the capital city in order to quell the violence. He also advocated the professionalization of the army and national police with the hopes of weeding out corruption. Pérez Molina's hardline rhetoric appealed to many because of the continued increase in violence across the country. Human rights groups, however, were concerned that Pérez Molina's policies and his alleged involvement in human rights violations would impede the country's reconciliation with its violent history. Pérez Molina has been implicated in a number of human rights abuses taking place during his time in the military, including being linked to the 1994 murder of a judge and the 1996 murder of a guerrilla leader. Pérez Molina viewed security as a necessity for the rest of his platform which included education, health, and economic and rural development. He planned to decentralize education to allow for local governments to have more control, increase the coverage of the health system and industrialize agriculture to help fight rural poverty. Pérez Molina supported extensive legal and constitutional reforms but through a national constituent assembly rather than through the Guatemalan legislature. Outlook and Issues for U.S.-Guatemalan Relations Impunity and violence are two of the biggest issues facing the new president. Guatemala has one of the highest murder rates in Latin America due to institutional weaknesses and infiltration of security forces by organized crime. Very few murders are investigated and even fewer are prosecuted. The past two administrations have struggled to get approval of a joint commission, with the United Nations, that would investigate clandestine groups working within the government and security forces. The establishment of the International Commission Against Impunity in Guatemala, known by its Spanish acronym CICIG, has been one of President Berger's successes. The opposition to CICIG came mainly from the Guatemalan Revolutionary Front (FRG) citing that CICIG was a violation of Guatemala's sovereignty. Both Colom and Pérez Molina, as well as their parties, were vocal supporters of the international commission. However, two members of the UNE, 'lvaro Colom's party, voted against CICIG in the Congressional Committee on Foreign Relations. This was an embarrassment for Colom and his party and resulted in the suspension of one of the deputies. On August 16, a law was passed that formally established CICIG for the next two years. CICIG has been praised by human rights groups and the international community. Concerns persist, however, the Guatemalan executive branch will decide which cases will be investigated and the commission will not be able to investigate crimes retroactively, such as war crimes committed during the civil war. The approval of 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. Both presidential candidates are likely to support continued cooperation with the international community to fight impunity and violence in Guatemala. The United States and Guatemala have traditionally had close relations. U.S. interest in Guatemala lies in consolidating democracy, securing human rights, establishing security, and promoting trade. U.S. immigration policy has been a point of tension. President Bush visited Guatemala in March 2007 to express support for greater cooperation on counternarcotics and youth gangs. The United States' immigration policy has been a growing source of tension since tighter U.S. border security has led to increased deportation of Guatemalan nationals. As of July 24, 2007, 12,445 Guatemalans had been deported from the United States with the total for 2007 expected to reach 24,000. This number grew from 11,000 in 2005 and 18,306 in 2006. The surge in deportations has strained reintegration programs. Guatemala maintains that deportations have added to gang related problems. Guatemala has an estimated 1.2 million nationals living in the United States, nearly 60% illegally. They sent back $3.61 billion in remittances in 2006, equal to 10% of the country's GDP. Since immigration is a bipartisan issue in Guatemala, both Colom and Pérez Molina are expected to continue to appeal to the U.S. Government to revise its immigration policies.

Alvaro Colom, of the center-left Nation Union of Hope (UNE) party, defeated right-wing candidate Otto Pérez Molina of the Patriot Party, in November 4, 2007 run-off elections. President-elect Colom will take office on January 14, 2008. No single presidential candidate won a majority of votes in the first round held on September 9, 2007, in which congressional and mayoral races were also held. The dominant issue in the campaign was security, and the 2007 election campaigns were the most violent since the return to democracy in 1985, with 56 candidates, activists, and family members killed. Since no party won a majority in Congress, the next president will have to build coalitions to achieve his legislative agenda. U.S. interests in Guatemala include consolidating democracy, securing human rights, establishing security and promoting trade, though U.S. immigration policy has been a point of tension in bilateral relations.

Background The Food and Drug Administration Safety and Innovation Act (FDASIA), P.L. 112-144 , continues the five-year reauthorization cycle of the prescription drug and medical device user fee programs that allow the Food and Drug Administration (FDA) to collect fees and use the revenue to support the review of brand-name drug, biological product, and device marketing applications. In addition to titles that would reauthorize the drug and device user fee programs, FDASIA includes additional titles that create new user fee authority for generic drugs and biosimilar biological products; permanently authorize programs to encourage or require studies of drugs for pediatric use; and amend the law regarding medical device regulation, drug regulation, and several areas, such as advisory committee conflict of interest, that cut across FDA product areas. Congress also made user fee reauthorizing legislation in 2007 a vehicle for addressing other FDA-related issues. Throughout the legislative process in both chambers of the 112 th Congress, the chairs and ranking Members of the Senate Committee on Health, Education, Labor, and Pensions and the House Committee on Energy and Commerce expressed their intention to complete the user fee reauthorizing legislation sufficiently before the October 1, 2012, deadline to avoid disrupting FDA drug and device review staffing and activities, referring to the user fee reauthorizations as must-pass legislation. Table 1 displays the timeline of relevant committee activity. FDASIA has 11 titles, as listed in Table 2 . Titles I through IV authorize FDA to collect fees and use the revenue to support specified activities for the review of prescription brand-name drugs and biological products, medical devices, generic drugs, and biosimilar biological products. Title V permanently authorizes the Best Pharmaceuticals for Children Act and the Pediatric Research Equity Act. Title VI addresses a variety of aspects of pre- and postmarket medical device regulation. Titles VII through X address the regulation of drugs, including the supply chain, antimicrobial development, expedited drug approval, and shortages. Title XI, titled Other Provisions, covers medical gas products, drug abuse, and advisory committee conflicts of interest, among other topics. The remainder of this report presents a general overview of FDASIA by title and section, providing a narrative overview of each title, as well as a brief description of each section in the statute. Appendix A lists the time-specific requirements of federal entities dictated by FDASIA. Appendix B provides a list of abbreviations and acronyms. For a comparative analysis of the provisions in the initial Senate- and House-passed versions of this legislation, see CRS Report R42564, FDA User Fees and the Regulation of Drugs, Biologics, and Devices: Comparative Analysis of S. 3187 and H.R. 5651 , coordinated by [author name scrubbed]. The 14 tables in that report provide comparisons of the provisions in S. 3187 [ES] and H.R. 5651 [EH] and pre- P.L. 112-144 law. Title I—Fees Relating to Drugs FDASIA reauthorizes the prescription drug user program for another five years, from FY2013 through FY2017. With the Prescription Drug User Fee Act in 1992, Congress authorized FDA to collect user fees from the manufacturers of brand-name prescription drugs and biological products and to use the revenue for specified activities. PDUFA became possible when FDA, industry, and Congress agreed on two concepts: (1) performance goals —FDA would commit to performance goals it would negotiate with industry that set target completion times for various review processes; and (2) use of fees —the revenue from prescription drug user fees would be used only for activities to support the review of human drug applications and would supplement—rather than replace—funding that Congress appropriated to FDA. The added resources from user fees allowed FDA to increase staff to review what was then a backlog of new drug applications and to reduce application review times. Over the years, Congress has added similar authority regarding the regulatory review of medical devices and animal drugs. User fees make up 35% of the FY2012 FDA budget. Their contribution to FDA's human drug program is larger at 51%. Following the precedent set by PDUFA, all the user fee programs addressed in this legislation include both (1) legislation and (2) performance goals agreements developed with representatives of the regulated industry in consultation with representatives of patients and advocates, academic and scientific experts, and congressional committees. FDA may use the revenue from PDUFA fees to support "the process for the review of human drug applications." With each reauthorization of PDUFA, Congress has expanded the range of activities included in that phrase. The prescription drug user fee program covers new drugs whose sponsors are the first to apply for marketing approval (excluding, therefore, generic drugs) and new biological products (excluding, therefore, the new category of biosimilar biological products). FDASIA continues the overall approach begun by the Prescription Drug User Fee Act (PDUFA) and amended by PDUFA II, III, and IV to include an annual total revenue to be equally divided among three types of fees—application, establishment, and product. It also continues to define activities for which FDA can use fee revenue as those necessary for the review of human drug applications and supplements; the issuance of action letters; inspection of prescription drug establishments and other facilities; activities necessary for the review of applications for licensure of biological product establishments and for the release of lots of biologics; and monitoring of research conducted in connection with the review of human drug applications. In general, Title I, the Prescription Drug User Fee Amendments of 2012 (commonly referred to as PDUFA V): Sets total fee revenue for FY2013 at $693,099,000, to be divided evenly among application fees, establishment fees, and product fees (§103). Continues the authority to annually adjust the total revenue allowed by inflation and workload adjustments and changes the methodology to calculate annual inflation adjustments (§103). Allows for the early payment of authorized fees (§103). To ensure that user fees supplement rather than replace congressional appropriations, continues the requirements, referred to as "triggers," that FDA may collect and use fees only if, for each year, (a) FDA spends at least as much from direct appropriations for the review of human drug applications as it had in FY1997 (adjusted for inflation), and (b) appropriations (excluding fees) for FDA salaries and expenses, overall, are equal to or greater than the appropriations (excluding fees and adjusted for inflation) for FY1997 (§103). Continues the requirement for annual performance and fiscal reports and adds reporting requirements (§104). Authorizes these prescription drug user fees from October 1, 2012, through September 30, 2017 (§§105 and 106). Includes a savings clause noting that fees for applications accepted by FDA for filing before October 1, 2012, will remain as under prior law (§107). Title II—Fees Relating to Devices Medical devices are a wide range of products that are used to diagnose, treat, monitor, or prevent a disease or condition in a patient. For many medical devices, FDA approval or clearance must be obtained prior to marketing in the United States. Congress gave FDA the authority to collect fees from the medical device industry in 2002. User fees and direct appropriations from Congress fund review of medical devices by the FDA. The user fees support the FDA's medical device premarket review program to help reduce the time it takes the agency to review and make decisions on marketing applications. The medical device user fee program was modeled after the PDUFA program. It provides revenue for FDA; in conjunction, the agency negotiates with industry to set performance goals for the premarket review of medical devices. In general, Title II, the Medical Device User Fee Amendments of 2012: Changes the definition of "establishment subject to a registration fee" (§202). Changes the fee for a premarket notification submission, also called a 510(k) submission, from 1.84% of the premarket application (PMA) fee to 2% of the PMA fee; other fees are unchanged (§203). Sets for each fiscal year the PMA fee amounts, which start at $248,000 per application in FY2013 rising to $268,443 in FY2017, and annual establishment fee amounts, which start at $2,575 per manufacturing establishment in FY2013 rising to $3,872 in FY2016 and FY2017 (§203). Sets the total fee revenue amounts for each fiscal year, which start at $97,722,301 in FY2013 rising to $130,184,348 in FY2017 (§203). Allows for adjustment of the total revenue amounts by a specified inflation adjustment, with PMA and establishment fees adjusted accordingly (§203). Allows for the waiver or reduction of a PMA fee or establishment fee if that is in the interest of public health (§203). To ensure that user fees supplement rather than replace congressional appropriations, continues the requirement, referred to as a "trigger," that FDA may collect and use fees only if the direct appropriations for devices and radiological products remain at a level (adjusted for inflation) equal to or greater than the amount specified in law (§203). Allows for the early payment of authorized fees (§203). Continues the requirement for annual performance and fiscal reports and adds publication and update requirements for performance reports (§204). Includes a savings clause noting that fees for applications accepted by FDA for filing before October 1, 2012, will remain as under prior law (§205). Authorizes these medical device user fees from October 1, 2012, through September 30, 2017 (§§206 and 207). Allows for the streamlined hiring of FDA employees to positions related to the process for the review of device applications in order to achieve performance goals (§208). Title III—Fees Relating to Generic Drugs The Generic Drug User Fee Amendments (GDUFA) create new FFDCA Sections 744A, B, and C and are patterned after PDUFA, which was first enacted in 1992 and reauthorized in five-year increments. GDUFA became effective October 1, 2012, and will sunset on October 1, 2017. Integral to the operation of the generic drug user fee program are the performance goals stated in the FDA-industry agreement that the Secretary of Health and Human Services (HHS) submitted to Congress along with proposed legislative language. In general, Title III, the Generic Drug User Fee Amendments of 2012: Defines "human generic drug activities" on which FDA could use revenue from GDUFA fees to include the review of generic drug submissions and related drug master files; the issuance of approval, complete response, and other letters regarding applications, supplements, and drug master files; inspections; monitoring of research; postmarket safety activities; and regulatory science activities (§302). Establishes three ongoing types of fees to be paid by the manufacturer: drug master file fees at the time of file submission ; application filing fees (for an abbreviated new drug application [ANDA] and for a prior approval supplement [PAS] to an ANDA) at the time of submission; and annual facility fees (for a generic drug facility and an active pharmaceutical ingredient facility) for each establishment (§302). Establishes a one-time backlog fee to be paid by sponsors of currently pending applications (§302). Sets the estimated generic drug fee total for FY2013 at $299 million, specifies the proportion that each type of fee will contribute to the total, and provides a methodology for the calculation of an annual inflation adjustment (§302). To ensure that user fees supplement rather than replace congressional appropriations, sets a "trigger" by requiring that fees be refunded if appropriations for FDA salaries and expenses for a fiscal year are not at least the amount appropriated for FY2009 excluding fees for that year (§302). Requires annual performance and fiscal reports (§§303 and 308). Specifies the procedure for developing recommendations for performance goals in preparation for anticipated GDUFA reauthorization in 2017 (§303). Authorizes these generic drug user fees from October 1, 2012, through September 30, 2017 (§§304 and 305). Adds that a drug may be deemed misbranded (and its sale or purchase therefore prohibited) if fees and requirements of this title are not met (§306). Provides the Secretary with streamlined hiring authority, to expire in three years (§307). Title IV—Fees Relating to Biosimilar Biological Products A biosimilar is a biological product that is highly similar to a brand-name (innovator) biological product made by a pharmaceutical or biotechnology company. A biological product, or biologic, is a preparation, such as a drug or a vaccine, that is made from living organisms. In contrast to the relatively simple structure and manufacture of chemical drugs, biosimilars, with their more complex nature and method of manufacture, will not be identical to the brand-name product, but instead may be shown to be highly similar. Biological products are, in general, regulated—licensed for marketing—under the Public Health Service Act (PHSA), and chemical drugs are regulated—approved for marketing—under the FFDCA. The Drug Price Competition and Patent Term Restoration Act of 1984 ( P.L. 98-417 ), often referred to as the Hatch-Waxman Act, provided a mechanism for the approval of generic chemical drugs under the FFDCA, but not for biosimilars under the PHSA. The Biologics Price Competition and Innovation Act of 2009 (BPCIA), enacted as Title VII of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 ), established a new regulatory authority within the FDA by creating a licensure pathway for biosimilars under the PHSA analogous to that which allowed for the approval of generic chemical drugs via the Hatch-Waxman Act under the FFDCA. Under the new pathway, a biosimilar may be approved by demonstrating that it is highly similar to a biological product that is already allowed on the market by FDA. The BPCIA also authorized FDA to collect associated user fees. Among other provisions, Title IV, the Biosimilar User Fee Act of 2012: Establishes several ongoing types of fees to be paid by the manufacturer to begin in FY2013: initial and annual biosimilar biological product development program fees for each product about which FDA holds development meetings with the sponsor; biosimilar biological product application and supplement fees at the time of submission; an annual biosimilar biological product establishment fee for each manufacturing establishment; and an annual biosimilar biological product fee for each product covered by BSUFA (§402). Allows the fee amounts to be based, for each fiscal year, on specified proportions of the inflation-adjusted human drug application fee amount calculated (see §103) under PDUFA (§402). Allows for the waiver of the biosimilar biological product application fee for the first such application from a small business, defined as an entity with less than 500 employees that does not have a drug product that has been approved under a human drug application or a biosimilar biological application and introduced or delivered for introduction into interstate commerce (§402). To ensure that user fees supplement rather than replace congressional appropriations, sets a "trigger" by requiring that fees will be available to defray the costs of the process of review of biosimilar applications only if the Secretary allocates for such purpose $20 million, excluding fees, adjusted for inflation (§402). Requires annual performance and fiscal reports (§§403 and 408). Requires an independent study of the workload volume and full costs associated with the review of biosimilar biological product applications (§403). Specifies the procedure for developing recommendations for performance goals in preparation for anticipated BSUFA reauthorization in 2017 (§403). Authorizes these biosimilar user fees from October 1, 2012, through September 30, 2017 (§§404 and 405). Includes a savings clause noting that fees for applications accepted by FDA for filing before October 1, 2012, will remain as under prior law (§406). Title V—Pediatric Drugs and Devices Drug manufacturers may be reluctant to test drugs and medical devices in children because of economic, ethical, legal, and other obstacles. The Best Pharmaceuticals for Children Act (BPCA, P.L. 107-109 ) and the Pediatric Research Equity Act (PREA, P.L. 108-155 ) provided drug manufacturers financial and regulatory incentives to test their products for use in children. The Pediatric Medical Device Safety and Improvement Act of 2007 (PMDSIA, P.L. 110-85 ) created reporting requirements for pediatric medical devices and incentives for manufacturers to create pediatric medical devices, and gave FDA the authority to require postmarket studies of approved pediatric devices to ensure their continued efficacy and safety. BPCA and PREA, passed by Congress in 2002 and 2003 and subsequently reauthorized in 2007, represent Congress's attempt to address the need for pediatric testing of drugs and biologics. BPCA created an incentive (extended market exclusivity) for manufacturers to conduct studies on pediatric use, and PREA created a requirement for manufacturers to test the safety and effectiveness of their products in pediatric populations. Between September 27, 2007, and March 31, 2012, 369 studies were completed under BPCA, PREA, or both. BPCA and PREA were again reauthorized in FDASIA. Extended marketing exclusivity may be an attractive incentive to a manufacturer with a product that is being sold under patent or other types of exclusivity protections. BPCA also included provisions to refer pediatric studies of off-patent products, which no longer have market exclusivity, to the National Institutes of Health (NIH), and manufacturer-declined studies of on-patent products to the Foundation for the NIH. BPCA and PREA studies result in information on new dosing, new indications of use, new safety information, and new data on effectiveness that inform labeling changes for pediatric dosing, warnings, and instructions on how to prepare formulations for pediatric populations. Although BPCA and PREA were developed separately, they are usually discussed in tandem because they both relate to pediatric research and PREA's continuity has been linked to the BPCA market exclusivity authority. In general, Title V: Permanently authorizes BPCA and PREA (§501). Clarifies the Secretary's authority to award exclusivity for studies conducted under PREA if they are completed and accepted pursuant to a written request under BPCA; and requires the Secretary to provide an explanation if a written request does not include the study of neonates (§502). Requires the Secretary to issue standard operating procedures for Pediatric Review Committee review of specified study plans and written requests under BPCA and PREA (§503). Requires that the Secretary make available for the public the medical, statistical, and clinical pharmacology reviews of (and agency requests for) studies submitted between January 4, 2002, and September 27, 2007, under BPCA that resulted in six months of market exclusivity and a labeling change (§504). Allows extensions of study deferrals under specified conditions; sets timeframes for deferral requests and Secretarial responses; requires the Secretary to track and make information on deferrals and deferral extensions available to the public; and allows the Secretary to enforce assessment deadlines and to consider a drug or biological product misbranded for failure to submit a required assessment, but not to withdraw drug approval or to revoke biologics licensure (§505). Provides timeline and specifies content for a sponsor's required initial study plan submission (no later than 60 days after the end of Phase 2), and subsequent steps by the sponsor and the Secretary (§506). Permanently authorizes the Pediatric Advisory Committee for specified activities; authorizes the Pediatric Subcommittee of the Oncologic Drug Advisory Committee for the duration of the committee; and authorizes appropriations of $25 million for each of FY2013 through FY2017 for the program for the study of off-patent drugs at NIH (§507). Extends until October 1, 2017, the waiver of the prohibition on the sale for profit of certain pediatric devices that are approved under the humanitarian device exemption from required effectiveness data (§507). Requires reports, with specified content and to include stakeholder input, to committees of jurisdiction and the public within four years and every five years thereafter (§508). Makes technical amendments (§509). Requires the Secretary to hold a meeting and report on a strategic plan on accelerated development of new therapies for pediatric rare diseases (§510). Adds expertise in a pediatric subpopulation, neonatology, and pediatric epidemiology to the areas required to be represented on the staff of the Office of Pediatric Therapeutics (§511). Title VI—Medical Device Regulatory Improvements Medical devices include a wide range of products that are used to diagnose, treat, monitor, or prevent a disease or condition in a patient. Medical devices are broadly integrated into health care and include simple devices, such as tongue depressors, as well as more complex devices, such as implantable hips. The extent of FDA authority to regulate whether a device may be marketed in the United States and how it is monitored afterward varies across types of devices. In order to determine the applicability of premarket requirements (i.e., clearance or approval before marketing) for a given device, FDA classifies the device based on the risk to the patient: (1) low-risk devices are class I; (2) moderate-risk are class II; and (3) high-risk are class III. Low-risk medical devices (class I) and a very small number of moderate-risk medical devices (class II) are exempt from premarket review. In general, for moderate-risk and high-risk medical devices, there are two pathways that manufacturers can use to bring such devices to market with FDA's permission: (1) premarket approval (PMA) and (2) premarket notification submission (also known as a 510(k) submission, after the section in the FFDCA that authorized this type of notification). The PMA process generally consists of conducting clinical studies and submitting a PMA application, which requires evidence providing reasonable assurance that the device is safe and effective. This is somewhat analogous to the new drug application process. A PMA is used for novel and high-risk devices, is often lengthy and expensive, and results in a type of FDA permission called approval. The other path involves submitting a 510(k) notification demonstrating that the device is substantially equivalent to a device already on the market (a predicate device) that does not require a PMA. The 510(k) process is unique to medical devices and results in FDA clearance. Substantial equivalence is determined by comparing the performance characteristics of a new device with those of a predicate device. Once a device is on the market, FDA has authority to carry out certain activities to monitor its safety and effectiveness. The extent of the agency's postmarket authority is tied to characteristics of the device. Manufacturer requirements include areas such as labeling, postmarket surveillance, device tracking, and adverse event reporting. Provisions in FDASIA make modifications to various aspects of premarket and postmarket device regulation. Premarket modifications include those intended to (1) affect the efficiency, transparency, and data requirements of the 510(k) and PMA processes; and (2) alter or make clarifications to certain types of exempt devices, for example, custom devices and humanitarian use devices. With respect to postmarket regulation, provisions focus on expanding active postmarket surveillance; altering requirements related to postmarket studies for devices; and strengthening both device recall and tracking capabilities through a recall program and the unique device identifier system. Miscellaneous reforms include those aimed at increasing transparency of FDA's approval and clearance decisions and processes for issuing industry guidance documents; improving health information technology for the agency; and harmonizing device regulation with FDA's international counterparts. In general, Title VI: Clarifies that the Secretary will not be allowed to disapprove an investigational device exemption (IDE) application because the Secretary determines that (1) the investigation may not support a substantial equivalence or de novo classification determination or approval of a device, (2) the investigation may not meet a requirement, including a data requirement, relating to the approval or clearance of a device, or (3) an additional or different investigation may be necessary to support clearance or approval of the device (§601). To clarify "the least burdensome standard" for PMA applications (without altering the criteria for evaluating a PMA application), defines the requirement for necessary clinical data as the minimum required to demonstrate, for purposes of approval, the effectiveness of a device for the conditions of use (§602). To clarify "the least burdensome standard" for 510(k) notifications (without altering the standard for determining substantial equivalence), defines the requirement for necessary information (to demonstrate that devices with differing technological characteristics are substantially equivalent) as the minimum required to support a determination of substantial equivalence between a new device and a predicate device (§602). Requires the Secretary to completely document the scientific and regulatory rationale for any significant decision regarding submission or review of a report under Section 510(k), a PMA application, or an IDE application, including documentation of significant controversies or differences of opinion, and to provide this documentation to the applicant upon request; a supervisory review of the significant decision may also be requested (§603). Requires the Secretary to withdraw the July 2011 draft FDA guidance entitled "Guidance for Industry and FDA Staff—510(k) Device Modifications: Deciding When to Submit a 510(k) for a Change to an Existing Device," leaving the prior guidance issued in 1997 in effect (§604). Requires a report to House and Senate committees regarding when a 510(k) notification should be submitted for a modification or change to a legally marketed device; draft guidance or proposed regulation on 510(k) device modification will not be issued before these committees receive this report and final guidance or regulation will not be issued until one year after the committees receive such report (§604). Requires the Secretary to establish a program to improve the device recall system, to include the assessment of information on device recalls; clarification of procedures for conducting device recall audit checks; assessment of the effectiveness of corrections or action plans for recalls; and documentation of the basis for terminations of recalls (§605). Allows the Secretary, at any time, to issue a clinical hold prohibiting the sponsor of a medical device from conducting a clinical investigation using the medical device if the Secretary determines the device represents an unreasonable risk to the safety of the persons who are the subjects of the clinical investigation or for such other reasons the Secretary may establish by regulation (§606). Allows the Secretary, for certain new devices, in response to a request for an initial device (de novo) classification, to classify the new device without first issuing a determination that it is not substantially equivalent (NSE) to an existing device; this classification request may be declined if there exists a legally marketed device on which to base a substantial equivalence review, or if the new device is not a low-moderate risk device or general controls would be inadequate to control risks and special controls cannot be developed (§607). Allows the Secretary to change the classification of a device based on new information, and to revoke any regulation or requirement under FFDCA Sections 514 or 515, by administrative order instead of by regulation; requires publication of the proposed order with a substantive summary of the scientific evidence for the reclassification; specifies requirements for public comment, a meeting of a device classification panel, and a final order; specifies that Administrative Procedure Act requirements regarding regulations would not apply, although the order would be subject to judicial review; and limits authority to issue the administrative order so it cannot be delegated below the Director of the Center for Devices and Radiological Health, acting in consultation with the FDA Commissioner (§608). Authorizes the Secretary, with respect to devices, to enter into arrangements with nations regarding harmonization of regulatory requirements for activities, including inspections and common international labeling symbols, and to participate in international fora, including the International Medical Device Regulators Forum (§§609 and 610). Reauthorizes, through October 1, 2017, the inspection of a factory, warehouse, or manufacturing or processing establishment by accredited third parties, and reauthorizes, through October 1, 2017, the review of 510(k) submissions by accredited third parties and establishes criteria for periodic reaccreditation (§§611 and 612). Allows a device granted a humanitarian device exemption (HDE) to qualify for an exemption to the general ban on selling such devices for a profit if the HDE device is intended for the treatment or diagnosis of (1) a disease or condition that does not occur in pediatric patients, or, (2) that occurs in pediatric patients in such numbers that device development is impossible, highly impracticable, or unsafe (§613). Allows a sponsor of a device granted an HDE prior to the bill's enactment to seek a determination as to whether it would qualify for an exemption to the profit ban (§613). Requires the Secretary to issue proposed regulations for a unique device identification system not later than December 31, 2012; to finalize proposed regulations no later than six months after the close of the comment period; and to implement final regulations with respect to certain devices no later than two years after finalization of the regulations (§614). Requires the Secretary to modify Sentinel (the Postmarket Risk Identification and Analysis System) to include medical devices, and requires the Secretary, when expanding this system, to engage stakeholders and to use relevant data on cleared and approved devices (§615). Specifies that the Secretary's authority to order the conduct of postmarket surveillance is at the time of approval or clearance of a device or at any time thereafter; and requires the manufacturer to commence any required postmarket surveillance not later than 15 months after being so ordered (§616). Broadens the definition of custom devices, which are exempt from the requirements of FFDCA Sections 514 and 515; outlines limitations to the exemption; and requires the Secretary to promulgate regulations on the replication of custom devices (§617). Requires the Secretary to make public a report containing a proposed strategy and recommendations on a regulatory framework pertaining to health information technology, including mobile medical applications, and authorizes the Secretary to convene a working group of external stakeholders to provide input on the strategy and recommendations required in this report (§618). Treats three types of notices related to devices as guidance documents for the purposes of ensuring that procedural requirements on public participation would apply to such documents (unless the Secretary determines participation is not feasible or appropriate) before they could be implemented: (1) notice to industry guidance letters; (2) notice to industry advisory letters; and (3) notices setting forth either initial interpretations of a regulation or policy or changes in interpretation or policy (§619). Reauthorizes the Improving Pediatric Device Availability Demonstration Grants, allowing an appropriation of $5.25 million for each of FY2013 through FY2017, and requires a rule regarding the tracking of pediatric uses of devices be proposed by December 31, 2012, and the final rule be implemented by December 31, 2013 (§620). Title VII—Drug Supply Chain FDA's earliest authorities, in 1906, concerned product integrity. Subsequent changes in the law related to integrity and safety reflected the mid-century pharmaceutical industry with mostly domestic factories. As drug production has shifted to a global supply chain of manufacturers, processers, packagers, importers, and distributors, FDA leadership, among others, has suggested that the agency's statutory authority does not match its responsibilities. FDASIA responds, in part, with provisions to allow FDA to refuse entry of an imported drug if the manufacturing facility inspection was denied or limited; enhance penalties for suppliers of counterfeit or substandard products; and require a unique manufacturing facility identifier. Despite discussions right up to FDASIA enactment, Congress did not reach agreement on language regarding other items, such as chain-of-custody documentation and track-and-trace technologies. Following FDASIA passage, Members have continued such discussions, attempting to find an effective and feasible mix that covers domestic and foreign facilities. In general, Title VII, Drug Supply Chain: Expands the registration information required from the owners or operators of domestic and foreign drug establishments to include a unique facility identifier and information about importers (§§701 and 702). Expands registration information required to include establishments that manufacture excipients (such as fillers, preservatives, and flavors) for listed products (§703). Requires the Secretary to maintain an electronic database of unique facility identifiers (§704). Requires the Secretary to carry out biennial inspections of establishments that manufacture class II or class III devices (§705). Requires the Secretary to carry out manufacturing establishment inspections according to a risk-based schedule for both prescription and nonprescription drugs; specifies risk factors and requires reports (§705). Requires manufacturers to submit required records in advance or in lieu of inspections within a reasonable timeframe; and requires the Secretary to sufficiently describe the records requested and to provide receipt confirmations (§706). Requires that a drug be deemed adulterated if the owner or operator of a facility used in its manufacture delays, denies, or limits an inspection, or refuses to permit entry or inspection (§707). Allows the Secretary to destroy an adulterated, misbranded, or counterfeit drug offered for import if it is valued at $2,500 or less; and includes language about notice, storage, cost liability, and regulations (§708). Expands the Secretary's authority to administratively detain a product found to be adulterated or misbranded during a facility inspection to include drugs (prior authority was for device and tobacco products) (§709). Allows the Secretary to, in specified conditions, keep confidential the information relating to drug inspections that a foreign government provided voluntarily (§710). Notes that, with respect to the criteria for deeming a drug to be adulterated, "current good manufacturing practices" include quality controls in manufacturing, and assurance of the safety of raw materials (§711). Allows the Secretary to enter into agreements with foreign governments to recognize inspections of foreign establishments in specified situations (§712). Allows the Secretary to require, as a condition of granting a drug admission to the United States, an importer to provide specified information demonstrating that the drug complies with requirements of this act (§713). Requires a commercial importer to register with the Secretary and submit, among other things, a unique facility identifier; requires the Secretary to promulgate regulations to establish good importer practices; and prohibits the importation of drugs by unregistered commercial importers (§714). Allows the Secretary to require that a registered manufacturer, a wholesaler, or a distributor (other than for retail sale) notify the Secretary when that person knows (1) that the use of a drug may result in serious illness or death; (2) of a significant theft of such drug; or (3) of the counterfeiting of such drug that is in U.S. commerce or could be imported (§715). Requires imprisonment for up to 20 years or a fine up to $1 million for a person who knowingly and intentionally adulterates a drug so that the drug has a reasonable probability of causing serious adverse health consequences or death to humans or animals (§716). Adds trafficking in a counterfeit drug to the list of violations subject to fines and imprisonment under the U.S. criminal and penal code, and directs the U.S. Sentencing Commission to amend guidelines to increase penalties to reflect the serious nature of these offenses (§717). Asserts U.S. authority to enforce the FFDCA for a violation that occurs outside the United States if the product was intended for U.S. import or if an act committed in the United States furthers the violation (§718). Title VIII—Generating Antibiotic Incentives Now The treatment of infectious diseases often depends on the availability of anti-infective drugs. Approved drugs can become ineffective if infectious organisms develop resistance to them. However, development of new anti-infective drugs is not always attractive to sponsors; the drugs are often used short-term and/or in small numbers of patients, compared with so-called "blockbuster" drugs. In addition, some drug companies cited unique regulatory challenges in the approval of anti-infective drugs. FDASIA provides incentives for the development of certain new anti-infective drugs by providing an extended period of exclusivity (i.e., a period in which the new drug may be marketed without generic competition). This and other provisions, summarized below, are modified from the freestanding Generating Antibiotic Incentives Now Act of 2011 (GAIN Act), S. 1734 / H.R. 2182 . In general, Title VIII: Defines a qualified infectious disease product (QIDP) as an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections (§801). Requires the Secretary to determine whether a product is a QIDP within 60 days of a sponsor's request (§801). Provides, for a QIDP, five years of market exclusivity, in addition to other periods of exclusivity for which such drug qualifies (§801). Requires the Secretary to finalize implementing regulations within two years of enactment (§801). Makes QIDPs eligible for priority review and designation as fast track products (§§802 and 803). Requires the Secretary to update guidance documents regarding the conduct of clinical trials for antibacterial and antifungal drugs; and to provide written recommendations for such trials upon a sponsor's request (§804). Requires the Secretary, within five years of enactment, to report to Congress on specified aspects of the implementation of this title (§805). Requires the Secretary, by June 30, 2013, to publish draft guidance on the development of drugs to treat serious or life-threatening bacterial infections; and to finalize such guidance by December 31, 2014 (§806). Title IX—Drug Approval and Patient Access Before a drug may be sold in the United States, FDA must approve an application from its manufacturer. The progression to drug approval begins before FDA involvement as, first, basic scientists work in the laboratory and with animals, and, second, a drug or biotechnology company develops a prototype drug. That company must seek and receive FDA approval, by way of an investigational new drug (IND) application, to test the product with human subjects. Those tests, called clinical trials, are carried out sequentially in Phase I, II, and III studies, which involve increasing numbers of subjects. The manufacturer then compiles the resulting data and analysis in a new drug application (NDA). FDA reviews the NDA with three major concerns: (1) safety and effectiveness in the drug's proposed use; (2) appropriateness of the proposed labeling; and (3) adequacy of manufacturing methods to assure the drug's identity, strength, and quality. The FFDCA and associated regulations detail requirements of each step; not all reviews and applications follow the standard procedures. In certain circumstances, FDA regularly uses three formal mechanisms to expedite the development and review process. For a drug for a serious or life-threatening condition, accelerated approval and animal efficacy approval processes—provided for in regulations—change what is needed in an application when a drug or biological product may provide a meaningful therapeutic benefit over existing treatments. For a drug intended to treat a serious or life-threatening condition that demonstrates the potential to address an unmet medical need, a fast track product designation —provided for in law—allows approval of an application based on the product's "effect on a clinical endpoint or on a surrogate endpoint that is reasonably likely to predict clinical benefit." Priority review —based in FDA procedures—affects the timing of the review, not the process leading to submission of an application, when FDA determines a drug would address an unmet need. Provisions in FDASIA amend the FFDCA to "help expedite the development and availability to patients of treatments for serious or life-threatening diseases or conditions while maintaining safety and effectiveness standards." They do so by combining elements of the regulatory accelerated approval process and the statutory fast track product designation, and creating a new designation— breakthrough therapy —for a drug whose preliminary clinical data suggest a possible substantial improvement over existing therapies. In general, Title IX: Requires the Secretary, at the request of a sponsor, to facilitate the development and expedite the review of a drug designated a fast track product , if the drug "is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a condition" (§901). Designates an accelerated approval process by which the Secretary may approve a marketing application of a product for a serious or life-threatening disease or condition, including (but not limited to) a fast track product, based upon a clinical or surrogate endpoint that, among other specified criteria, "is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit" (§901). Authorizes the Secretary to require postmarket activities, expedite withdrawal of approval, facilitate review, and contract for an independent evaluation of the various expedited approval processes; requires the Secretary to issue guidance and amend regulations; does not alter the standards of evidence of safety and effectiveness required for drug approval; and does not alter the Secretary's ability to use evidence from other than adequate and well-controlled investigations in order to determine whether an endpoint is reasonably likely to predict clinical benefit (§901). Requires the Secretary, upon request of a sponsor, to expedite the development and review of a drug designated a breakthrough therapy , "if the drug is intended, alone or in combination with 1 or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on 1 or more clinically significant endpoints"; requires the Secretary to submit annual reports to Congress on the number of requested and approved breakthrough therapy designations and related actions; and establishes timeframes for related guidance (§902). Requires the Secretary to develop and disseminate to appropriate persons and organizations a description of the law applicable to accelerated approval, fast track, and breakthrough products; and establish a program to encourage the development of "surrogate and clinical endpoints, including biomarkers, and other scientific methods and tools that can assist the Secretary in determining whether the evidence submitted in an application is reasonably likely to predict clinical benefit" for serious or life-threatening conditions with significant unmet medical needs (§§901 and 902). With regard to new drugs and biological products for rare diseases, and drugs and biological products that are genetically targeted, requires the Secretary to (1) ensure that opportunities exist for consultations with stakeholders and (2) develop and maintain a list of external experts with whom to consult when the Secretary lacks the requisite expertise; specifies topics for such consultations (§903). Requires the Architectural and Transportation Barriers Compliance Board to convene a stakeholder working group to develop best practices on access to information on prescription drug labels for individuals who are blind or visually impaired; requires a GAO study of the extent to which pharmacies use those best practices and the extent to which barriers to accessible information continue (§904). Requires the Secretary to "implement a structured risk-benefit assessment framework in the new drug approval process," without altering premarket approval evaluation criteria (§905). Reauthorizes the appropriation of $30 million for each of FY2013 through FY2017 for grants and contracts to defray the costs of qualified testing used for orphan drug development; and eliminates a requirement in the Orphan Drug Act that, in order to qualify, such costs must be incurred after designation as a drug for a rare disease or condition (§906). Requires the Secretary to publish on the FDA website and provide to Congress a report, with specified content, addressing the extent to which demographic subgroups (to include sex, age, race, and ethnicity) participate in clinical trials and are included in safety and effectiveness data submitted in marketing applications; and to publish an action plan with recommendations to improve the completeness, quality, and inclusion of subgroup data in various analyses (§907). Creates a new program, funded by user fees, to provide a transferable voucher, under specified conditions, to a sponsor of an approved new drug or biological product for a rare pediatric disease to be used for the priority review of another application; terminates the authority to award such vouchers one year after the Secretary awards the third rare pediatric disease priority voucher; and requires the GAO to report on the effectiveness of the program (§908). Title X—Drug Shortages Since 2005, FDA, clinicians, pharmacists, and patients have noted more frequent drug shortages (i.e., when the local or nationwide supply of a particular dosage is inadequate to meet demand). Recent shortages have clustered around generic sterile injectable drugs used during surgery or hospital care, although shortages have affected brand-name products and oral tablets for a wide range of diseases and conditions. Immediate causes of shortages include (1) manufacturing quality problems (such as contaminants); (2) interruption in supply of ingredients; (3) unanticipated increase in demand (e.g., the unavailability of another product for the same condition, recent attention to an off-label use, or approval of an additional indication or user population); (4) business decisions by individual firms (e.g., to cut back on the number of facilities dedicated to a particular drug, or to shut down during renovation); and (5) unanticipated weather, accident, or other event. Less clear is why the rate of shortages is increasing now. Market concentration and a global supply chain, along with manufacturing capacity constraints, the complex process of drug production, inventory practices, and pricing, act as underlying causes, many believe, of drug shortages. FDA has acted within its current authority by asking both sole source manufacturers and other firms to increase production; exercising flexibility through regulatory discretion (e.g., allowing the importation of certain drugs); expediting review; and communicating with the Drug Enforcement Administration (DEA) about increasing quotas of controlled substances that are in short supply. An October 2011 executive order directed FDA to use all tools to require that manufacturers give advance notice of manufacturing interruptions, to expedite applications, and to work with the Department of Justice (DOJ) to address instances of price gouging, for example, when pharmacies turn to supplies outside their routine distribution channels. FDA and GAO analyses suggested immediate steps to increase notification, increase staffing, develop legislation to require notification, and communicate with the public and within FDA. They suggested longer-term steps such as using databases to identify factors that help prevent or mitigate shortages, identifying manufacturing quality issues and having backup plans, using sentinel reports from providers to identify imminent shortages, and encouraging wholesaler transparency. Provisions in FDASIA reflect some of the items in the executive order and in the GAO and FDA recommendations. In general, Title X: Expands the requirement that a manufacturer of certain drugs notify the Secretary of a permanent discontinuance of its production to include a broader range of drugs and an interruption in production; describes secretarial actions when a manufacturer fails to meet the requirements; authorizes the Secretary to expedite an inspection or the review of a supplemental application to help mitigate or prevent a shortage; addresses Attorney General actions regarding increasing the production quota of a controlled substance to address a shortage; and addresses procedures and regulations (§1001). Requires the Secretary to submit annual reports to Congress to include the number of actual and prevented shortages and manufacturer notifications, FDA communication procedures, specified details of FDA shortage prevention and mitigation actions, and efforts to coordinate with DEA (§1002). Requires the Secretary to establish a task force to develop and implement a strategic plan regarding the Secretary's response to preventing and mitigating shortages; describes required elements of the strategic plan, including considering whether to establish a qualified manufacturing partner program; and specifies other communication and action requirements (§1003). Requires that the Secretary maintain an up-to-date list, with specified information, of drugs that the Secretary determines to be in shortage in the United States and make the information publicly available except when the Secretary determines that the disclosure would adversely affect the public's health or the information is protected as a trade secret or confidential information elsewhere in the U.S. Code (§1004). Requires the Attorney General, upon a request from a manufacturer of a schedule II controlled substance listed as in shortage, to increase the production quota or provide the reason for denial and requires the Secretary to make the manufacturer's written request available to the public (§1005). Requires the Attorney General to submit to Congress an annual drug shortages report with specified content relating to controlled substances (§1006). Excludes from the establishment registration requirement a hospital that repackages a drug on the FDA drug shortage list for transfer to another hospital in the same health system (§1007). Requires GAO to "examine the cause of drug shortages and formulate recommendations on how to prevent or alleviate such shortages," specifying questions to consider, and to submit to Congress a report on the study results (§1008). Title XI—Other Provisions Subtitle A—Reauthorizations In general, Subtitle A—Reauthorizations: Extends, until October 1, 2017, the period during which a manufacturer may elect to consider a non-racemic drug as a separate drug from an approved racemic (having both the left- and right-handed molecular forms of an active ingredient) drug with the same active ingredient and changes the restriction on using any investigations of the racemic drug in support of the non-racemic drug's application to restrict only the use of clinical investigations (§1101). Reauthorizes the Critical Path Public-Private Partnerships, through which FDA can enter into collaborative agreements with eligible educational or tax-exempt organizations to foster medical product innovation, development, and safety; and authorizes the appropriation of $6 million for each of FY2013 through FY2017 (§1102). Subtitle B—Medical Gas Product Regulation Subtitle B addresses the regulation of medical gases, such as oxygen. Although they are considered to be prescription drugs under the FFDCA, FDA has exercised regulatory discretion in not requiring new drug applications or imposing user fees on medical gas manufacturers. However, these companies sought an approval pathway in law to avoid certain trade and other problems associated with their products being considered "unapproved." FDASIA allows the Secretary to approve medical gases that meet requirements through a certification process that would not confer market exclusivity or require the payment of user fees. In general, Subtitle B—Medical Gas Product Regulation: Establishes a process requiring the Secretary, within 180 days of enactment, to certify certain medical gas products that meet specified requirements; considers a certified product to have an approved drug application for specified indications, but without eligibility for market exclusivity or the requirement to pay prescription drug user fees; and authorizes the Secretary to waive requirements for a prescription (§1111). Requires the Secretary to review and report on current medical gas regulations within 18 months of enactment; amend them as needed; and finalize them within 48 months of enactment (§1112). Clarifies that this subtitle would not apply to medical gases that were approved prior to enactment, or that are approved after enactment, pursuant to typical drug approval authority (§1113). Subtitle C—Miscellaneous Provisions In general, Subtitle C—Miscellaneous Provisions: Requires the Secretary, within two years of enactment, to issue a guidance document that describes FDA policy regarding the promotion of FDA-regulated medical products using the Internet, including social media (§1121). Requires the Secretary to "review current federal initiatives and identify gaps and opportunities with respect to … ensuring the safe use of prescription drugs with the potential for abuse [and] the treatment of prescription drug dependence"; post on the HHS website a report on the findings of the review; and promulgate guidance on the development of abuse-deterrent drug products (§1122). Requires the Secretary to work with other regulatory authorities, medical research companies, and international organizations to harmonize global clinical trial standards for medical products, in order to (1) enhance medical product development; (2) facilitate the use of foreign data; and (3) reduce duplicative studies; and includes savings clause that this provision would not alter the current standards for premarket review of medical products (§1123). Requires the Secretary, in deciding whether to approve, license, or clear a drug or device, to accept data from clinical trials outside the United States, as long as such data meet applicable standards; and requires the Secretary to provide a sponsor with a written explanation in the event that such data were found to be inadequate (§1123). Requires the Secretary, within one year of enactment, to establish a strategy and implementation plan, consistent with user fee program performance goals, for advancing regulatory science for medical products, and to identify in such plan a vision and priorities related to medical product decision-making, and ways to address regulatory and scientific gaps, among other stated requirements; and requires the Secretary to include a report on progress on those goals as part of the FY2014 and FY2016 performance reports required for the prescription drug, medical device, generic drug, and biosimilar biological product user fee programs (§1124). Requires the Secretary to report, not later than one year after enactment, to Congress on the development and implementation of a plan to modernize FDA's information technology systems and align them with the strategic goals of the agency, consistent with existing GAO recommendations; additionally, requires GAO to report, by January 1, 2016, on the FDA's progress to meet the goals set out in such plan (§1125). Requires the Secretary to intensify and expand activities to enhance scientific knowledge regarding nanomaterials included or intended for inclusion in FDA-regulated products to address potential toxicology, potential benefit of new therapies, and the effects on and interactions with biological systems (§1126). Requires GAO, within one year of enactment, to report, as specified, on problems posed by online pharmacy websites that violate state or federal law (§1127). Requires a report from the FDA Commissioner to Congress within one year of enactment with details regarding FDA interactions with small businesses, including outreach, grants, and barriers encountered (§1128). Prohibits any restriction on lawful communication by a U.S. Public Health Service Commissioned Officer with a Member of Congress or the HHS Inspector General, providing a so-called "whistleblower" protection comparable to such protections among the armed services (§1129). Sets dates for product compliance with final rule for labeling and effectiveness of sunscreen products for over-the-counter human use (§1130). Requires the Secretary to submit to Congress within one year of enactment an integrated management plan to improve the efficiency and effectiveness of the Center for Drug Evaluation and Research, the Center for Biologics Evaluation and Research, and the Center for Devices and Radiological Health, including workforce performance measures (§1131). Amends the requirements and procedures, including timing of review by the Secretary, concerning assessments of approved risk evaluation and mitigation strategies (REMS) and their modification; and requires the Secretary to issue guidance on types of modifications (§1132). Temporarily extends the period during which a manufacturer can obtain tentative approval of a generic drug application before forfeiting the marketing exclusivity for being the first generic version (§1133). Adds a 270-day deadline by which, in response to a petition, the Secretary must issue a final substantive determination on whether a drug withdrawal was due to its safety and effectiveness (§1134). Shortens from 180 days to 150 days the deadline by which the Secretary must take final agency action on a petition regarding a new drug application that refers to data submitted to FDA from another approved product or an abbreviated new drug application; and adds a biosimilar biologics license application to that requirement (§1135). Requires, beginning not before two years after final guidance is issued, applications for drugs and biologics to be submitted in electronic format; and requires, beginning after final guidance is issued, pre-submissions, submissions, and supplemental information for medical devices to include an electronic copy of such materials (§1136). Requires the Secretary to develop and implement strategies to solicit patients' views during regulatory discussions, including permitting the participation of a patient representative in agency meetings with medical product sponsors (§1137). Requires, within one year of enactment, the Commissioner to review, modify, and make publicly available the FDA communication plan to inform health care providers and patients of the benefits and risks of medical products, with special focus on underrepresented subpopulations, including racial subgroups (§1138). Requires the Secretary to hold a public meeting and solicit stakeholder input regarding scheduling of products containing hydrocodone under the Controlled Substances Act (§1139). Requires a report by GAO within one year of enactment on the benefits and efficiencies of electronic patient labeling of prescription drugs as a substitute or partial substitute for paper labeling (§1140). Authorizes the Secretary, in consultation with the Attorney General, to "facilitate … the development of recommendations on interoperability standards" for the interstate exchange of prescription drug monitoring program (PDMP) information by states receiving specified federal grants; requires the Secretary, "in facilitating the development of recommendations," to consider specified topics; and requires the Secretary to submit a report on enhancing PDMP interoperability, to include specified contents (§1141). Regarding advisory committee member conflicts of interest, strikes the provision limiting the number of exceptions (such as waivers under the provisions of the criminal financial conflict-of-interest statute [18 U.S.C. 208]) the Secretary could grant (as authorized for FY2008 through FY2012) and maintains the content and timing requirements for public disclosure of committee member financial interests that the Secretary (according to 18 U.S.C. 208), adding as a reason for an exception that there is a public health interest in having the expertise available to the committee (§1142). Requires the Secretary to develop and implement outreach strategies for potential members of advisory committees to ensure the most current expert advice; modifies the required content of the required annual report from the Secretary on advisory committee conflicts of interest; requires the Secretary to review and update, as necessary, guidance with respect to advisory committees regarding disclosure of conflicts of interest; and requires the Secretary to issue guidance that describes the FDA process for reviewing financial conflicts of interest reported by advisory committee members that do not meet the definition of disqualifying interest (§1142). Prohibits, for five years, the FDA from issuing draft or final guidance on the regulation of laboratory-developed tests (LDTs) prior to notifying the House Energy and Commerce Committee and the Senate Committee on Health, Education, Labor, and Pensions of both their intent to do so, and the details of such intended action (§1143). Subtitle D—Synthetic Drugs In general, Subtitle D—Synthetic Drugs, the Synthetic Drug Abuse Prevention Act of 2012: Adds specified synthetic drugs, including those that mimic the effects of cannabis marijuana, to schedule I (the most restrictive schedule, for drugs with high risk of abuse for which there are no recognized medical uses) under the Controlled Substances Act (CSA); also, with regard to temporary scheduling, extends the initial period of temporary scheduling from one year to two years and the extension of temporary scheduling from 6 months to one year (§§1151-1153). Appendix A. Time-Specific Requirements of Federal Entities in FDASIA Throughout FDASIA, Congress has directed certain actions to be done by specified entities within specified time periods. It directs most of the federal actions to the Secretary, Department of Health and Human Services (HHS, the Secretary); several actions are required of other federal entities. FDASIA also requires many actions of the regulated industry. This appendix lists the time-specific requirements (meaning actions required to be completed within a specific time period) of federal entities in FDASIA (see methodology section below). These tables present the requirements as contained in FDASIA; CRS will not update this report to track agency progress toward meeting or completing these requirements. The HHS Secretary is responsible for more than 90% of the requirements, and FDA is maintaining a website to reflect the agency's tracking of those activities. Methodology This section explains how requirements were selected for inclusion in the appendix and how dates are presented in the tables. Selection criteria. This appendix includes provisions that require action by the responsible entity (the actor) (1) by a specific date (e.g., not later than January 15, 2014); (2) within a specified number of days or months of a specified event (e.g., not later than 60 days before the start of the fiscal year); or (3) with a timed aspect not pegged to a date or event (e.g., at least every five years). Requirements are not included if (1) the timing is conditionally defined (e.g., if a sponsor submits a request, the Secretary must respond not later than 60 days from the submission), or (2) no explicit time is noted (e.g., the Secretary must maintain an up-to-date list of drugs in shortage). For linked requirements (e.g., draft guidance and final guidance), the entire set of requirements is included if at least one requirement meets the selection criteria. Presentation of dates . The legislative language in FDASIA differs across titles and sections in how it refers to the timing of required actions. To achieve consistent presentation of timing, this appendix presents (with very few exceptions) time-specific requirements in date form. When FDASIA provides an actual date, the appendix uses that date. When FDASIA refers to an event, the date is calculated; for example, when the legislative language reads "not less than 60 days before the start of the fiscal year," the appendix presents this as August 2, the calculated number of days from October 1. When a time-specific requirement is not pegged to a date or event (e.g., at least every five years), it is noted as such. When a requirement recurs annually, the table shows only the month and day that action must occur each year. For efficiency of presentation and overall view of timed requirements, when a time-specific requirement is defined by a range, the table lists the last day of the range. For example, tables in this appendix would list the timing reference as "July 9, 2013," in each of the following three situations: Comparison to FDA Implementation Tracking Chart On November 27, 2012, FDA created a website that lists the "requirements with specific statutory dates set by Congress"; the agency intends to update the chart to "communicate its progress." Comparing the information that FDA posted with the material in this appendix reveals some differences in scope and level of detail. The main differences are as follows: The FDA chart includes only deliverables for which FDA is responsible. This appendix includes actions required of all federal entities. The FDA chart includes actions specified in the letters from the Secretary to Congress that present the performance goals negotiated with industry for the user fee programs. This appendix includes only requirements specified in FDASIA. The FDA chart includes a column that FDA will use to publicly track its progress as it completes each requirement. This appendix does not duplicate that effort. Legal Effect of Deadlines As a matter of administrative law, the enforceability of statutory deadlines is determined primarily via private civil litigation against the agency for failure to comply with the deadline. Although a court may compel an agency to take action when the agency has "unreasonably delayed," courts generally provide agencies deference in order to avoid dictating how an agency should allocate its limited resources. In Telecommunications Research & Action Center v. FCC (TRAC), the Circuit Court of Appeals for the District of Columbia (D.C. Circuit) established a set of factors to consider when determining whether an agency has delayed unreasonably in taking a required action. In TRAC, the D.C. Circuit noted that courts should be guided by a "rule of reason" when determining whether the agency has unreasonably delayed, but also stated that "where Congress has provided a timetable or other indication of the speed with which it expects the agency to proceed in the enabling statute, that statutory scheme may supply content for this rule of reason." The D.C. Circuit's language in TRAC provides that a court should consider congressionally imposed deadlines, but also indicates that a court should not necessarily find that an agency delayed unreasonably based solely on the fact that the agency missed a statutory deadline. In one prominent example, the D.C. Circuit declined to compel a rulemaking by the Mine Safety and Health Administration (MSHA) even though the agency had violated a statutory deadline for completing the regulation. The court agreed, however, to retain jurisdiction and required MSHA to report regularly on the status of its rulemaking process. In an administrative adjudication context, the D.C. Circuit similarly refused to compel the Food and Drug Administration (FDA) to complete the review of a generic drug application even though the FDA missed a statutory deadline by a significant margin. Therefore, although the FDASIA imposes statutory deadlines on various executive agencies, the enforceability of these statutory deadlines in court would be determined through civil litigation on a case-by-case basis. In lieu of relying on civil litigation to enforce statutory deadlines, Congress may also use their political powers, such as congressional oversight hearings and/or other forms of legislative pressure, to compel agencies to comply with mandated deadlines. Tables Tables 1 through 11 correspond to Titles I through XI of FDASIA. Rows are ordered by FDASIA section, listed in the first column. Other columns provide the relevant section, if any, in the Federal Food, Drug, and Cosmetic Act (FFDCA), the Public Health Service Act (PHSA), the Controlled Substances Act (CSA), or the Americans with Disabilities Act (ADA), and its U.S. Code citation; the actor; the required action; and the timing reference. A list of abbreviations and acronyms appears as Appendix B . Appendix B. Abbreviations and Acronyms

The Food and Drug Administration Safety and Innovation Act (FDASIA), P.L. 112-144, amends the Federal Food, Drug, and Cosmetic Act (FFDCA) to expand the authority of the Food and Drug Administration (FDA) in performing its human drug, biological product, and medical device responsibilities. Frequently referred to as the user fee reauthorization act, FDASIA does include four titles relating to user fees. Titles I and II reauthorize the prescription drug and medical device user fee programs (PDUFA and MDUFA). Titles III and IV authorize new user fee programs for generic drugs (GDUFA) and biosimilar biological products (BSUFA). Title V of FDASIA reauthorizes and amends provisions of the Best Pharmaceuticals for Children Act (BPCA) and the Pediatric Research Equity Act (PREA); it also includes other pediatric research sections. Title VI addresses the regulation of medical devices across such diverse topics as clarifying the definition of a custom device; extending for another five years the ability of the manufacturer of a humanitarian use device (one with a limited number of potential users) to make a profit on sales for pediatric use and the expansion of that ability to sales for nonpediatric use; and authorizing the Secretary of Health and Human Services to enter into arrangements with nations regarding harmonization of device regulation. Titles VII through X address the regulation of human drugs, highlighting the areas of supply chain security, anti-infective product development incentives, expedited development and review of drugs, and drug shortages. Title XI contains a miscellany of provisions including, for example, medical gas product regulation, advisory committee conflicts of interest, and required reports and guidance from the Secretary. For each title of FDASIA, this report provides a brief policy background narrative and an overview of provisions in P.L. 112-144. An appendix lists the time-specific requirements of federal entities in FDASIA.

Introduction The pricing of prescription drugs remains a significant concern for many U.S. consumers. As spending on health care has risen in recent years, so too has consumer interest in purchasing more affordable medications. Overseas markets provide one possible source of less costly prescription drugs. Some comparative studies of prescription drug prices in the United States and foreign nations have concluded that prices for specific drugs may be significantly lower abroad. In order to take advantage of these price disparities, at least six bills have been introduced in the 114 th Congress that would allow individuals to import lower-cost prescription drugs from foreign jurisdictions. The bills differ on the jurisdictions from which imports are permissible. Some bills restrict the sources of prescription drugs to Canadian pharmacies; some to a set of specifically named jurisdictions; while others potentially apply to any foreign country. None of these bills have been enacted. None of the bills introduced in the 114 th Congress address the intellectual property implications of this so-called "parallel importation" or "re-importation." Although debate surrounding the parallel importation of prescription pharmaceuticals has largely addressed the safety and efficacy of the imported medications, this practice may also raise significant intellectual property concerns. Many prescription drugs are subject to patent rights in the United States. Among the rights granted by an issued patent is the ability to exclude others from importing the patented product into the United States. As a result, even if a foreign drug is judged safe and effective for domestic use, brand-name firms may nonetheless be able to block the unauthorized importation of prescription drugs through use of their patent rights. The parallel trade of patented pharmaceuticals involves a fundamental trade-off within the intellectual property law: encouraging the labors that led to technological innovation, on one hand, and promoting access to the fruits of those labors, on the other. The patent system is built upon the premise that patents provide individuals with an incentive to innovate by awarding inventors exclusive rights in their inventions for a limited period of time. Some observers believe that a diminishment of patent rights will decrease incentives to develop new pharmaceuticals in the future. Yet there is growing concern that drug prices are too high in the United States as compared to other nations. Some commentators believe that the patent system should not be used to regulate the movement of legitimate, lawfully purchased products through the global marketplace. This report explores the intellectual property laws and policies concerning the parallel importation of patented pharmaceuticals into the United States. It begins with a review of patent policy and procedures. The report then discusses the current legal framework for analyzing the permissibility of the parallel importation of patented pharmaceuticals, including both the domestic and international exhaustion doctrines. This report closes with a review of legislative issues and alternatives as they relate to intellectual property issues and parallel importation. Fundamentals of Pharmaceutical Patents Patent Policy The patent system is animated by a number of policy objectives designed to promote the production and dissemination of technological information. Many commentators have argued that the patent system is necessary to encourage individuals to engage in inventive activity. Proponents of this view reason that, absent a patent system, inventions could easily be duplicated by free riders, who would have incurred no cost to develop and perfect the technology involved, and who could thus undersell the original inventor. The resulting inability of inventors to capitalize on their inventions would lead to an environment where too few inventions are made. By providing individuals with exclusive rights in their inventions for a limited time, the patent system allows inventors to realize the profits from their inventions. The courts have also suggested that absent a patent law, individuals would favor maintaining their inventions as trade secrets so that competitors could not exploit them. Trade secrets do not enrich the collective knowledge of society, however, nor do they discourage others from engaging in duplicative research. The patent system attempts to avoid these inefficiencies by requiring inventors to consent to the disclosure of their inventions in issued patent instruments. There are still other explanations for the patent laws. For instance, the Patent Act of 1952 is thought by supporters to stimulate technological advancement by inducing individuals to "invent around" patented technology. Issued patent instruments may point the way for others to develop improvements, exploit new markets or discover new applications for the patented technology. The patent system may encourage patentees to exploit their proprietary technologies during the term of the patent. The current patent system has attracted a number of critics. Some assert that the patent system is unnecessary due to market forces that already suffice to create an optimal level of invention. The desire to gain a lead time advantage over competitors, as well as the recognition that technologically backward firms lose out to their rivals, may well provide sufficient inducement to invent without the need for further incentives. Some commentators observe that successful inventors are sometimes transformed into complacent, established enterprises that use patents to suppress the innovations of others. Others assert that the inventions that have fueled some of our most dynamic industries, such as early biotechnologies and computer software, arose at a time when patent rights were unavailable or uncertain. While these various justifications and criticisms have differing degrees of intuitive appeal, none of them has been empirically validated. No conclusive study broadly demonstrates that we get more useful inventive activity with patents than we would without them. The justifications and criticisms of the patent system therefore remain open to challenge by those who are unpersuaded by their internal logic. U.S. Patent Acquisition and Enforcement As mandated by the Patent Act of 1952, U.S. patent rights do not arise automatically. Inventors must prepare and submit applications to the U.S. Patent and Trademark Office ("USPTO") if they wish to obtain patent protection. USPTO officials, known as examiners, then assess whether the application merits the award of a patent. The patent acquisition process is commonly known as "prosecution." In deciding whether to approve a patent application, an USPTO examiner will consider whether the submitted application fully discloses and clearly claims the invention. The examiner will also determine whether the invention itself fulfills certain substantive standards set by the patent statute. To be patentable, an invention must be useful, novel and nonobvious. The requirement of usefulness, or utility, is satisfied if the invention is operable and provides a tangible benefit. To be judged novel, the invention must not be fully anticipated by a prior patent, publication or other knowledge within the public domain. A nonobvious invention must not have been readily within the ordinary skills of a competent artisan at the time the invention was made. If the USPTO allows the patent to issue, the patent proprietor obtains the right to exclude others from making, using, selling, offering to sell or importing into the United States the patented invention. The term of the patent is ordinarily set at twenty years from the date the patent application was filed. Patent title therefore provides inventors with limited periods of exclusivity in which they may practice their inventions, or license others to do so. The grant of a patent permits the inventor to receive a return on the expenditure of resources leading to the discovery, often by charging a higher price than would prevail in a competitive market. Patent rights are not self-enforcing. A patentee bears responsibility for monitoring others to determine whether they are using the patented invention or not. Patent owners who wish to compel others to observe their intellectual property rights must usually commence litigation in the federal district courts. The U.S. Court of Appeals for the Federal Circuit ("Federal Circuit") possesses exclusive national jurisdiction over all patent appeals from the district courts, while the U.S. Supreme Court possesses discretionary authority to review cases decided by the Federal Circuit. Pharmaceutical patents are subject to special provisions created by the Drug Price Competition and Patent Restoration Act of 1984. This legislation, which was subject to significant legislative revisions in 2003, is commonly known as the Hatch-Waxman Act. This statute establishes special rules for enforcement of certain patents on certain drugs and medical devices by brand-name firms against generic competitors. The Hatch-Waxman Act includes provisions extending the term of a patent to reflect regulatory delays encountered in obtaining marketing approval by the Food and Drug Administration (FDA); exempting from patent infringement certain activities associated with regulatory marketing approval; establishing mechanisms to challenge the validity of a pharmaceutical patent; and creating a reward for disputing the validity, enforceability, or infringement of a patented and approved drug. The 1984 Act also provides the FDA with certain authorities to offer periods of marketing exclusivity for a pharmaceutical independent of the rights conferred by patents. The Exhaustion Doctrine Patent rights are subject to a significant restriction that is termed the "exhaustion" doctrine. Under the exhaustion doctrine, an authorized, unrestricted sale of a patented product depletes the patent right with respect to that physical object. As a result of this doctrine, the purchaser of a patented good ordinarily may use, charge others to use, or resell the good without further regard to the patentee. The courts have reasoned that when a patentee sells a product without restriction, it impliedly promises its customer that it will not interfere with the full enjoyment of that product. The result is that the lawful purchasers of patented goods may use or resell these goods free of the patent. Because it is the first sale of a patented product that extinguishes patent rights with respect to the item that is sold, some authorities refer to the exhaustion doctrine as the "first sale rule." For example, suppose that a consumer purchases an appliance at a hardware store. The appliance is subject to a patent that is owned by the manufacturer. Later, the consumer sells the appliance to a neighbor at a garage sale. Ordinarily, the patent laws provide the manufacturer with the ability to prevent others from selling an appliance that uses its patented design. In this case, however, the patent right in that particular appliance was exhausted when the manufacturer made its first sale to the consumer. That consumer, as well as any subsequent purchasers of that individual appliance, may freely sell it without concern for the manufacturer's patent. International Aspects U.S. patents provide their owners with rights only within the United States. The grant of a U.S. patent provides its owner with no legal rights in any foreign nation. If inventors desire intellectual property protection in another country, they must specifically procure a patent in that jurisdiction. Ordinarily the foreign patent acquisition process begins with the submission of a patent application to a foreign patent office. As a practical matter, multinational corporations often obtain a set of corresponding national patents for each of their significant inventions. Although these patents concern the same invention—for example, the same chemical compound that possesses pharmacological properties—they often do not have precisely the same legal effect in each jurisdiction. Divergent wordings of the patents' claims, translations into various languages, and distinctions between national patent laws and practice are among the factors that lead to these differences. Under an important international agreement concerning patents, the Convention of Paris for the Protection of Industrial Property ("Paris Convention"), each issued national patent is an independent legal instrument. One significant consequence of the independence of national patents is that they must be enforced individually. For example, suppose that an inventor owns patents directed towards the same invention in both the United States and Canada. Following litigation in Canada, a court rules that the Canadian patent is invalid. Even though the Canadian patent may be similar or identical to the U.S. patent, the U.S. patent may still be freely enforced. Although a U.S. court may find the reasoning of the Canadian court persuasive as it reaches its own judgment regarding the validity of the U.S. patent, the Canadian court decision has no direct effect upon the validity or enforceability of the U.S. patent. The Parallel Importation of Patented Pharmaceuticals In some circumstances, widely divergent drug prices between the United States and other nations have encouraged parallel importation. Price disparities between the United States and other nations create incentives for individuals to purchase medications from abroad, and import them into the United States, in order to lower health care costs or undercut the U.S. distributor. In this context, the term "parallel imports" refers to patented products that are legitimately distributed abroad, and then sold to consumers in the United States without the permission of the authorized U.S. dealer. Although these "grey market goods" are authentic products that were sold under the authorization of the brand-name drug company, they entered the U.S. market outside the usual distribution channels for that drug. Two competing positions have arisen with respect to the use of patent rights to block parallel importation. One is that the exhaustion doctrine is not limited to domestic sales by the patentee or its representative, but to all sales regardless of their location. This position is commonly referred to as "international exhaustion." Under this view, because the importer lawfully purchased authentic goods from the patent holder or its representative, the U.S. patent right is subject to "international exhaustion" due to the sale, despite the fact that the sale technically took place under a foreign patent. The other position, more favorable to patent proprietors, is that the U.S. patent is fully enforceable against imports despite the exhaustion doctrine. The Federal Circuit has, since at least 2001, adopted this view of "national exhaustion." Under this line of reasoning, a "patentee's authorization of an international foreign sale does not affect exhaustion of the patentee's rights in the United States." This principle relies on the fact that U.S. patents exist independently of foreign patents, and that U.S. patents are effective only within the United States. As a result, this reasoning continues, a foreign sale cannot result in exhaustion of a U.S. patent. This legal doctrine—which restricts the exhaustion doctrine to domestic sales only—allows the U.S. patent to be used to block unauthorized imports of a patented pharmaceutical. The position of the Federal Circuit became subject to question in view of the Supreme Court's 2013 ruling in Kirtsaeng v. John Wiley & Sons. In Kirtsaeng , the Supreme Court held that sales of books that were purchased overseas, imported in the United States, and sold here did not infringe copyrights on the books. The Court's adoption of an "international exhaustion" principle with respect to copyright created a distinct rule from the "national exhaustion" principle that the Federal Circuit has applied to patents. The Supreme Court decision centered upon the activities of Supap Kirtsaeng, a Thai national who came to the United States to study at Cornell University. He discovered that textbooks sold by John Wiley & Sons were more expensive in the United States than in Thailand. Kirtsaeng asked his relatives to buy Wiley books in Thailand and ship them to him. Kirtsaeng then sold the books at a profit. When Wiley sued Kirtseang for copyright infringement, the Supreme Court applied the "international exhaustion" principle. Under the Court's ruling, works of authorship lawfully purchased abroad, and then imported into the United States, were protected from charges of copyright infringement via the first sale doctrine. The Court based its decision on two principal grounds. First, the Court construed several provisions of the copyright statute to determine that the international exhaustion was the appropriate rule. Second, the Court believed that sound intellectual property policy supported international exhaustion. To restrict copyright exhaustion to domestic sales, the Court concluded, would establish intolerable burdens for booksellers, museums, and retailers who would have to determine whether particular copies of works of authorship were fabricated overseas. In this respect, the Court observed: Technology companies tell us that "automobiles, microwaves, calculators, mobile phones, tablets, and personal computers" contain copyrightable software programs or packaging.... Many of these items are made abroad with the American copyright holder's permission and then sold and imported (with that permission) to the United States.... A [domestic exhaustion rule] would prevent the resale of, say, a car, without the permission of the holder of each copyright on each piece of copyrighted automobile software. Yet there is no reason to believe that foreign auto manufacturers regularly obtain this kind of permission from their software component suppliers, and Wiley did not indicate to the contrary when asked.... Without that permission a foreign car owner could not sell his or her used car. In view of the Supreme Court decision in Kirtsaeng, the Federal Circuit decided to take a fresh look at its stance on the international exhaustion of patented products. The result was the 2016 decision in Lexmark International, Inc. v. Impression Products, Inc . , which confirmed the appeals court's earlier position rejecting the doctrine of "international exhaustion." Following Lexmark, in contrast to the international exhaustion principle of copyright law, the patent exhaustion doctrine is limited to sales that occur within the United States. Writing for the majority, Judge Taranto reasoned that the Supreme Court had based the Kirtsaeng ruling upon its interpretation of specific provisions of the Copyright Act. The Patent Act does not include analogous provisions—indeed, it does not expressly address exhaustion at all. He also concluded that, unlike copyright, patent rights may vary significantly from country to country. Under this view, patents should not be so easily equated with copyrights with respect to international exhaustion. Judge Taranto also observed, with respect to patented pharmaceuticals: There seems to be no dispute that U.S.-patented medicines are often sold outside the United States at substantially lower prices than those charged here and, also, that the practice could be disrupted by the increased arbitrage opportunities that would come from deeming U.S. rights eliminated by a foreign sale made or authorized by the U.S. patentee. Judge Dyk authored a dissenting opinion asserting that many of the policy arguments that the Kirtsaeng opinion advanced in favor of the international exhaustion rule apply with equal force to patents. He observed that, as with copyrights, U.S. retailers deal with high-technology, patented products that may or may not have been manufactured in this country. Unless an international exhaustion rule were to be adopted, Judge Dyk asserted, sorting through applicable patent rights may prove extremely burdensome. Unless the Supreme Court decides to intervene, the Federal Circuit's ruling in Lexmark v. Impression Products remains the law of the land. Under this holding, patent exhaustion applies only to sales that occurred in the United States. This rule squarely rejects the principle of "international exhaustion." As a result, brand-name drug companies may potentially block imports of patented medications into the United States even if the imported good is the patent owner's own product, legitimately sold to a customer in a foreign jurisdiction. Related Issues In addition to the issue of patent infringement, the parallel importation of patented pharmaceuticals potentially raises other issues. This report next considers three of them: the status of state and local governments that have either themselves imported, or have encouraged others to import, patented medications from foreign jurisdictions; the potential use of label licenses on patented drugs; and the implications of international trade rules established by World Trade Organization (WTO). State and Local Governments Several state and local governments have considered or implemented plans to import or facilitate the importation of prescription drugs. A patentee's ability to obtain relief against a state or local government presents some complexities in view of the Eleventh Amendment to the Constitution. The Eleventh Amendment provides that a federal court is without power to entertain a suit by a private person against a state, except under certain limited circumstances. Because the federal courts possess exclusive jurisdiction over patent infringement litigation, this situation creates a dilemma for patentees—the only statutorily authorized forum is constitutionally unavailable, and the only constitutional forum is statutorily unavailable, at least for the assertion of a conventional patent infringement claim. This issue appears to have been altered by recent judicial developments. In Ouellette v. Mills , the U.S. District Court for the District of Maine held that a 2013 Maine statue allowing importation of drugs from foreign pharmacies was unconstitutional. According to Judge Torresen, the U.S. Congress intended to "occupy the field" of prescription drug importation. As a result, the court found that the Maine legislation was preempted by federal law and invalid. Although Ouellette v. Mills dealt only with the Maine legislation, its logic would appear to invalidate analogous legislation in other jurisdictions. As a result, issues regarding patent enforcement against state and local governments for prescription drug importation may be avoided. Label Licenses As noted previously, the theory behind the exhaustion doctrine is that when a patent proprietor makes an unrestricted sale of a product to a consumer, the proprietor impliedly promises its customer that it will not use its patent rights to interfere with the full enjoyment of that product. As a result, lawful purchasers of patented goods should be able to use or resell these goods free of the patent. In some circumstances, however, the patent owner may attempt to restrict a customer's use of a good. Sales contracts are the typical mechanism for imposing such limitations. Contractual provisions that are placed on the product or its packaging are sometimes termed "label licenses" or "bag tags." A commonly observed label license is "Single Use Only," as applied to printer cartridges or other goods that the manufacturer does not intend for consumers to reuse. Other patent proprietors have attempted to impose geographical limitations upon the use of their products. A label stating "For Use in Canada Only" is representative of such a restriction. Whether such label licenses are enforceable, or are instead nullified by the exhaustion principle, is a complex legal issue. However, the prevailing view of the Court of Appeals for the Federal Circuit is that absent exceptional circumstances—such as an antitrust violation or misuse of the patent by its proprietor—these restrictions will be upheld. The legal theory is that while the patent right gives proprietors the ability to exclude others from using the patented product, they may also impose lesser restrictions when they choose to sell the patented product. In addition, customers are presumed to have entered into binding sales contracts that are presumptively valid. As a result, under current law label licenses such as "Single Use Only" or "For Domestic Use Only" are ordinarily enforceable. A customer who violates a label license could be liable both for breach of contract and for patent infringement. The legal issues regarding pharmaceutical importation therefore potentially both contract and patent law. The TRIPS Agreement As a member of the World Trade Organization (WTO), the United States is a signatory to the so-called TRIPS Agreement, or Agreement on Trade-Related Aspects of Intellectual Property Rights. Under Part III of the TRIPS Agreement, all member countries agreed to enact patent statutes that include certain substantive provisions. In particular, Article 27 stipulates that "patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally prevented." Article 27 ordinarily requires that all classes of invention receive the same treatment under the patent laws, subject to certain minor exceptions. It would generally be impermissible under Article 27, for example, for a country to accord patents on pharmaceuticals a lesser set of proprietary rights than is available for patents on automobile engines, computers, or other kinds of inventions. The TRIPS Agreement places lesser obligations upon signatory states with regard to the exhaustion doctrine, however. Article 6 of the TRIPS Agreement states: For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 above nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights. The referenced Articles 3 and 4 of the TRIPS Agreement impose obligations of national treatment and most-favored-nation status respectively. As a result, a TRIPS Agreement signatory may not permissibly establish more favorable exhaustion rules for its own citizens than for citizens of other WTO countries. In addition, if a TRIPS Agreement signatory provides for favorable treatment with respect to the exhaustion doctrine to one WTO member state, then the same treatment must be extended to all WTO member states. Other than these basic national treatment and most-favored-nation obligations, the TRIPS Agreement does not impose other restrictions regarding the exhaustion doctrine. In particular, the TRIPS Agreement does not appear to require that all types of inventions be treated equally with regard to the exhaustion doctrine. As a result, a rule allowing the "re-importation" of certain sorts of patented inventions (such as pharmaceuticals), but not others, would appear to comply with the TRIPS Agreement. Free Trade Agreements The United States has entered into numerous bilateral "free trade agreements," or FTAs, with certain other nations. Many of the FTAs deal extensively with intellectual property rights, including numerous provisions relating to patents in general and pharmaceutical patents in particular. Consider, for example, Article 15.9, paragraph 4 of the United States–Morocco FTA, which provides: Each Party shall provide that the exclusive right of the patent owner to prevent importation of a patented product, or a product that results from a patented process, without the consent of the patent owner shall not be limited by the sale or distribution of that product outside its territory. [Footnote 10: A Party may limit application of this paragraph to cases where the patent owner has placed restrictions on importation by contract or other means.] Article 17:9, paragraph 4 of the United States–Australia FTA has a similar effect, stipulating: Each Party shall provide that the exclusive right of the patent owner to prevent importation of a patented product, or a product that results from a patented process, without the consent of the patent owner shall not be limited by the sale or distribution of that product outside its territory, at least where the patentee has placed restrictions on importation by contract or other means. The United States–Singapore FTA is worded rather differently, but appears to have similar substantive effect as the Moroccan and Australian agreements, at least with respect to pharmaceuticals. As Article 16:7, paragraph 2 of that international agreement provides: Each Party shall provide a cause of action to prevent or redress the procurement of a patented pharmaceutical product, without the authorization of the patent owner, by a party who knows or has reason to know that such product is or has been distributed in breach of a contract between the right holder and a licensee, regardless of whether such breach occurs in or outside its territory. [Footnote 16–10: A Party may limit such cause of action to cases where the product has been sold or distributed only outside the Party's territory before its procurement inside the Party's territory.] Each Party shall provide that in such a cause of action, notice shall constitute constructive knowledge. Under these agreements, the United States is obliged to allow pharmaceutical patent holders to use their intellectual property rights to block parallel imports, at least where the patentee has placed restrictions upon importation through contract or some other mechanism. Legislative Issues and Alternatives Should congressional interest continue in this area, a variety of options are available. If the possibility of an infringement action against unauthorized importers of patented pharmaceuticals is deemed sound, then no action need be taken. Alternatively, Congress could confirm the Federal Circuit's decision in Lexmark v. Impression Products , which rejects the doctrine of international exhaustion and confines the patent exhaustion principle to sales that occurred within the United States. If legislative activity is deemed appropriate, however, another possibility is the introduction of some form of international exhaustion doctrine into U.S. patent law. The TRIPS Agreement does not seem to require that a country adopt the international exhaustion doctrine as an all-or-nothing proposition, applying either to all patented products or to none. As a result, if Congress chose to limit application of the international exhaustion doctrine to patented pharmaceuticals, or some other specific type of invention, then no ramifications appear to arise with respect to the TRIPS Agreement obligations of the United States. At least two statutory mechanisms exist for implementing the international exhaustion doctrine into U.S. patent law. One possible approach would be to declare that importation into the United States of goods sold abroad by a patent proprietor or its representative is not a patent infringement. For example, in the 108 th Congress, the Pharmaceutical Market Access and Drug Safety Act of 2004 ( S. 2328 ), would have taken this approach with respect to patented pharmaceuticals, specifying that It shall not be an act of infringement to use, offer to sell, or sell within the United States or to import into the United States any patented invention under section 804 of the Federal Food, Drug, and Cosmetic Act that was first sold abroad by or under authority of the owner or licensee of such patent. S. 2328 further stipulated that this amendment shall not be construed "to affect the ability of a patent owner or licensee to enforce their patent, subject to such amendment." This language suggests a congressional intention to leave intact other rights established by the Patent Act of 1952. In addition to codifying the international exhaustion doctrine with respect to pharmaceuticals, such an amendment may conversely lead to the implication that the international exhaustion doctrine does not apply to patented inventions other than pharmaceuticals. This provision could potentially fortify the ruling in Lexmark v. Impression Products for inventions outside of the pharmaceutical field. Another statutory mechanism for promoting the importation of patented drugs is to immunize specific individuals from infringement liability. The Patent Act of 1952, as amended, takes this approach in the area of patented medical methods, exempting licensed medical practitioners and certain health care entities from patent infringement in certain circumstances. In the case of drug importation, potential patent infringers include importers, distributors, wholesalers, pharmacies, and individual consumers. Should Congress wish to promote parallel trade in patented pharmaceuticals, an explicit statutory infringement exemption could encourage individuals to engage in drug importation. In considering these or other legal changes to the patent laws, the possibility of label licenses should be kept in mind. Even if Congress exempted drug importation practices or practitioners from patent infringement liability, firms may still be able to stipulate through the contract law that a drug sold in a foreign jurisdiction is for use exclusively within that jurisdiction. If a purchaser instead imported that medication into the United States, then the seller may have a cause of action for breach of contract. As a result, any legal changes may need to account for the ability of firms to use contractual provisions as something of a substitute for patent protection in the area of prescription drug importation. Controlling the costs of prescription drug spending, on one hand, and encouraging the development of new drugs, on the other, are both significant goals. These aspirations may potentially conflict, however. Although introducing international exhaustion into U.S. patent law may initially lower the price of patented drugs, it might also decrease the incentive of firms to engage in the research and development of new pharmaceuticals, as well as to shepherd new drugs through time-consuming and costly marketing approval procedures. Consideration of patent law reforms would likely be put into the larger context of drug costs, which may be influenced by the pricing policies of foreign nations, profits earned by wholesalers and other intermediaries, the physical costs of shipment into the United States, and other diverse factors. Striking a balance between increasing access to medications and ensuring the continued development of new drugs by our nation's pharmaceutical firms is a central concern of the current drug importation debate.

Prescription drugs often cost far more in the United States than in other countries. Some consumers have attempted to import medications from abroad in order to realize cost savings. The practice of importing prescription drugs outside the distribution channels established by the brand-name drug company is commonly termed "parallel importation" or "re-importation." Parallel imports are authentic products that are legitimately distributed abroad and then sold to consumers in the United States, without the permission of the authorized U.S. dealer. Numerous bills have been introduced in the 114th Congress that would ease the ability of individuals to import lower-cost prescription drugs from foreign jurisdictions. None of these bills have been enacted. Each bill would allow individuals to import drugs from foreign jurisdictions, although the bills differ on the jurisdictions from which imports are permissible. Some bills are restricted to Canada; some to a set of specifically named jurisdictions; while others potentially apply to any foreign country. None of these bills address intellectual property issues that may arise through parallel importation. However, many prescription drugs are subject to patent rights in the United States. In its 2016 decision in Lexmark International v. Impression Products, Inc., the U.S. Court of Appeals for the Federal Circuit confirmed that the owner of a U.S. patent may prevent imports of patented goods, even in circumstances where the patent holder itself sold those goods outside the United States. The Lexmark opinion squarely declined to extend the "exhaustion" doctrine—under which patent rights in a product are spent upon the patent owner's first sale of the patented product—to sales that occurred in foreign countries. The court's ruling will in some cases allow brand-name pharmaceutical firms to block the unauthorized parallel importation of prescription drugs through use of their patent rights. In addition to any patent rights they possess, brand-name drug companies may place label licenses on their medications. A label license may be drafted in order to restrict use of a drug to the jurisdiction in which it was sold. As a result, in addition to a charge of patent infringement, an unauthorized parallel importer may potentially face liability for breach of contract. Introduction of an "international exhaustion" rule restricted to pharmaceuticals does not appear to be restricted by the provisions of the so-called TRIPS Agreement, which is the component of the World Trade Organization (WTO) agreements concerning intellectual property. Another possible legislative response is the immunization of specific individuals, such as pharmacies or importers, from patent infringement liability. Alternatively, no legislative action need be taken if the current possibility of an infringement action against unauthorized importers of patented pharmaceuticals is deemed satisfactory.

Background Salmon and Steelhead Listing History Salmon and steelhead are anadromous fish, meaning they are born in freshwater, migrate to the ocean to mature, and return to their place of birth to spawn. Dams and their operations make the migrations treacherous both up and downstream. Federal dams have had an effect on salmon and steelhead populations in the Columbia Basin since the 1938 construction of Bonneville Dam, the first dam in the Federal Columbia River Power System (FCRPS). FCRPS now includes federal hydropower dams in the Columbia Basin that are operated by either the Army Corps of Engineers (Corps) or Bureau of Reclamation (Reclamation). (See Figure 1 .) Electric power from these projects is marketed by Bonneville Power Administration (BPA). Currently, eight evolutionarily significant units (ESUs) of salmon and five distinct populations segments (DPSs) of steelhead in the Columbia Basin are listed as threatened or endangered under the Endangered Species Act (ESA). The ESA-protected fish in the Colombia River Basin are Snake River sockeye salmon (endangered); Snake River spring/summer-run Chinook salmon (threatened); Snake River fall-run Chinook salmon (threatened); Snake River basin steelhead (threatened); Upper Columbia River spring-run Chinook salmon (endangered); Upper Columbia River steelhead (threatened); Middle Columbia River steelhead (threatened); Lower Columbia River Chinook salmon (threatened); Lower Columbia River coho salmon (threatened); Lower Columbia River steelhead (threatened); Columbia River Chum salmon; (threatened); Upper Willamette River Chinook salmon (threatened); and Upper Willamette River steelhead (threatened). The National Marine Fisheries Service (NMFS) of the Department of Commerce has found that the estimated "current annual salmon and steelhead production in the Columbia River Basin is more than 10 million fish below historical levels, with 8 million of this annual loss attributable to hydropower development and operation." Additionally, timber management and grazing have decreased habitat from "approximately 21,000 miles (33,600 km), historically, to approximately 16,000 miles (25,600 km) in 1990, largely due to management practices on U.S. Forest Service (USFS) land." Today salmon and steelhead trout in the Columbia River Basin are a mixture of wild fish and those produced in fish hatcheries. Experiments with artificial propagation of salmon to bolster faltering wild stocks began in the late 1800s. Dozens of federal- and state-managed salmon and steelhead trout hatcheries in the Columbia River basin produce more fish annually than do wild stocks. Consultation and Biological Opinions The ESA requires federal actions, such as FCRPS operations, to be reviewed to determine whether they are likely to jeopardize the continued existence of threatened and endangered species or damage the species' critical habitat. This process is called consultation . By statute, the Secretary of the Interior administers the consultation process, but it has delegated its authority to either NMFS or the U.S. Fish and Wildlife Service (FWS) (in the Department of the Interior ). With regard to protected anadromous salmon and steelhead in the Columbia Basin, NMFS has administrative authority over the consultation process. Thus, if the actions of a federal agency might adversely affect listed salmon or steelhead, they must engage in the consultation process with NMFS. The Corps, Reclamation, and BPA are the action agencies for purposes of operating the FCRPS and the consultation process under the ESA. Formal consultation is initiated when an action agency submits a biological assessment to NMFS describing the proposed action and its impact on listed species. ESA consultation may be triggered by new ESA listings or new or changed federal actions. In the case of salmon and steelhead, NMFS considers the biological assessment and the proposed federal action and then issues a biological opinion (BiOp) indicating whether the action would jeopardize protected species. In developing a BiOp, NMFS must determine whether the action agencies' conduct will likely jeopardize a listed species or destroy or adversely modify its critical habitat. If jeopardy is found, NMFS is required to include reasonable and prudent alternatives (RPAs) to the proposed action in order to avoid jeopardy, provided such alternatives are possible. In those cases where NMFS concludes that the action agencies' conduct as originally proposed or as modified by RPAs is not likely to result in jeopardy or adverse modification or destruction of critical habitat, NMFS will issue an Incidental Take Statement to the action agencies. The Incidental Take Statement excuses any takes (killing or harming) of listed species for operations covered in the BiOp so long as the action agency complies with the terms and conditions of the statement. Without the BiOp and the Incidental Take Statement, the action agency risks violating (and being prosecuted under) the ESA. In addition to BiOps for FCRPS operations, NMFS issues salmonid BiOps for Upper Snake River activities and harvest operations (fishing). Columbia Basin Salmon Decline The configuration and operation of the FCRPS dams can be a polarizing issue for proponents of hydropower development, irrigation, and river navigation and those who support commercial, sport, and tribal fishing as well as environmental conservation. Commentators note that Columbia Basin salmon populations have declined due to a number of human actions besides FCRPS operations, including fishing, predation by native and invasive species, water pollution, reduced habitat, and water withdrawals for irrigation. Many also assert that these populations will be subject to increasing stress from factors related to climate change such as higher water temperatures, changes in ocean conditions, and lower river flows. Actions intended to aid the recovery of these stocks generally fall into one of four categories, known as "the 4-H's": habitat, harvest, hatchery, and hydrosystem. The First "H": Habitat Habitat actions focus on access to, and improvement of, habitat suitable for rearing juvenile salmon and spawning by returning adults. Historically, many parts of the Columbia River watershed have been degraded by logging, mining, farming, and development. Although legitimate economic activities, they have often caused unintended negative consequences for salmon populations. Salmon habitat has been fragmented and degraded by water diversions, obstacles to habitat by structures such as culverts and dams, and loss of vegetation adjacent to rivers and in watersheds. The RPAs specify actions related to upriver habitat where salmon spawn and down-river estuary habitat where salmon transition to their ocean phase. Actions to improve habitat include increasing stream flows, reducing water temperature, removing barriers to habitat, and increasing pools, spawning gravels, and side channel habitats. Other habitat actions include efforts to remove the salmon's predators, including California sea lions. Sea lions generally prey on the salmon congregating at the fish passage facilities, although it is suspected that they also consume salmon in other parts of the Lower Columbia River. In 2015, the Corps' monitoring program estimated that sea lions at the Bonneville Dam consumed 10,859 salmonids between January 1 and May 31, 2015, which accounts for 4.3% of the adult salmonid passage. To reduce predation on upstream migrating adult salmon, NMFS authorized Washington, Idaho, and Oregon to lethally take (i.e., kill) California sea lions that gather seasonally below Bonneville Dam. Individuals and animal rights groups challenged the take authorization in multiple lawsuits, but NMFS's latest authorization from 2012 survived the most recent court challenge, which has led to ongoing efforts to capture and euthanize California sea lions. Other predators include the pikeminnow, which feed on juvenile salmon and steelhead. BPA sponsors a program that pays for each pikeminnow caught in the Columbia River. For 2016, there is a reward of $5 to $8 per pikeminnow of at least 9 inches and a $500 reward per tagged fish. According to BPA, since the program started, over 4.2 million pikeminnow have been caught, reducing their predation on juvenile salmonids by 40%. The Second "H": Harvest Historically, salmon harvest was one of the main factors that contributed to the decline of Columbia Basin salmonid populations. Commercial and recreational fisheries in the Columbia River are co-managed by the states of Washington, Oregon, and Idaho, four treaty tribes, and other tribes that traditionally fished these waters. All fisheries are subject to review by NMFS for compliance with the ESA. Generally, managers have attempted to minimize the harvest of wild fish, especially listed populations, through a variety of actions. Harvest actions focus on limiting harvest or harm to listed species by requiring selective fishing gear or timing harvest periods to focus fishing on hatchery stocks. In mark-selective fisheries, the adipose fins are clipped on hatchery juveniles so fishermen can differentiate returning hatchery fish from wild adults. The Third "H": Hatcheries Hatchery efforts are intended to increase the number of fish through artificial propagation. Some assert that hatchery production reduces predator and harvest pressures on wild fish, while others are concerned that hatchery fish compete with wild salmon and steelhead for food and habitat. Hatcheries also may alter the genetic diversity of specific stocks. According to the Hatchery Scientific Review Group, a congressionally funded scientific review panel, hatchery management alone will not lead to the recovery of the endangered salmon and steelhead in the Pacific Northwest, but must be done as part of a broader strategy that incorporates actions affecting habitat, harvest rates, water allocation, and other components of the human environment. According to the NMFS Hatchery Listing Policy, under certain circumstances hatchery fish may be considered when estimating the populations of fish for listing determinations (i.e., when deciding whether an ESU might be threatened or endangered). The Fourth "H": Hydrosystems Finally, hydrosystem actions that promote species recovery have concentrated on improving the survival of juvenile and adult salmon and steelhead as they migrate past dams and through reservoirs. Hydrosystem actions include structural and operational changes at the dams, such as the addition of juvenile bypass systems and surface-oriented passage routes; the collection and transportation of juveniles in barges and trucks past the dams; the installation of structures to guide fish toward safer passage routes; and water releases either to speed travel down the river or provide safer passage past a dam. Although some federal salmon and steelhead protection measures have been in place for nearly 70 years—Bonneville Dam was constructed in 1938 with a fish ladder to allow upstream passage of returning adult salmon —the Pacific Northwest Electric Power Planning and Conservation Act (Northwest Power Act) codified a fish protection program to mitigate losses associated with the FCRPS. Four options are available to allow downstream migration of fish at a hydropower dam: spill over the dams; pass through the turbines; bypass the dams via a barge or truck; or bypass back into the river. Some actions intended to benefit salmon, such as spilling water to help juveniles pass safely downstream, come at a cost in terms of energy production. Such actions may significantly increase power rates in the region. Additionally, spill can increase juvenile fish mortality due to injury or disorientation caused by gas bubble disease, making fish susceptible to predation. Although gas bubble disease may occur when fish are exposed to gas supersaturation, especially during vulnerable or sensitive life stages, research suggests that harm to migratory juvenile or adult salmonids depends on characteristics of the site or reach adjacent to the dam. Often migration can be assisted by "fish ladders" that allow the fish to pass upstream around the dams or bypasses that allow juveniles to avoid passing through turbines. However, dams also may change the ecology of rivers including food webs and physical conditions, especially in cases where large reservoirs are created. Although fish may be successful in passing around dams, reservoirs decrease the river's flow and may delay fish movement, expose fish to more predation, and increase water temperature to potentially lethal levels. Reservoirs also may inundate spawning and shoreline areas that were formerly productive spawning and rearing habitat. As an alternative to altering dam operations to make them more favorable to salmon, some parties advocate partially or entirely removing four dams on the Lower Snake River in Washington. They believe this is the only way to ensure survival of the Snake River salmon and steelhead populations. Dam removal could also result in economic benefits to various fishing and recreation interests. Proponents of dam removal argue that the four Lower Snake River dams do not produce a significant amount of power and assert that these dams cause significant harm to listed species. They claim that removal of the Snake River dams would reduce federal expenditures and revitalize local economies. Opponents note that dam removal would only benefit four of the 13 listed salmon and steelhead populations in the Columbia Basin, and the federal agencies should focus on all of the basin's listed salmonids. According to BPA, the Lower Snake River dams are an important part of the Northwest's power supply. Additionally, dam removal would preclude downstream barge transport of wheat from Idaho. Dam removal, especially for older dams, may become an economic necessity if dam relicensing by the Federal Energy Regulatory Commission requires expensive modifications to provide for fish passage. The removal of Condit Dam on the White Salmon River, a Columbia River tributary above Bonneville Dam, began with initial breaching on October 26, 2011, and its complete removal the following year. Removal of Condit dam has reopened habitat above the former dam to steelhead and salmon for the first time in nearly 100 years. Reportedly, Chinook salmon and steelhead have spawned in areas above the removed structure. Many uncertainties remain, and long-term monitoring and adaptive management of the newly accessible habitat are recommended. BiOp Litigation More than 20 years of ESA litigation has tracked each BiOp covering the FCRPS, and legal challenges have frequently altered those operations. As referenced above, when agencies' planned operations may jeopardize listed species, NMFS may offer reasonable and prudent alternatives (RPAs) to the action agencies' proposal. In the FCRPS context, these alternatives can include habitat protection, flow alterations, and fish passage systems, such as ladders or trucks. Since the early 1990s, states, conservation organizations, fishing and sporting groups, users of FCRPS-generated energy, and others have challenged NMFS's jeopardy conclusions and RPAs in each BiOp for the FCRPS under the Administrative Procedure Act (APA). The APA authorizes reviewing courts to "hold unlawful and set aside agency actions, findings, and conclusions found to be arbitrary, capricious, [or] an abuse of discretion.... " To satisfy the arbitrary and capricious standard and survive an APA challenge, a federal agency must show that it "examine[d] the relevant data and articulate[d] a satisfactory explanation for its action, including a 'rational connection between the facts found and the choice made.'" A central question raised in the ESA litigation related to the FCRPS was whether NMFS and the action agencies could meet the APA's arbitrary and capricious standard. A summary of major ESA actions and litigation is presented in the Appendix and discussed below. 1992 BiOps—No Jeopardy On April 10, 1992, NMFS issued its first BiOp for FCRPS, finding the operations did not jeopardize the continued existence of ESA-protected fish or detrimentally alter its critical habitat. NMFS issued additional BiOps later that year (1992 BiOps) in which it found no jeopardy to protected salmonids in the Columbia Basin as a result of ocean fisheries and in-river fisheries. Several high volume users of FCRPS-generated energy filed suit challenging the 1992 BiOps. Among other legal theories, they asserted that the FCRPS consultation led to restricted hydroelectric operations which caused increased electricity rates. The U.S. District Court for the District of Oregon dismissed those claims on the grounds that the energy users lacked standing due to an inherent conflict between the their desire for lower power rates and the ESA's objective of protecting listed salmonids. It likened the plaintiffs to a fox guarding a chicken coop: "sure, [the fox] has an interest in seeing that the chickens are well fed, but its [sic] just not the same interest the farmer has, nor is it an interest shared by the chickens." On appeal, the Ninth Circuit disagreed with the chicken coop analogy and the ruling on standing, but it affirmed the district court's alternative basis for dismissal that the case was moot in light of the fact that NMFS issued a revised BiOp in 1993. 1993 BiOp—No Jeopardy On May 26, 1993, NMFS issued a second "no jeopardy" BiOp for FCRPS (1993 BiOp), which was challenged in the District of Oregon in Idaho Department of Fish & Game v. National Marine Fisheries Service . There, the district court found the 1993 BiOp was "arbitrary and capricious" because NMFS relied on improper data in calculating the baseline number of protected salmonids in the Columbia Basin. According to the court, NMFS used five drought years in which the number of fish were atypically low as a baseline to evaluate the future effect of FCRPS operations on protected species. In the 1992 BiOp, by comparison, NMFS used a 15-year range of data from 1975 to 1990 for its baseline. The district court also called the overall process used to create FCRPS BiOps "significantly flawed," and it remarked that "the situation literally cries out for a major overhaul. Instead of looking for what can be done to protect the species from jeopardy, NMFS and the action agencies have narrowly focused their attention on what the establishment is capable of handling with minimal disruption." The district court directed NMFS to consult with the action agencies and revise the 1993 BiOp, but it did not enjoin FCRPS operations. One year later, the Ninth Circuit vacated the district court's decision as moot after the 1993 BiOp expired by its own terms, and NMFS released subsequent BiOps governing FCRPS operations. 1994 BiOp—No Jeopardy In March 1994, NMFS issued a BiOp (1994 BiOp) covering FCRPS operations for 1994-1998. The 1994 BiOp concluded that FCRPS would not jeopardize protected species or adversely modify the designated critical habitat; however, NMFS relied on the same baseline methodology in reaching that conclusion that the district court criticized in the 1993 BiOp. NMFS informed the district court in Idaho Department of Fish & Game of the carry-over issue, and, because the 1993 BiOp was set to expire, the court directed NMFS and the action agencies to correct the 1994 BiOp rather than the 1993 BiOp. In a separate lawsuit, American Rivers v. National Marine Fisheries Services , a group of environmental and commercial fishing organizations challenged the 1994 BiOp, but the court stayed the case while NMFS revised the 1994 BiOp in an attempt to comply with the ruling in Idaho Depart ment of Fish and Game . 1995 BiOp—Jeopardy and RPAs In March 1995, NMFS issued a new biological opinion (1995 BiOp), which superseded the 1994 BiOp and concluded that operation of FCRPS jeopardized the continued existence of protected species and adversely modified their critical habitat. Given this finding, NMFS proposed RPAs, including a program in which juvenile salmonids would bypass the dam system while being transported in tanker trucks or barges. The American Rivers plaintiffs renewed their challenge and argued that the ESA did not permit such a long-term transportation program, but the Ninth Circuit dismissed the suit as non-justiciable. Although the Ninth Circuit affirmed earlier dismissals as moot in light of superseding BiOps, it found the American Rivers challenge to the 1995 BiOp to be premature given that the salmonid transportation program was not certain to be implemented. "Consideration of long-term salmon transportation as a possible future option is not a final agency action" subject to judicial review, the court concluded. In a second lawsuit related to the 1995 BiOp, a group of hydroelectric power users challenged BPA's decision to adopt the jeopardy opinion and to propose RPAs. The power users claimed the proposed RPAs were based on inappropriate data and failed to balance salmon protection with the production of hydroelectric power. The Ninth Circuit held that, although there was scientific uncertainty regarding the salmon decline, that uncertainty was not so great as to vacate the 1995 BiOp on the grounds that it was arbitrary and capricious. 2000 BiOp—Jeopardy, RPAs, and Offsite Mitigation Actions In a BiOp issued in December 2000 (2000 BiOp), NMFS again found that the action agencies' operation of the FCRPS would jeopardize protected salmonid species. NMFS proposed RPAs to alleviate the effect of FCRPS operations, but found that, even after implementing RPAs, jeopardy would not be avoided. Consequently, NMFS assessed whether the impact of offsite activities that were unrelated to FCRPS operations would avoid jeopardy when coupled with RPAs. The 2000 BiOp concluded the cumulative effect of RPAs and offsite activity was sufficient to avoid jeopardy. In the first iteration of a case that is still ongoing after 15 years— National Wildlife Federation v. National Marine Fisheries Service —a group of plaintiffs challenged whether the 2000 BiOp complied with the ESA. The matter was assigned to Judge James Redden of the U.S. District Court for the District of Oregon, who would continue to oversee the matter for a decade. In his first decision (commonly called NMFS I ), Judge Redden found the 2000 BiOp to be inconsistent with the ESA, in large part due to his conclusion that the "offsite activities" which NMFS relied upon were dependent on the actions of states, tribes, and third parties that were not reasonably certain to occur. Judge Redden remanded the case to the agency level to revise the 2000 BiOp to conform to his decision. 2004 BiOp—No Jeopardy Rather than revise the 2000 BiOp to address the NMFS I court's concerns on remand, NMFS issued "an entirely new biological opinion" in 2004 (2004 BiOp). The 2004 BiOp employed what the Ninth Circuit called a "novel approach" in which NMFS excluded the effect of "each of the dams [that] already exists" from its evaluation because those dams' "existence is beyond the scope of the present discretion of the Corps and [Reclamation] to reverse." Rather than evaluate the aggregate impact of the FCRPS on the protected species, NMFS only evaluated the discretionary elements of the FCRPS operations. In revising its analyses in this way, the 2004 BiOp reached a no-jeopardy conclusion. Judge Redden found this approach to be incompatible with the ESA, and, after identifying four fundamental flaws in the 2004 BiOp, he issued a preliminary injunction requiring the action agencies to modify the FCRPS operations proposed in the 2004 BiOp. On an expedited appeal, the Ninth Circuit largely affirmed the district court's preliminary injunction award without addressing the merits of whether the 2004 BiOp complied with the ESA. Following remand by the Ninth Circuit, Judge Redden ordered NMFS to reengage in consultation and produce a new BiOp. Although NMFS argued that it was inappropriate for the court to supervise an interagency consultation, Judge Redden monitored the agencies' progress and provided detailed instructions on activities he required to take place during the consultation process. Two months later, the district court partially granted another motion for preliminary injunction, modifying a portion of the FCRPS' dam operations during the spring and summer of 2006. On April 7, 2007, two and a half years after NMFS issued the 2004 BiOp, the Ninth Circuit affirmed the district court's decision that the 2004 BiOp was structurally flawed. Among other issues, the Ninth Circuit criticized NMFS for limiting its evaluation to a study of whether the effects of the proposed FCRPS' operations were "appreciably" worse than baseline conditions. According to the Ninth Circuit, this approach failed to take into account the severely degraded baseline conditions, which, even if appreciably improved, could result in a "slow slide into oblivion" in which a "listed species could be gradually destroyed, so long as each step on the path to destruction is sufficiently modest." 2005 Snake River BiOp In 2005, NMFS issued a BiOp separately addressing the effects of Reclamation's proposed operations on a portion of the Snake River (2005 Snake River BiOp). This BiOp was also challenged in the District of Oregon in a case before Judge Redden. Although Judge Redden rejected the argument that the Snake River must be included in the FCRPS BiOp, he still found the 2005 Snake River BiOp to be arbitrary and capricious because it utilized the same methodology as in the 2004 BiOp for the FCRPS that the Court held to be flawed. Judge Redden remanded the 2005 Snake River BiOp to the agency level, and NMFS issued a revised BiOp on May 5, 2008. The "Fish Accords": Settlement Agreements with States and Tribes In 2008, BPA, the Corps, and Reclamation entered into 10-year agreements with the Columbia Basin tribes and states of Idaho, Montana, and Washington. In what has come to be known as the "Fish Accords," the parties agreed upon the terms of a BiOp for the FCRPS, and BPA committed to funding up to $933 million in mitigation projects in exchange for the state and tribal parties' commitment to support the BiOp in litigation. Environmental groups, fishing interests, and the state of Oregon, who have also acted as plaintiffs, were not parties to the Fish Accords. 2008 BiOp and 2010 Supplement—Avoiding Jeopardy Through the Fish Accords and RPAs In May 2008, NMFS issued a new FCRPS BiOp (2008 BiOp) in which it used the Fish Accords as the foundation for its habitat restoration and mitigation plans. Relying on RPAs and the proposed actions in the Fish Accords, NMFS concluded that FCRPS operations would not jeopardize listed species through 2018. NMFS supplemented the 2008 BiOp in December 2010 (2010 Supplement) in order to address concerns expressed by Judge Redden and incorporate its latest agreements with Columbia Basin states and tribes. In a continuation of the case before Judge Redden that began with the 2000 BiOp, a group of environmental organizations, anglers, energy conservationists, and the state of Oregon challenged the 2008 BiOp and 2010 Supplement (collectively, the 2008/2010 BiOp). For the first time since 1995, the court ruled that a portion of NMFS's BiOp complied with the ESA. Specifically, Judge Redden found that the section of the 2008/2010 BiOp addressing FCRPS operations through the end of 2013 identified "specific and beneficial mitigation measures" which were lawful and could remain in place. For the portion of the BiOP addressing operations between 2014 and 2018, however, the court ruled that NMFS relied on "habitat mitigation measures that are neither reasonably specific nor reasonable certain to occur, and in some cases not even identified." Judge Redden remanded the 2008/2010 BiOp for further consultation on post-2013 operations, and he ordered NMFS to produce a supplement by January 1, 2014, that considers "whether more aggressive action, such as dam removal and/or additional flow augmentation and reservoir modifications are necessary to avoid jeopardy." 2014 Supplement—Avoiding Jeopardy Through RPAs In January 2014, NMFS issued a second supplement to the 2008 BiOp. In this most recent BiOp (2014 Supplement), NMFS did not reverse its finding from 2008 that jeopardy could be avoided through RPAs. The plaintiffs challenged the 2014 Supplement, and, on May 6, 2016, the U.S. District Court for the District of Oregon again concluded that NMFS did not satisfy the ESA. Through a newly assigned judge, Judge Michael H. Simon, the court cited flaws in NMFS's conclusion that protected species could be "trending toward recovery" even if the overall population levels remained critically low, called NMFS's habitat improvement data "too uncertain," and found that NMFS did not properly analyze the effects of climate change. Although the court found the 2014 Supplement to be arbitrary and capricious, it did not vacate the BiOp. Instead, it remanded for further consultation to be completed by March 1, 2018, and ordered NMFS to keep the 2014 Supplement in place in the interim. The challengers to the 2014 Supplement also successfully asserted a new claim that the action agencies (the Corps and Reclamation) violated the National Environmental Policy Act of 1969 ("NEPA") because they did not prepare an environmental impact statement (EIS) in connection with the RPAs in the 2014 Supplement. NEPA requires certain agencies to complete an environmental impact statement in connection with any "major Federal actions significantly affecting the quality of the human environment." The court found the Corps and Reclamation relied upon environmental impact statements that were either "too stale" or too "narrowly focused," and it asked for additional briefing from regarding a timeline in which the EIS should be completed. NMFS, the Corps, and Reclamation have requested five years to prepare the EIS. Non-BiOp Litigation Critical Habitat Determination Other litigation has affected the way in which the ESA has been applied to Columbia River anadromous fish. When the U.S Court of Appeals for the Tenth Circuit ruled that the FWS's method of determining critical habitat under the ESA was flawed, NMFS agreed to settle a suit that challenged its critical habitat determination for the Columbia River. NMFS had used a methodology similar to FWS in determining how economic factors were used in its determination of critical habitat. Hatchery Listing Policy Litigants have also challenged whether hatchery-raised salmon and steelhead should be listed as threatened under the ESA under NMFS's Hatchery Listing Policy (HLP). Issued as interim policy in 1993, the HLP provides guidance on how NMFS treats stocks of hatchery salmon and steelhead when deciding which species should be listed as protected under the ESA. In the interim policy, NMFS concluded that certain hatchery fish could be included in the same evolutionary significant unit (ESU) as wild fish, which were listed, but it nevertheless excluded stocks of hatchery fish in its listing. A federal court found this approach violated the ESA by listing distinctions below the species level. If hatchery and wild salmon were in the same ESU, the court reasoned, they should have the same listing status. NMFS revised the interim policy and issued a final HLP in 2005. When determining whether to list a species as threatened or endangered, the final HLP requires NMFS to consider the status of the ESU as a whole rather than the status of only the wild fish. It also states that an entire ESU would be listed, rather than just the wild fish. This revised approach resulted in a downlisting of certain fish, such as steelhead trout, from endangered to threatened. Two suits were filed in two federal district courts challenging the final HLP. A suit in the Western District of Washington addressed the HLP's application to steelhead (the "steelhead case"), and a suit in the District of Oregon challenged its effect on salmon (the "salmon case"). In the steelhead case, a diverse set of plaintiffs challenged both sides of the hatchery argument: one group argued that hatchery steelhead should be considered distinct from wild steelhead, while another argued that NMFS should make no distinction between places of origin. The district court concluded NMFS erred in downlisting steelhead based on the condition of the entire ESU—both hatchery and wild—rather than focusing on the "benchmark of naturally self-sustaining populations that is required under the ESA[.]" The U.S. Court of Appeals for the Ninth Circuit reversed that portion of the district court's ruling and concluded that the final HLP complied with the ESA. The Ninth Circuit gave discretion to NMFS's analysis and concluded that the downlisting was based on "substantial ... scientific data, and not mere speculation[.]" In the salmon case, NMFS distinguished between hatchery stocks of salmon and wild or "natural" salmon. The U.S. District Court for the District of Oregon rejected the plaintiffs' argument that the ESA required hatchery salmon and wild salmon to be treated equally for listing purposes when they are included in the same ESU, and the Ninth Circuit affirmed. Litigation over Authorization to Euthanize California Sea Lions To reduce predation on upstream migrating adult salmon, NMFS authorized Washington and Oregon in March 2008 to lethally take California sea lions that gather below the Bonneville Dam. The authorization was revoked in November 2010, following a Ninth Circuit decision that the permit for lethal removal was contrary to law. The court found that NMFS could not justify killing California sea lions when their take of the salmon was shown to be no larger than that of commercial fishing; NMFS had described the effect of commercial fishing as "minor" and "minimal" in past statements. In May 2011, NMFS authorized states to euthanize up to 85 California sea lions, but withdrew that authorization in July 2011, in response to a lawsuit. Following a second application process, NMFS reissued Letters of Authorization in March 2012 to Washington, Oregon, and Idaho allowing the states to remove up to 92 animals. A group of plaintiffs, including the Humane Society, challenged the 2012 authorization in the U.S. District Court for the District of Columbia arguing that it did not comply with the Ninth Circuit's decision. On review (and after the case was transferred to the District of Oregon), the Ninth Circuit sided with NMFS in this legal bout, finding that, although the plaintiffs raised "valid concerns," the 2011 authorization was sufficiently grounded in scientific data to explain the need to euthanize. With the legal challenge resolved, states have since lethally removed sea lions under the 2012 authorization. Between 2008 and 2015, the Departments of Fish and Wildlife for the states of Oregon and Washington have removed 102 California sea lions. Of those removed, 15 were placed in a zoo or aquarium, 87 were euthanized by lethal injection, and seven died in captivity. The 2012 letter of authorization expired on June 30, 2016, and, on January 27, 2016, Washington, Oregon, and Idaho submitted an application for a five-year extension. NMFS agreed that the states' applications showed "sufficient evidence of the [predation] problem[,]" and it issued a new letter of authorization on June 30, 2016. Appendix. Chronology of Major ESA Actions and Litigation

The decline of salmon and steelhead populations in the Columbia Basin began in the second half of the 19th Century. Activities such as logging, farming, mining, irrigation, and commercial fishing all contributed to the decline, and populations further declined since the construction and operation of the Federal Columbia River Power System (FCRPS) in the mid-1900s. In 1991, the Snake River sockeye became the first Pacific salmon stock identified as endangered under the Endangered Species Act (ESA). There are now 13 salmon and steelhead stocks that are listed as either threatened or endangered. FCRPS operations have been analyzed through an ESA process intended to address the impact of operations on protected species. The ESA requires the federal operators of the FCRPS—the Bureau of Reclamation (Reclamation), the Bonneville Power Administration (BPA), and the Army Corps of Engineers (Corps)—to consult with the National Marine Fisheries Service (NMFS) of the Department of Commerce on how the FCRPS may impact listed species. At the end of the consultation, NMFS issues a biological opinion (BiOp) addressing whether the FCRPS action would jeopardize the continued existence of a listed species or damage its critical habitat. If jeopardy is found, NMFS is required to develop reasonable and prudent alternatives (RPAs) to the proposed action in order to avoid jeopardy. NMFS can recommend mitigation measures to avoid jeopardy, but protective measures for fish often come at a cost in terms of energy generation or irrigation supply from FCRPS. This tension between natural resources and energy production and irrigation is at the heart of conflict in the Columbia Basin. Beginning in 1992, NMFS issued a series of BiOps, nearly every one of which courts have found inconsistent with the ESA. Since 2000, federal courts have rejected all or part of NMFS's four prior BiOps and their supplements. While courts have consistently demanded changes to the BiOps, they also allowed portions of each BiOp to stay in place so that FCRPS operations could continue while the federal agencies attempted to remedy the BiOps. Most recently, in May 2016, the U.S. District Court for the District of Oregon held that NMFS's 2014 supplemental BiOp (2014 Supplement) did not comply with the ESA. The court cited flaws in NMFS's conclusion that protected species could be "trending toward recovery" even if the overall population levels remained critically low. The court also called NMFS's habitat improvement data "too uncertain" and found that NMFS did not properly analyze the effects of climate change. The district court also held that the FCRPS action agencies (the Corps, BPA, and Reclamation) violated the National Environmental Policy Act of 1969 (NEPA) by failing to prepare an environmental impact statement in connection with their proposals for operation of the FCRPS. Although it found the 2014 Supplement to be arbitrary and capricious, the court did not vacate the BiOp. Instead, it remanded for further consultation to be completed by March 1, 2018, and ordered NMFS to keep the 2014 Supplement in place in the interim.

Introduction This report provides an overview of FY2015 appropriations actions for accounts traditionally funded in the appropriations bill for the Departments of Labor, Health and Human Services, and Education, and Related Agencies (L-HHS-ED). This bill provides discretionary and mandatory appropriations to three federal departments: the Department of Labor (DOL), the Department of Health and Human Services (HHS), and the Department of Education (ED). In addition, the bill provides annual appropriations for more than a dozen related agencies, including the Social Security Administration (SSA). Discretionary funds represent less than one-quarter of the total funds appropriated in the L-HHS-ED bill. Nevertheless, the L-HHS-ED bill is typically the largest single source of discretionary funds for domestic non-defense federal programs among the various appropriations bills (the Department of Defense bill is the largest source of discretionary funds among all federal programs). The bulk of this report is focused on discretionary appropriations because these funds receive the most attention during the appropriations process. The L-HHS-ED bill typically is one of the more controversial of the regular appropriations bills because of the size of its funding total and the scope of its programs, as well as various related policy issues addressed in the bill such as restrictions on the use of federal funds for abortion and for research on human embryos and stem cells. See the Key Policy Staff table at the end of this report for information on which analysts to contact at the Congressional Research Service with questions on specific agencies and programs funded in the L-HHS-ED bill. Report Roadmap and Useful Terminology This report is divided into several sections. The opening section provides an explanation of the scope of the L-HHS-ED bill (and hence, the scope of this report), as well as an introduction to important terminology and concepts that carry throughout the report. Next is a series of sections describing major congressional actions on FY2015 appropriations and (for context) a review of the conclusion of the FY2014 appropriations process. The following section provides a high-level summary and analysis of proposed and enacted mandatory and discretionary appropriations for FY2015, compared to comparable FY2014 funding levels. The body of the report concludes with overview sections for each of the major components of the bill: the Department of Labor, the Department of Health and Human Services, the Department of Education, and Related Agencies. These sections provide selected highlights of the FY2015 omnibus, compared to proposed appropriations in the Senate subcommittee-approved stand-alone FY2015 L-HHS-ED bill, the FY2015 President's request, and comparable FY2014 levels. Finally, an Appendix provides a summary of budget enforcement activities for FY2015. This includes information on the Budget Control Act of 2011 (BCA; P.L. 112-25 ) and sequestration, as well as procedural efforts related to budget resolutions and subcommittee spending allocations. Scope of the Report This report is focused strictly on appropriations to agencies and accounts that are subject to the jurisdiction of the Labor, Health and Human Services, Education, and Related Agencies Subcommittees of the House and the Senate Appropriations Committees (i.e., accounts traditionally funded via the L-HHS-ED bill). Department "totals" provided in this report do not include funding for accounts or agencies that are traditionally funded by appropriations bills under the jurisdiction of other subcommittees. The L-HHS-ED bill provides appropriations for the following federal departments and agencies: the Department of Labor; the majority of the Department of Health and Human Services, except for the Food and Drug Administration (provided in the Agriculture appropriations bill), the Indian Health Service (provided in the Interior-Environment appropriations bill), and the Agency for Toxic Substances and Disease Registry (also funded through the Interior-Environment appropriations bill); the Department of Education; and more than a dozen related agencies, including the Social Security Administration, the Corporation for National and Community Service, the Corporation for Public Broadcasting, the Institute of Museum and Library Services, the National Labor Relations Board, and the Railroad Retirement Board. Note also that funding totals displayed in this report do not reflect amounts provided outside of the regular appropriations process. Certain direct spending programs, such as Old-Age, Survivors, and Disability Insurance and parts of Medicare, receive funding directly from their authorizing statutes; such funds are not reflected in the totals provided in this report because they are not subject to the regular appropriations process (see related discussion in the " Important Budget Concepts " section). Important Budget Concepts Mandatory vs. Discretionary Appropriations1 The L-HHS-ED bill includes both discretionary and mandatory appropriations. While all discretionary spending is subject to the annual appropriations process, only a portion of mandatory spending is provided in appropriations measures. Mandatory programs funded through the annual appropriations process are commonly referred to as appropriated entitlements . In general, appropriators have little control over the amounts provided for appropriated entitlements; rather, the authorizing statute controls the program parameters (e.g., eligibility rules, benefit levels) that entitle certain recipients to payments. If Congress does not appropriate the money necessary to meet these commitments, entitled recipients (e.g., individuals, states, or other entities) may have legal recourse. Most mandatory spending is not provided through the annual appropriations process, but rather through direct spending budget authority provided by the program's authorizing statute (e.g., Old-Age, Survivors, and Disability Insurance). The funding amounts in this report do not include direct spending budget authority provided outside of the appropriations process. Instead, the amounts reflect only those funds, discretionary and mandatory, that are provided through appropriations acts. Note that, as displayed in this report, mandatory amounts for the FY2015 President's request reflect current law (or current services) estimates; they do not include any of the Administration's proposed changes to a program's authorizing statute that might affect total spending. (In general, such proposals are excluded from this report, as they typically require authorizing legislation.) Note also that the report focuses most closely on discretionary funding. This is because discretionary funding receives the bulk of attention during the appropriations process. (As noted earlier, although the L-HHS-ED bill includes more mandatory funding than discretionary funding, the appropriators generally have less flexibility in adjusting mandatory funding levels than discretionary funding levels.) Total Budget Authority Provided in the Bill vs. Total Budget Authority Available in the Fiscal Year Budget authority is the amount of money Congress allows a federal agency to commit or spend. Appropriations bills may include budget authority that becomes available in the current fiscal year, in future fiscal years, or some combination. Amounts that become available in future fiscal years are typically referred to as advance appropriations . Unless otherwise specified, appropriations levels displayed in this report refer to the total amount of budget authority provided in an appropriations bill (i.e., "total in the bill"), regardless of the year in which the funding becomes available. In some cases, the report breaks out "current-year" appropriations (i.e., the amount of budget authority available for obligation in a given fiscal year , regardless of the year in which it was first appropriated). As the annual appropriations process unfolds, current-year appropriations plus any additional adjustments for congressional scorekeeping are measured against 302(b) allocation ceilings (budget enforcement caps for appropriations subcommittees that traditionally emerge following the budget resolution process). Unless otherwise specified, appropriations levels displayed in this report do not reflect additional scorekeeping adjustments , which are made by the Congressional Budget Office (CBO) to reflect conventions and special instructions of Congress. Status of FY2015 Appropriations Table 1 provides a timeline of major legislative actions toward full-year FY2015 L-HHS-ED appropriations. The remainder of this section provides additional detail on these and other steps toward full-year L-HHS-ED appropriations. FY2015 Omnibus Appropriations On December 16, 2014, President Obama signed into law the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235). The final version of this bill was agreed to in the House on December 11 and in the Senate on December 13. The enacted law provided regular, full-year appropriations for 11 of the 12 annual appropriations bills, including L-HHS-ED (see Division G). This law appropriated $164 billion in discretionary funding for L-HHS-ED (not counting emergency Ebola funds), which is roughly comparable to amounts provided in FY2014 (+0.05%) and the FY2015 President's request (-0.1%). In addition, the FY2015 omnibus provided an estimated $681 billion in mandatory L-HHS-ED funding, for a total of $846 billion for L-HHS-ED as a whole. (See Figure 1 for the breakdown of discretionary and mandatory L-HHS-ED appropriations in the FY2015 omnibus.) Emergency Ebola Appropriations In addition to non-emergency L-HHS-ED appropriations, the omnibus also provided $2.7 billion in emergency-designated funding to HHS in response to the Ebola outbreak in Africa (see Division G, Title VI). These funds were distributed as follows: $1.8 billion to the Centers for Disease Control and Prevention (CDC) for activities to enhance domestic preparedness, support overseas operations to end the Ebola epidemic, and prevent the spread of Ebola and other infectious diseases; $238 million to the National Institutes of Health (NIH) for clinical trials on experimental Ebola vaccines and treatments; and $733 million to the Public Health and Social Services Emergency Fund, which is administered within the HHS Office of the Secretary, for drug and vaccine development and domestic hospital preparedness. FY2015 Continuing Resolutions The FY2015 omnibus followed three government-wide continuing resolutions (CRs), which had provided temporary funding earlier in the fiscal year ( P.L. 113-203 , P.L. 113-202 , P.L. 113-164 ). With limited exceptions, these CRs generally funded discretionary L-HHS-ED programs at the same rate and under the same conditions as in the FY2014 omnibus ( P.L. 113-76 ), minus an across-the-board reduction of 0.0554%. Mandatory programs covered by these CRs were generally continued at current law levels, less sequestration (where applicable). The first FY2015 CR ( P.L. 113-164 ) included several special provisions for L-HHS-ED. Of particular note, this CR provided $88 million in new non-emergency discretionary appropriations to HHS in response to the Ebola outbreak in West Africa, including $30 million for the CDC Global Health Fund and $58 million for the Public Health and Social Services Emergency Fund within the Office of the Secretary. Congressional Actions on a Stand-Alone L-HHS-ED Bill FY2015 Action in the Senate On June 10, 2014, the Senate L-HHS-ED Subcommittee approved an FY2015 bill by voice vote. The bill was not marked up by the full committee, but on July 24, the Senate Appropriations Committee released a copy of the subcommittee-approved bill and draft subcommittee report. These draft materials suggest that the subcommittee-approved bill would have provided $167 billion in discretionary funding for L-HHS-ED. This is about 2% more than the comparable FY2014 funding level and the FY2015 President's request. In addition, the Senate subcommittee-approved bill would have provided an estimated $681 billion in mandatory funding, for a combined total of nearly $848 billion for L-HHS-ED as a whole. FY2015 Action in the House The House did not hold a subcommittee or full committee markup for a stand-alone FY2015 L-HHS-ED appropriations bill. However, on September 15, 2014, Representative Rosa DeLauro, ranking Member of the House Appropriations L-HHS-ED Subcommittee, introduced an FY2015 L-HHS-ED bill ( H.R. 5464 ). As this bill was not taken up by the subcommittee, it is not discussed further in this report. FY2015 President's Budget Request On March 4, 2014, the Obama Administration released the FY2015 President's budget. The President requested $164 billion in discretionary funding for accounts funded by the L-HHS-ED bill (0.2% more than comparable FY2014 levels). In addition, the President's budget requested roughly $681 billion in annually appropriated mandatory funding, for a total of roughly $846 billion (6% more than comparable FY2014 levels) for the L-HHS-ED bill as a whole. Conclusion of the FY2014 Appropriations Process On January 17, 2014, President Obama signed into law the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ), providing omnibus appropriations for FY2014 (see Division H for L-HHS-ED). This law provided $164 billion in discretionary funding for L-HHS-ED. In addition, the FY2014 omnibus provided an estimated $636 billion in mandatory L-HHS-ED funding, for a total of $800 billion for L-HHS-ED as a whole. Summary of FY2015 L-HHS-ED Appropriations Table 2 displays the total amount of FY2015 discretionary and mandatory L-HHS-ED funding provided or proposed, by title, as well as comparable FY2014 funding levels. The amounts shown in this table reflect total budget authority provided in the bill (i.e., all funds appropriated in the current bill, regardless of the fiscal year in which the funds become available), not total budget authority available for the current fiscal year. (For a comparable table showing current-year budget authority, see Table A-2 in the Appendix .) When taking into account both mandatory and discretionary funding (non-emergency), HHS received roughly 82% of total L-HHS-ED appropriations in FY2015 (see Figure 2 ). This is largely due to the sizable amount of mandatory funds included in the HHS appropriation, the majority of which is for Medicaid grants to states and payments to health care trust funds. After HHS, ED and the Related Agencies represent the next-largest shares of total L-HHS-ED funding, accounting for about 8% apiece in FY2015. The majority of the appropriations for ED are discretionary, while the bulk of funding for the Related Agencies goes toward mandatory payments and administrative costs of the Supplemental Security Income program at the Social Security Administration. Finally, DOL accounts for the smallest share of total L-HHS-ED funds: roughly 2% in FY2015. When looking only at discretionary appropriations (non-emergency), however, the overall composition of L-HHS-ED funding is noticeably different (see Figure 2 ). HHS accounts for a comparatively smaller share of total discretionary appropriations (43% in FY2015), while ED accounts for a relatively larger share (41% in FY2015). Together, these two departments represent the majority (84%) of discretionary L-HHS-ED appropriations in FY2015. Meanwhile, DOL and Related Agencies combine to account for a roughly even split of the remaining 16% of discretionary L-HHS-ED funds in FY2015. Department of Labor (DOL) Note that all figures in this section are based on regular L-HHS-ED appropriations only; they do not include funds provided outside of the annual appropriations process (e.g., direct appropriations for Unemployment Insurance benefits payments). All amounts in this section are rounded to the nearest million or billion (as labeled). The dollar changes and percentage changes discussed in the text are based on unrounded amounts. About DOL DOL is a federal department comprised of multiple entities that provide services related to employment and training, worker protection, income security, and contract enforcement. Annual L-HHS-ED appropriations laws direct funding to all DOL entities (see box for all entities supported by the L-HHS-ED bill). The DOL entities fall primarily into two main functional areas—workforce development and worker protection. First, there are several DOL entities that administer workforce employment and training programs, such as the Workforce Innovation and Opportunity Act (WIOA) state formula grant programs, Job Corps, and the Employment Service, that provide direct funding for employment activities or administration of income security programs (e.g., for the Unemployment Insurance benefits program). Also included in this area is the Veterans' Employment and Training Service (VETS), which provides employment services specifically for the veteran population. Second, there are several agencies that provide various worker protection services. For example, the Occupational Safety and Health Administration (OSHA), the Mine Safety and Health Administration (MSHA), and the Wage and Hour Division (WHD) provide different types of regulation and oversight of working conditions. DOL entities focused on worker protection provide services to ensure worker safety, adherence to wage and overtime laws, and contract compliance, among other duties. In addition to these two main functional areas, DOL's Bureau of Labor Statistics (BLS) collects data and provides analysis on the labor market and related labor issues. FY2015 DOL Appropriations Overview The FY2015 omnibus provided roughly $13.35 billion in combined mandatory and discretionary funding for DOL. This is about $772 million (-5.5%) less than the comparable FY2014 funding level and $250 million (-1.8%) less than the FY2015 President's request. (See Table 3 .) Of the total provided for DOL in the FY2015 omnibus, roughly $11.95 billion (90%) is discretionary. This amount is $98 million (-0.8%) less than the comparable FY2014 discretionary funding level and $255 million (-2.1%) less than the discretionary total requested in the FY2015 President's budget. Selected DOL Highlights The following are some DOL highlights from the FY2015 omnibus compared to comparable FY2014 funding levels and proposed funding levels from the FY2015 President's budget. Employment and Training Administration (ETA) The main functions of ETA are administering the major federal workforce development programs and providing support for state operations of the unemployment insurance system. Readers should be aware that in July 2014, the President signed into law the Workforce Innovation and Opportunity Act (WIOA, P.L. 113-128 ). This law replaced and updated the majority of programs previously authorized under the Workforce Investment Act of 1998 (WIA, P.L. 105-220 ), as amended. The FY2015 omnibus provided $4.8 billion for programs authorized under Title I of the WIOA, which is $38 million more than the comparable FY2014 funding level for WIA predecessor programs. The FY2015 omnibus also superseded a WIOA provision related to the statutory limit for the governors' reserve of WIOA state formula grants. Under the WIOA, this limit is set at 15% of the total received from the three state formula grants—Adult, Youth, and Dislocated Workers. However, the FY2015 omnibus lowered this reserve limit to 10% of the WIOA state formula grants. The FY2015 omnibus provided the Secretary of Labor the authority to transfer up to 10% of the funds appropriated for the WIOA Dislocated Workers' National Reserve to provide technical assistance and other activities related to the transition from the WIA to the WIOA, the provisions of which mostly take effect July 1, 2015. The joint explanatory statement accompanying the FY2015 omnibus required the Secretary of Labor to submit semiannual updates to the House and the Senate Committees on Appropriations on the Department of Labor's progress on implementing recent DOL Office of Inspector General's (OIG) recommendations that cover financial management and controls for the Job Corps program. The FY2015 omnibus continued a provision from the FY2014 appropriations law allowing the Secretary of Labor to reserve up to 0.5% of each appropriation made available in certain accounts for the purpose of program evaluation, rather than providing a specific appropriation of funds for this purpose. Wage and Hour Division The FY2015 omnibus altered the Fair Labor Standards Act (FLSA) with respect to overtime provisions for certain workers. In general, Section 207 of the FLSA requires that employees working more than 40 hours per week be compensated at one-and-a-half times the regular rate of pay. However, the omnibus will exclude certain insurance claims adjusters from these overtime provisions for a period of two years following the occurrence of a major disaster. Bureau of Labor Statistics (BLS) The joint explanatory statement accompanying the FY2015 omnibus directed BLS to report, within 180 days of enactment of the law, to the House and the Senate Committees on Appropriations on ways that collecting and reporting data for Metropolitan Statistical Areas within the Current Employment Statistics program can be improved. The law also required BLS to estimate the costs associated with such improvements. Department of Health and Human Services (HHS) Note that all figures in this section are based on regular L-HHS-ED appropriations only; they do not include funds for HHS agencies provided through other appropriations bills (e.g., funding for the Food and Drug Administration) or outside of the annual appropriations process (e.g., direct appropriations for Medicare or pre-appropriated mandatory funds provided by authorizing laws, such as the Patient Protection and Affordable Care Act (ACA, P.L. 111-148 )). All amounts in this section are rounded to the nearest million or billion (as labeled). The dollar changes and percentage changes discussed in the text are based on unrounded amounts. About HHS HHS is a sprawling federal department comprised of multiple agencies working to enhance the health and well-being of Americans. Annual L-HHS-ED appropriations laws direct funding to most (but not all) HHS agencies (see box, below, for all agencies supported by the L-HHS-ED bill). For instance, the L-HHS-ED bill directs funding to five Public Health Service (PHS) agencies: the Health Resources and Services Administration (HRSA), Centers for Disease Control and Prevention (CDC), National Institutes of Health (NIH), Substance Abuse and Mental Health Services Administration (SAMHSA), and Agency for Healthcare Research and Quality (AHRQ). These public health agencies support diverse missions, ranging from the provision of health care services and supports (e.g., HRSA, SAMHSA), to the advancement of health care quality and medical research (e.g., AHRQ, NIH), to the prevention and control of infectious and chronic diseases (e.g., CDC). In addition, the L-HHS-ED bill provides funding for annually appropriated components of CMS, which is the HHS agency responsible for the administration of Medicare, Medicaid, and the State Children's Health Insurance Program (CHIP), and consumer protections and private health insurance provisions of the ACA. The L-HHS-ED bill also provides funding for two HHS agencies focused primarily on the provision of social services: the Administration for Children and Families (ACF) and the Administration for Community Living (ACL). ACF's mission is to promote the economic and social well-being of vulnerable children, youth, families, and communities. ACL was formed with a goal of increasing access to community supports for older Americans and people with disabilities. Notably, ACL is a relatively new agency within HHS—it was established in April 2012 and brings together the Administration on Aging, the Office of Disability, and the Administration on Developmental Disabilities (renamed the Administration on Intellectual and Developmental Disabilities) into one agency. Finally, the L-HHS-ED bill also provides funding for the HHS Office of the Secretary (OS), which encompasses a broad array of management, research, oversight, and emergency preparedness functions in support of the entire department. FY2015 HHS Appropriations Overview The FY2015 omnibus provided roughly $692 billion in combined mandatory and discretionary funding for HHS (not counting emergency Ebola-related funding). This is about $45.89 billion (+7.1%) more than the comparable FY2014 funding level and $1.68 billion (+0.2%) more than the FY2015 request. (See Table 5 .) Of the total provided for HHS in the FY2015 omnibus, roughly $70.97 billion (10%) is discretionary. This amount is $227 million (+0.3%) more than the comparable FY2014 discretionary funding level and $1.68 billion (+2.4%) more than the discretionary total requested in the FY2015 President's budget. Annual HHS appropriations are dominated by mandatory funding, the majority of which goes to CMS to provide Medicaid benefits and payments to health care trust funds. When taking into account both mandatory and discretionary funding, CMS accounted for roughly 88% of all HHS appropriations in FY2015. ACF and NIH accounted for the next-largest shares of total HHS appropriations, receiving 4% apiece in FY2015. By contrast, when looking exclusively at discretionary appropriations, CMS constituted only 6% of HHS funding in FY2015. Instead, the bulk of discretionary appropriations went to the PHS agencies, which combined to account for 63% in FY2015. NIH typically receives the largest share of all discretionary funding among HHS agencies (41% in FY2015), with ACF accounting for the second-largest share (25% in FY2015). See Figure 3 for an agency-level breakdown of HHS appropriations (combined mandatory and discretionary) in the FY2015 omnibus. Selected HHS Highlights This section discusses several important aspects of discretionary HHS appropriations. First, it provides an introduction to two special funding mechanisms included in the public health budget, the Public Health Service Evaluation Set-Aside and the Prevention and Public Health Fund. Next, it reviews a limited selection of FY2015 discretionary funding highlights across HHS. The section concludes with a brief overview of significant provisions from annual HHS appropriations laws that restrict spending in certain controversial areas, such as abortion and stem cell research. Public Health Service Evaluation Tap The Public Health Service (PHS) Evaluation Set-Aside, also known as the PHS Evaluation Tap, is a unique feature of HHS appropriations. The Evaluation Tap, which is authorized by Section 241 of the Public Health Service Act, allows the Secretary of HHS, with the approval of appropriators, to redistribute a portion of eligible PHS agency appropriations across HHS for program evaluation purposes. The Public Health Service Act limits the set-aside to 1% of eligible program appropriations. However, in recent years, L-HHS-ED appropriations laws have established a higher maximum percentage for the set-aside and have distributed specific amounts of "tap" funding to selected HHS programs. The FY2015 omnibus maintained the set-aside level at 2.5% of eligible appropriations, the same percentage as FY2014, and rejected the FY2015 President's budget proposal to increase the set-aside to 3.0%. Traditionally, the tap has provided more than a dozen HHS programs with funding beyond their regular appropriations and, in some cases, it has been the sole source of funding for a program or activity. However, the FY2015 omnibus broke with recent precedents on the distribution of tap funds in several ways. For instance, the omnibus directed tap funds to only about a half dozen programs or activities within just three HHS agencies (NIH, SAMHSA, and OS). Moreover, unlike years past, the omnibus directed the largest share of tap transfers ($715 million) to NIH. While NIH is by far the largest "donor" of tap funds (the agency's annual discretionary appropriations exceed that of all the other PHS agencies combined), it has historically received a relatively small share of funding from the tap. The joint explanatory statement accompanying the FY2015 omnibus explains that this shift is to ensure that tap transfers are a "net benefit to NIH rather than a liability" and notes that this change is in response to a "growing concern" at the loss of NIH funds to the tap. Readers should note that, by convention, tables in this report show only the amount of PHS Evaluation Tap funds received by an agency (i.e., tables do not subtract the amount of the evaluation tap from donor agencies' appropriations). That is to say, tap amounts shown in the following tables are in addition to amounts shown for budget authority, but the amounts shown for budget authority have not been adjusted to reflect potential "transfer-out" of funds to the tap. Prevention and Public Health Fund The ACA authorized and directly appropriated mandatory funding for three multi-billion dollar trust funds to support programs and activities within the PHS agencies. One of these, the Prevention and Public Health Fund (PPHF, ACA Section 4002, as amended), is intended to provide support each year to prevention, wellness, and related public health programs funded through HHS accounts. For FY2015, the ACA directly appropriated $2 billion in mandatory funds to the PPHF, but this amount was later reduced to $1 billion by the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ), which decreased total PPHF appropriations by $6.25 billion over the course of FY2013-FY2021. In addition, the FY2015 PPHF appropriation was further reduced by 7.3% due to sequestration of nonexempt mandatory spending (see budget enforcement discussion in the Appendix ). PPHF funds are intended to supplement (sometimes quite substantially) the funding that selected programs receive through regular appropriations, as well as to fund new programs, particularly those newly authorized in the ACA. The Administration's annual budget request sets out the intended distribution and use of PPHF funds for that fiscal year. The ACA instructs the Secretary to transfer amounts from the PPHF to agencies for prevention, wellness, and public health activities. The funds are available to the Secretary at the beginning of each fiscal year. For FY2014 and FY2015, Congress explicitly directed the Secretary to distribute PPHF funds to specific accounts, in specified amounts. Similar to prior years, most of the FY2015 distribution ($887 million) was provided to CDC, including $210 million for Immunization and Respiratory Diseases and $452 million for Chronic Disease Prevention and Health Promotion. HHS Highlights by Agency The discussion below reviews a limited selection of FY2015 discretionary funding highlights for programs supported by the HHS agencies funded in the L-HHS-ED bill. The discussion is largely based on the FY2015 omnibus, compared to comparable FY2014 funding levels and proposed funding levels from the FY2015 President's budget. HRSA The FY2015 omnibus provided $6.1 billion in discretionary funding for HRSA. This amount is $64 million (+1.1%) more than HRSA's comparable FY2014 funding level and $812 million (+15.3%) more than the FY2015 President's request. Consistent with recent practice, the FY2015 omnibus did not provide funding for the National Health Service Corps (NHSC); instead, the NHSC has been supported with funds that were authorized and directly appropriated by the ACA. The omnibus provided $265 million (0.3% more than comparable FY2014 levels) for the Children's Hospitals Graduate Medical Education (CHGME) Payment Program, rejecting the FY2015 President's budget proposal to eliminate funding for the CHGME Payment Program and instead establish a new Targeted Support for Graduate Medical Education Program, which would have incorporated the CHGME program. CDC The FY2015 omnibus provided $6.0 billion in discretionary funding for CDC, not including emergency funding for Ebola. This amount is $177 million (+3.1%) more than CDC's comparable FY2014 funding level and $568 million (+10.5%) more than the FY2015 President's request. The omnibus increased discretionary budget authority for several CDC programs and activities including Injury Prevention and Control (13.3% more than FY2014) and Emerging and Zoonotic Diseases (4.5% more than FY2014). Notably, in a break from recent years' practice, the FY2015 omnibus did not direct any PHS tap funds to CDC ($211 million less than FY2014). However, the joint explanatory statement accompanying the omnibus allocated CDC its largest share of PPHF funds to date: $887 million (14.8% more than FY2014). In some cases, the elimination of PHS evaluation tap transfers to particular CDC activities was offset by increases in budget authority or PPHF transfers. For instance, the omnibus appropriated $335 million ($115 million, or 52.0%, more than comparable FY2014 levels) in discretionary budget authority for the National Institute for Occupational Safety and Health, which more than offset the elimination of $112 million in tap transfers. In addition to the funds above, CDC received $1.8 billion in emergency-designated Ebola funding in Division G, Title VI of the FY2015 omnibus, as well as $30 million in non-emergency Ebola funds from the first FY2015 CR. These funds were provided in response to the Ebola outbreak in West Africa and are intended to support domestic preparedness activities and overseas operations to end the Ebola epidemic and prevent the spread of Ebola or other infectious diseases. NIH The FY2015 omnibus provided $29.4 billion in discretionary budget authority for NIH, not including emergency funding for Ebola. This is $476 million (-1.6%) less than the comparable FY2014 funding level for NIH and nearly $757 million (-2.5%) less than the FY2015 President's request. Notably, the FY2015 omnibus augmented NIH's budget authority with $715 million in transfers from the PHS Evaluation Tap ($707 million more than FY2014) and directed this entire amount to one NIH institute, the National Institute of General Medical Sciences (NIGMS). The PHS Evaluation Tap transfer to NIGMS offset a decrease of $709 million in the institute's discretionary budget authority compared to FY2014. In addition to the funds above, NIH received $238 million in emergency Ebola funding in Division G, Title VI, of the FY2015 omnibus. These funds were provided in response to the Ebola outbreak in West Africa and are intended to support clinical trials on experimental Ebola vaccines and treatments. SAMHSA The FY2015 omnibus provided $3.5 billion in discretionary budget authority for SAMHSA. This is nearly $49 million (+1.4%) more than SAMHSA's comparable FY2014 funding level and $176 million (+5.3%) more than the FY2015 President's request. The omnibus augmented total SAMHSA funding with $134 million (0.8% more than comparable FY2014 levels) in transfers from the PHS Evaluation Tap, spreading these transfers across four SAMHSA programs and activities. The joint explanatory statement accompanying the omnibus directed $362 million in discretionary budget authority to SAMHSA's Substance Abuse Treatment Programs of Regional and National Significance (PRNS). This represents an increase of $51 million (+16.3%) from comparable FY2014 levels, roughly offsetting the elimination of congressionally directed PPHF transfers to the Substance Abuse PRNS in FY2015 ($50 million less than comparable FY2014). The FY2015 omnibus retained provisions, first instituted in the FY2014 omnibus, authorizing SAMHSA to collect user fees for certain costs of publications, data, and data analysis. AHRQ The FY2015 omnibus provided $364 million in discretionary budget authority for AHRQ. (The omnibus provided no PHS Evaluation Tap funds for AHRQ in FY2015.) The FY2015 appropriation of $364 million is the same amount AHRQ received in PHS Evaluation Tap transfers in FY2014 and is $30 million (+8.9%) more than the FY2015 President's request for PHS Evaluation Tap transfers to AHRQ. The joint explanatory statement accompanying the omnibus directed the majority of AHRQ's discretionary budget authority ($229 million) toward research on health costs, quality, and outcomes. Notably, this is the first time since FY2002 that an annual L-HHS-ED bill has provided discretionary appropriations for AHRQ. Between FY2003 and FY2014, AHRQ's only discretionary appropriation was a special one-time funding in the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ). Instead, funding for AHRQ's programs has been generally provided by transfers from other sources, including the PHS Evaluation Tap, the PPHF, and another mandatory trust fund established by the ACA. CMS The FY2015 omnibus provided $4.3 billion in discretionary budget authority for CMS. This is $45 million (-1%) less than the comparable FY2014 funding level for CMS and nearly $177 million (-4%) less than the FY2015 President's request. The omnibus appropriated $672 million for Health Care Fraud and Abuse Control (HCFAC) activities (130% more than comparable FY2014 levels). Of the total amount appropriated for HCFAC, $361 million was provided through a budget cap adjustment authorized by the Balanced Budget and Emergency Deficit Control Act of 1985, as amended. Meanwhile, the Program Management account received by far the largest share of discretionary CMS appropriations, $3.7 billion (10% less than comparable FY2014 levels). These funds support program operations (e.g., claims processing, information technology investments, provider and beneficiary outreach and education, and program implementation), as well as federal administration and other activities. Notably, the omnibus included a new general provision (Division G, Title II, §227) to prevent certain funds from being used to make risk corridor payments associated with health insurance exchanges (or marketplaces) established by the ACA. In general, a risk corridor is a mechanism for sharing financial risk (unexpectedly high gains and losses) between the federal government and insurers when market changes make estimating premiums harder for insurers. The ACA requires HHS to administer a risk corridor program for qualified health plans offered through health insurance exchanges in calendar years 2014-2016. Through this program, HHS must make payments to insurers who experience high losses, while insurers who experience high gains must remit a portion of those gains to HHS. HHS expects that this risk corridor program will be budget neutral (i.e., HHS expects that risk corridor collections from insurers will be sufficient to cover all risk corridor payments issued by HHS). However, in May 2014, HHS stated that "other sources of funding" would be used to make federal risk corridor payments for program year 2015 if collections from insurers were insufficient to cover federal payments. The new general provision in the FY2015 omnibus limits the sources of funding that could be used in the event of a funding shortfall by prohibiting HHS from making risk corridor payments with funds appropriated to the CMS Program Management account from the Federal Hospital Insurance Trust Fund or the Federal Supplemental Medical Insurance Trust Fund, or funds transferred to the Program Management account from other accounts funded by the omnibus. ACF The FY2015 omnibus provided $17.8 billion in discretionary budget authority for ACF. This is nearly $113 million (+0.6%) more than ACF's comparable FY2014 funding level and $751 million (+4.4%) more than the FY2015 President's request. The omnibus provided nearly $1.6 billion for Refugee and Entrant Assistance Programs (2.0% more than the comparable FY2014 level). The joint explanatory statement accompanying the omnibus expressed an expectation that the majority of these funds ($948 million; 4% more than the comparable FY2014 level) will be directed toward the Unaccompanied Alien Children (UAC) program, which provides shelter and support services to unaccompanied alien children who have been apprehended in the United States. The increased funding for the UAC program reflects the growing number of unaccompanied alien children arriving in this country, up from about 16,100 in FY2011 to roughly 68,600 in FY2014, according to the U.S Border Patrol. In addition, the omnibus included a new provision allowing HHS to augment appropriations for the Refugee and Entrant Assistance account by up to 10% via transfers from other discretionary HHS funds. This provision is noteworthy because it is an exception from a general provision restricting transfers from augmenting the discretionary appropriations of any HHS account by more than 3%. ACL The FY2015 omnibus provided $1.7 billion in discretionary budget authority for ACL. This is roughly $18 million (+1%) more than ACL's comparable FY2014 funding level and $9 million (-0.5%) less than the President's request. The joint explanatory statement accompanying the omnibus called for $8 million to be directed toward Elder Rights Support Activities (105% more than FY2014), including $4 million for a new Elder Justice Initiative to provide competitive grants to states to test innovative approaches to preventing and responding to elder abuse. (The Administration had requested $25 million for a stand-alone Elder Justice initiative to be funded separately from Elder Rights Support Activities.) This is the first time funds have been appropriated for activities under the Elder Justice Act, which was enacted by the ACA in 2010. In addition, the joint explanatory statement reserved $10 million for Aging Network Support Activities (34% more than FY2014), including $2.5 million to provide supportive services for aging Holocaust survivors in the United States. While the omnibus rejected the FY2015 President's budget proposal to transfer the Community Service Employment for Older Americans program from DOL to HHS/ACL, it included or affirmed several new administrative requirements for ACL. For instance, the omnibus transferred funding and administrative responsibility for the Limb Loss Resource Center from CDC to ACL. Additionally, readers should be aware that the WIOA called for several programs authorized by the Rehabilitation Act and the Assistive Technology Act to be transferred from ED to HHS/ACL. Although the omnibus appropriated funds for these programs to ED, the law included a new general provision (Division G, Title V, §528) requiring ED to transfer funds for these programs to HHS. Funding Restrictions Related to Certain Controversial Issues Annual L-HHS-ED appropriations regularly contain restrictions related to certain controversial issues. For instance, annual appropriations laws generally include provisions limiting the circumstances under which L-HHS-ED funds (including Medicaid funds) may be used to pay for abortions. Under current provisions, (1) abortions may be funded only when the life of the mother is endangered or in cases of rape or incest; (2) funds may not be used to buy a managed care package that includes abortion coverage, except in cases of rape, incest, or endangerment; and (3) federal programs and state and local governments that receive L-HHS-ED funding are prohibited from discriminating against health care entities that do not provide or pay for abortions or abortion services. Similarly, annual appropriations since FY1997 have included a provision prohibiting L-HHS-ED funds (including NIH funds) from being used to create human embryos for research purposes or for research in which human embryos are destroyed. The FY2015 omnibus maintained each of these provisions for FY2015. The FY2012 appropriations law reinstated a provision, removed in FY2010, prohibiting L-HHS-ED funds from being used for needle exchange programs. This provision has been maintained in appropriations laws for each subsequent year, including FY2015. The FY2012 appropriations law also expanded a provision prohibiting CDC spending on activities that advocate or promote gun control so that it applied to all HHS appropriations and added a new, broader provision prohibiting the use of any L-HHS-ED funds (plus funds transferred from the PPHF) for the promotion of gun control. These provisions have been maintained in appropriations laws for each subsequent year, most recently in FY2015. The tables below provide more detailed information on FY2015 enacted funding levels for HHS, compared to FY2015 proposed and FY2014 comparable funding levels. Table 6 presents total HHS funding levels by agency. Table 7 presents discretionary funding levels for a selection of HHS programs, projects, or activities, by agency. Department of Education (ED) Note that all figures in this section are based on regular L-HHS-ED appropriations only; they do not include funds provided outside of the annual appropriations process (e.g., certain direct appropriations for Federal Direct Student Loans and Pell Grants). All amounts in this section are rounded to the nearest million or billion (as labeled). The dollar changes and percentage changes discussed in the text are based on unrounded amounts. About ED The federal government provides support for elementary and secondary education, as well as postsecondary education. With regard to elementary and secondary education, the federal government provides roughly 11% of overall funding; the vast majority of funding comes from states and local districts. States and school districts also have primary responsibility for the provision of elementary and secondary education in the United States. Nevertheless, ED performs numerous functions, including promoting educational standards and accountability, gathering education data via programs such as the National Assessment of Education Progress, disseminating research on important education issues, and administering federal education programs and policies. ED is responsible for administering a large number of elementary and secondary education programs, many of which provide direct support to school districts with a high concentration of disadvantaged students and students with disabilities. One of the most important priorities for ED in elementary and secondary education is improving academic outcomes for all students, particularly disadvantaged students, students with disabilities, English language learners, Indians, Native Hawaiians, and Alaska Natives. With regard to higher education, the federal government supports roughly 69% of all direct aid provided to students to finance their postsecondary education. There are many higher education programs administered by ED—the largest are those providing financial aid to facilitate college access, primarily through student loans and the Pell grant program. In addition, ED administers programs that address vocational rehabilitation, career and technical education, and adult education. FY2015 ED Appropriations Overview The FY2015 omnibus provided roughly $70.47 billion in combined mandatory and discretionary funding for ED. This is about $105 million (+0.1%) more than the comparable FY2014 funding level and $1.45 billion (-2.0%) less than the FY2015 request. (See Table 8 .) Of the total provided for ED in the FY2015 omnibus, roughly $67.14 billion (95%) is discretionary. This is $166 million (-0.2%) less than the comparable FY2014 discretionary funding level and $1.45 billion (-2.1%) less than the discretionary amount requested in the FY2015 President's budget. Selected ED Highlights The following are some ED highlights from the FY2015 omnibus compared to comparable FY2014 funding levels and proposed funding levels from the FY2015 President's budget. Education for the Disadvantaged The FY2015 omnibus provided $14.41 billion for Grants to Local Educational Agencies (LEAs) under Title I-A of the Elementary and Secondary Education Act (ESEA). This is $25 million (+0.2%) more than comparable FY2014 funding and the FY2015 President's request for these grants. Title I-A is the largest K-12 education program administered by ED and most LEAs in the nation receive funding under this program. The omnibus maintained a provision from the FY2014 omnibus clarifying that these funds may be used to provide transportation for homeless students and to support the work of homeless liaisons. The FY2015 omnibus maintained funding for School Improvement Grants at $506 million, the same amount the program received in FY2014 and in the FY2015 President's request. The omnibus included new provisions to increase LEA flexibility in implementing alternative school improvement strategies. Impact Aid The FY2015 omnibus provided $1.29 billion for Impact Aid. This is the same amount provided in FY2014, but roughly $67 million (+5.5%) more than the FY2015 President's request. The majority of Impact Aid funds are provided directly to LEAs to compensate them for the financial burden resulting from federal activities, including federal ownership of certain lands and the enrollment in LEAs of children of parents who live or work on federal lands. Innovation and Improvement The FY2015 omnibus provided $1.10 billion for the Innovation and Improvement account. This is $171 million (+18.3%) more than the comparable FY2014 funding level, but $432 million (-28.2%) less than the FY2015 President's request. Within this account, the Fund for the Improvement of Education (FIE) received the largest increase (+$256 million) compared to FY2014. The majority of this increase ($250 million) was directed toward Preschool Development Grants. (Notably, the FY2014 omnibus also provided $250 million for Preschool Development Grants. However, the FY2014 funds were provided under Race to the Top rather than FIE.) The FY2015 omnibus directed ED to partner with HHS in awarding preschool grants to states for developing or expanding high-quality preschool programs for children in families with income at or below 200% of poverty. Special Education The FY2015 omnibus provided $11.50 billion for the Individuals with Disabilities Act (IDEA), Part B State Grants program. This is $25 million (+0.2%) more than the comparable FY2014 funding level and $75 million (-0.6%) less than the FY2015 President's request. IDEA Part B State Grants provide federal funding for elementary and secondary education for children with disabilities. As a condition for the receipt of these funds, states are required to provide a free and appropriate public education (i.e., specially designed instruction that meets the needs of a child with a disability). Pell Grants The FY2015 omnibus provided $22.48 billion for the Pell Grants program. This amount is $303 million (-1.3%) less than comparable FY2014 funding and the FY2015 President's request. Under the FY2015 omnibus, the discretionary base maximum award for award year (AY) 2015-2016 remained at $4,860, and the total maximum award for which a student is eligible in AY2015-2016 is projected to be $5,850. Related Agencies Note that figures in this section are based on regular L-HHS-ED appropriations only; they do not include funds provided outside the annual appropriations process (e.g., direct appropriations for Old-Age, Survivors, and Disability Insurance benefit payments by the Social Security Administration). All amounts in this section are rounded to the nearest million or billion (as labeled). The dollar changes and percentage changes in the text are based on unrounded amounts. FY2015 Related Agencies Appropriations Overview The FY2015 omnibus provided roughly $70.05 billion in combined mandatory and discretionary funding for related agencies funded through this bill. This is about $61 million (-0.1%) less than the comparable FY2014 funding level and $191 million (-0.3%) less than the FY2015 President's request. (See Table 10 .) Of the total provided for related agencies in the FY2015 omnibus, roughly $14.18 billion (20%) is discretionary. This is $114 million (+0.8%) more than the comparable FY2014 discretionary funding level and $221 million (-1.5%) less than the discretionary amount requested in the FY2015 President's budget. In general, the largest share of funding appropriated to related agencies in the L-HHS-ED bill goes to the Social Security Administration (SSA). When taking into account both mandatory and discretionary funding, the SSA accounted for 97% of the entire related agencies appropriation in FY2015. The bulk of mandatory SSA funding from the L-HHS-ED bill supports the Supplemental Security Income program, which provides means tested benefits to disabled children and adults and to persons 65 and older. When looking exclusively at discretionary funding, the SSA remains the largest component of the related agencies appropriation, constituting roughly 84% of discretionary funds in FY2015. The majority of discretionary SSA funding covers administrative expenses for Social Security, SSI, and Medicare. After the SSA, the next-largest agency of the related agencies appropriation is the Corporation for National and Community Service (CNCS), which constitutes roughly 2% of all funding and 7% of discretionary funding in FY2015. Typically, each of the remaining related agencies receives less than $1 billion from the annual L-HHS-ED appropriations bill. For more information, see Table 11 . Selected Related Agencies Highlights The FY2015 President's request for the SSA Limitation on Administrative Expenses (LAE) account, which provides the administrative funding for all the SSA programs and operations except the Office of the Inspector General (OIG), was $12 billion. Of this amount, $1.4 billion was requested for program integrity activities including continuing disability reviews (CDRs) and SSI redeterminations of eligibility, with $273 million set aside from the base LAE funding and $1.3 billion in additional funding above the discretionary funding caps set by the Budget Control Act of 2011 (BCA; P.L. 112-25 ). The final appropriation for the SSA LAE account was $11.8 billion, which includes the full requested amount of $1.4 billion for program integrity. Appendix. Budget Enforcement Activities The framework for budget enforcement under the congressional budget process has both statutory and procedural elements. The statutory elements include the discretionary spending limits and mandatory spending sequester derived from the Budget Control Act of 2011 (BCA; P.L. 112-25 ). The procedural elements are primarily associated with the budget resolution and limit both total discretionary spending and spending under the jurisdiction of each appropriations subcommittee. Budget Control Act and Sequestration The BCA, as amended, requires annual reductions to mandatory and discretionary spending over an extended period. For mandatory spending, reductions are to occur through sequestration in each of FY2013-FY2024. For discretionary spending, reductions occurred through sequestration in FY2013, but are to be achieved through lower discretionary spending limits for each of FY2014-FY2021. The Bipartisan Budget Act of 2013 (BBA, Division A of P.L. 113-67 ) established new limits for FY2014 and FY2015 defense and nondefense discretionary spending, with no further reductions to those limits required. The BCA does not call for sequestration of discretionary spending in FY2014-FY2021 unless one or both of the statutory discretionary spending limits (defense and nondefense) is breached. The L-HHS-ED bill only includes funding in the nondefense category. FY2015 On March 10, 2014, concurrent with the release of the FY2015 President's budget, President Obama issued the required sequestration order for nonexempt FY2015 mandatory spending. The sequester order took effect on October 1, 2014. OMB's FY2015 joint committee reductions report stated that the sequestration percentages were equal to 2% of nonexempt Medicare spending and 7.3% of other nonexempt nondefense mandatory spending in FY2015. OMB estimated that this would reduce nonexempt nondefense mandatory spending by over $17 billion in FY2015. (The report also estimated a 9.5% reduction, totaling roughly $702 million, in nonexempt defense mandatory spending, but this is not applicable to L-HHS-ED funds.) The OMB report's appendix displays the actual dollar amounts to be sequestered from each budget account. While the report displays reductions at the account level, the sequester itself is implemented at the program, project, or activity level. Sequestration of discretionary spending was not required in FY2015. According to OMB's analysis, after making allowable adjustments, the FY2015 omnibus did not violate the defense and nondefense spending limits. Cap Adjustments, Exemptions, and Special Rules The BCA, as amended, established discretionary spending limits (sometimes called budget caps) for FY2012-FY2021. The law includes provisions allowing for limited adjustments to the caps. For L-HHS-ED, the most notable of these is for increases (up to a point) in new budget authority for specified program integrity initiatives at HHS and the Social Security Administration. In addition, although sequestration largely consists of automatic, across-the-board spending reductions, the law exempts a limited number of programs from sequestration and subjects others to special rules. The L-HHS-ED bill contains several programs that are exempt from sequestration, including Medicaid, payments to health care trust funds, Supplemental Security Income, Special Benefits for Disabled Coal Miners, retirement pay and medical benefits for commissioned Public Health Service officers, foster care and adoption assistance, and certain family support payments. The L-HHS-ED bill also contains several programs that are subject to special rules under sequestration, such as unemployment compensation, certain student loans, health centers, and portions of Medicare. Budget Resolution and 302(b) Suballocations The procedural elements of budget enforcement generally stem from requirements under the Congressional Budget Act of 1974 ( P.L. 93-44 ) that are associated with the adoption of an annual budget resolution. Through this process, the Appropriations Committee in each chamber receives a procedural limit on the total amount of discretionary budget authority for the upcoming fiscal year, referred to as a 302(a) allocation. The Appropriations Committee subsequently divides this allocation among its 12 subcommittees. These subcommittee-level spending limits are referred to as 302(b) suballocations. The 302(b) suballocations restrict the amount of budget authority available to each subcommittee for the agencies, projects, and activities under its jurisdiction, effectively acting as a cap on each of the 12 regular appropriations bills. Enforcement of the 302(a) allocation and 302(b) suballocations occurs through points of order. Congress did not adopt a budget resolution for FY2015. Although the House agreed to a budget resolution ( H.Con.Res. 96 ) on April 10, 2014, this measure was not taken up in the Senate, nor did the Senate consider a separate budget resolution for FY2015. Instead, both the House and the Senate used an alternative mechanism for FY2015 procedural budget enforcement that was enacted as part of the BBA. It allowed the Chairs of the House and Senate Budget Committees to submit statements for publication in the Congressional Record that included FY2015 spending levels (i.e., 302(a) allocations) for the House and the Senate Appropriations Committees, provided these levels were "consistent with the discretionary spending limits" set forth in the BBA. The House statement was filed in the Congressional Record on April 29; the Senate statement was filed on May 5. Once filed, these levels became enforceable on the House and the Senate floors. Based on the budget enforcement provided via this alternative mechanism, the House and the Senate Appropriations Committees each reported initial 302(b) suballocations to their subcommittees prior to floor consideration of the FY2015 regular appropriations bills. However, it is common for these suballocations to be revised throughout the year to reflect actual action on appropriations bills and changes in congressional priorities; such changes are not always reported. The House most recently reported revised suballocations for FY2015 on June 17, 2014. The Senate most recently reported revised suballocations on December 12, 2014. See Table A-1 for an overview of the published L-HHS-ED 302(b) suballocations for FY2015, as compared to the proposed FY2015 Senate subcommittee-approved bill and the enacted FY2015 omnibus. Note that compliance with discretionary spending allocations is evaluated based on budget authority available in the current fiscal year , adjusted for scorekeeping by the Congressional Budget Office. As such, totals shown in this table may not be comparable to other totals shown in this report. Current-Year Budget Authority Table A-2 displays the total L-HHS-ED current-year budget authority for FY2015 discretionary and mandatory appropriations provided or proposed, by title, compared to comparable FY2014 funding levels. The amounts shown in this table reflect total budget authority available for obligation in the fiscal year, regardless of the year in which it was first appropriated. (For a comparable table showing total budget authority in the bill, rather than current-year budget authority, see Table 2 in the body of this report.) As mentioned above, it is current-year budget authority (adjusted for scorekeeping by the Congressional Budget Office) that is used to determine compliance with discretionary spending allocations.

This report provides an overview of actions taken by Congress and the President to provide FY2015 appropriations for accounts funded by the Departments of Labor, Health and Human Services, and Education, and Related Agencies (L-HHS-ED) appropriations bill. This bill provides funding for all accounts subject to the annual appropriations process at the Departments of Labor (DOL) and Education (ED). It provides annual appropriations for most agencies within the Department of Health and Human Services (HHS), with certain exceptions (e.g., the Food and Drug Administration is funded via the Agriculture bill). The L-HHS-ED bill also provides funds for more than a dozen related agencies, including the Social Security Administration (SSA). Enacted Appropriations: On December 16, 2014, President Obama signed into law the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235), which provided FY2015 appropriations for L-HHS-ED in Division G. This law appropriated $164 billion in discretionary funding for L-HHS-ED (not counting emergency Ebola funds), which is roughly comparable to amounts provided in FY2014 (+0.05%) and the FY2015 President's request (-0.1%). In addition, the FY2015 omnibus provided an estimated $681 billion in mandatory L-HHS-ED funding, for a total of $846 billion for L-HHS-ED as a whole. The FY2015 omnibus followed three government-wide continuing resolutions (CRs), which provided temporary funding earlier in the fiscal year (P.L. 113-164, P.L. 113-202, and P.L. 113-203). DOL: The FY2015 omnibus provided roughly $11.9 billion in discretionary funding for DOL, roughly 0.8% less than the comparable FY2014 funding level of $12.0 billion. HHS: The FY2015 omnibus provided roughly $71.0 billion in discretionary funding for HHS, roughly 0.3% more than the comparable FY2014 funding level of $70.7 billion. ED: The FY2015 omnibus provided roughly $67.1 billion in discretionary funding for ED, roughly 0.2% less than the comparable FY2014 funding level of $67.3 billion. Related Agencies: The FY2015 omnibus provided roughly $14.2 billion in discretionary funding for L-HHS-ED related agencies, roughly 0.8% more than the comparable FY2014 funding level of $14.1 billion. Earlier L-HHS-ED Congressional Action: Prior to the start of the fiscal year, the Senate Appropriations L-HHS-ED Subcommittee initiated action on a full-year FY2015 bill. On June 10, 2014, the Senate subcommittee approved an FY2015 L-HHS-ED appropriations bill by voice vote. This bill was not reported by the full committee. However, on July 24, 2014, the Senate Appropriations Committee released a copy of the subcommittee-approved bill and draft subcommittee report. The subcommittee-approved bill would have provided $167 billion in discretionary L-HHS-ED funds, which is about 2% more than the comparable FY2014 funding level and the FY2015 President's request. In addition, the Senate subcommittee bill would have provided an estimated $681 billion in mandatory funding, for a combined total of $848 billion for L-HHS-ED as a whole. The House did not take action on a stand-alone FY2015 L-HHS-ED bill. President's Request: On March 4, 2014, the Obama Administration released its FY2015 budget. The President requested $164 billion in discretionary funding for accounts funded by the L-HHS-ED bill (0.2% more than comparable FY2014 levels). In addition, the President's budget requested roughly $681 billion in annually appropriated mandatory funding, for a total of roughly $846 billion (6% more than comparable FY2014 levels) for the L-HHS-ED bill as a whole.

Most Recent Developments On June 30, 2008, President Bush signed H.R. 2642 ( P.L. 110-252 ), a bill which makes supplemental appropriations for FY2008 and FY2009 for military operations in Iraq and Afghanistan and for other purposes. The bill also extends unemployment payments, and expands veterans' educational benefits. The House had passed the bill on June 19, and the Senate approved it June 26 by a vote of 92-6. In floor action on the bill on June 19, the House adopted two amendments to a version of the bill previously approved by the Senate. Amendment #1, agreed to by a vote of 268-155, included $162.4 billion for military operations, the same amount as in the same title of the Senate-passed bill. Amendment #2, agreed to by a vote of 416-12, reduced the defense total by $3.6 billion and incorporated all of the other key measures to be included in the final bill. Because the House agreed on June 19 to the defense total in the version of the bill previously approved by the Senate, the issue before the Senate on June 26 was concurrence in the House-passed Amendment #2. Before clearing the bill for the President, the Senate voted 77-21 to waive the Budget Act concerning the bill, thus disposing of a point of order against the bill raised by Senator Coburn, who contended that the bill improperly designated as "emergency" spending—thus exempt from spending ceilings set by the Congressional Budget Resolution—$210 million for the Census Bureau. As enacted, the bill would cost an estimated $202 billion in FY2008 and FY2009 and almost $60 billion more through FY2018, of which $183.5 billion is supplemental appropriations for defense, international affairs, disaster relief, and some other domestic programs, including $2.65 billion of newly added funds to respond to Midwest flooding earlier in the month; $14 billion in FY2008 and FY2009 is for extended unemployment benefits, with a net cost, following savings in future years, of $10 billion over eleven years through FY2018; $796 million in FY2008 and FY2009 and $63 billion through FY2018 is for expanded veterans educational benefits; and $1.2 billion in FY2008 and FY2009 is due to Medicaid rules changes. The final bill reflects compromises with the White House on several issues. On major issues the bill extends unemployment benefits for 13 weeks but not for 26 weeks; expands veterans' educational benefits as in earlier House and Senate bills and adds a provision allowing benefits to be transferred to spouses and dependents, as the White House had proposed; does not include a surcharge on high income taxpayers to offset costs of expanded educational benefits as in the earlier House-passed bill; delays six, rather than seven, new Medicaid rules; does not approve the bulk of unrequested funds for domestic programs included in the Senate-passed bill; and adds $2.65 billion in new funds, partly at the request of the President, to replenish emergency accounts expected to be used to respond to recent Midwest floods. The final bill also drops most Iraq-related policy provisions that were in the original House-passed bill, except for provisions requiring Iraq to match U.S. economic assistance, prohibiting permanent bases in Iraq, and applying mandatory fraud reporting requirements to contractors working abroad. Earlier Congressional Action In earlier action, on May 15, 2008, the House approved an initial version of the bill that provided $21 billion for military construction, international affairs, and domestic programs, but did not include $162.5 billion that the House leadership had proposed for operations in Iraq and Afghanistan. The House bill also approved extended unemployment compensation payments, expanded veterans educational benefits, and Medicaid rules changes. Procedurally, as a vehicle for considering supplemental appropriations without a committee markup, the House brought to the floor the Senate-passed version of H.R. 2642 , the FY2008 military construction/veterans' affairs appropriations bill that had been incorporated into the FY2008 consolidated appropriations act. The House then considered three amendments as substitutes for the text of the bill. By a vote of 141-149 with 132 voting present, the House rejected the first amendment to provide $96.6 billion in FY2008 and $65.9 billion in FY2009 funding for military operations. By a vote of 227-196, the House approved a second amendment to require the withdrawal of combat forces from Iraq within 18 months; establish readiness requirements for the deployment of U.S. troops; require that any agreement on the status of U.S. forces in Iraq be authorized by Congress; mandate that Iraq match U.S. reconstruction aid dollar-for-dollar and agree to subsidize fuel costs for U.S. forces; make contractors in war zones subject to prosecution for offenses that would violate U.S. law; prohibit the establishment of permanent bases in Iraq; and prohibit interrogation techniques not authorized in the Army Field Manual. And, by a vote of 256-166, the House approved a third amendment providing $21 billion in FY2008 and FY2009 for military construction, domestic, and international affairs programs. The amendment also included expanded veterans educational benefits at an estimated cost of $52 billion over ten years, with an offsetting increase in taxes on those with incomes above $500,000 for an individual or $1,000,000 for a couple. And the amendment included an extension of unemployment benefits and Medicaid rules changes. A week later, on May 22, 2008, the Senate approved an amended version of H.R. 2642 , providing $194 billion in supplemental appropriations for FY2008 and FY2009, and also approving extended unemployment payments, expanded veterans' educational benefits, Medicaid rules changes, and adding a limit on Medicare payments to new specialty hospitals. On key roll call votes, all of which required 60 votes for approval, the Senate rejected by a vote of 34-63 an amendment to the House bill to provide funding for defense programs and to establish various Iraq policy provisions; approved by a vote of 75-22 an amendment providing defense funding without policy restrictions; and approved by a vote of 70-26 an amendment providing funding for domestic programs, international affairs, and military construction. Earlier, on May 2, the White House sent Congress an amendment to its FY2009 budget formally requesting $70 billion in emergency FY2009 funding, including $66 billion for the Department of Defense and $4 billion for international affairs programs. The $66 billion request for the Defense Department constituted a "bridge fund" sufficient to allow the services to carry on both day-to-day peacetime activities and military operations overseas until the middle of 2009. Approval of a bridge fund—which the appropriations committees had planned to provide before the White House made its formal request—would allow Congress to avoid a debate over war funding during the fall election period, and also provide the 111 th Congress time to act on a full-year war supplemental after the next President takes office. The $4 billion FY2009 emergency international affairs request included $770 million in emergency food-related assistance announced on May 1 (though FY2009 funding would not be available until October 1, 2008), $1.4 billion for aid to Iraq, $1.1 billion for aid to Afghanistan, $350 million for the Middle East, $193 million for Pakistan, $123 million for stabilization operations in Africa, $36 million for security for diplomats in the Middle East, Sudan, and Somalia, and $15 million for the six party agreement on North Korean nuclear programs. On May 1, the President announced a new request for $770 million in FY2009 emergency supplemental appropriations for international food aid. The Administration had requested $350 million for P.L. 480 international food assistance in its October, 2007, budget amendment to the FY2008 supplemental request. Senators Durbin and Casey had proposed adding $200 million in food aid to the supplemental. Highlights of H.R. 2642 (P.L. 110-252) as Signed by the President June 30, 2008 The enacted version of H.R. 2642 provides $96.1 billion for military operations in Iraq, Afghanistan, and elsewhere in FY2008 and $65.9 billion in FY2009; $4.2 billion for military construction programs in the United States and abroad; $10.1 billion for international affairs programs; and $10.3 billion for domestic programs, including $2.65 billion, added after the House, on May 15, and the Senate, on May 22, passed earlier versions of the bill, to respond to Midwest floods. On key issues, the final bill expands GI bill veterans' education benefits to provide a full four years of college education for service members who serve 36 or more months abroad, as provided in the House and Senate bills, and also permits benefits to be transferred to spouses and dependents, as the Administration requested, which increases the estimated ten-year cost from $52 billion to $62.8 billion; does not include a House-passed 0.5% income tax surcharge on incomes of $500,000 or more for individuals and $1,000,000 or more for couples—the surcharge was intended to offset the cost of the GI bill provisions; provides 13 weeks of extended unemployment compensation in all states, but not 26 weeks in some states as in the House and Senate bills, reducing the estimated ten-year cost from $11 billion to $8.2 billion. adds $2.65 billion to replenish accounts expected to be used for Midwest flood relief—the White House had reportedly requested $1.8 billion; delays implementation of six of seven Administration changes in Medicaid regulations that would reduce Federal payments to the states, rather than of all seven as in the House and Senate bills; drops most Iraq-related policy provisions that were in the House-passed version of the bill, including a provision requiring withdrawal of combat troops within 18 months and others requiring that troops meet targets for readiness and for dwell time at home between deployments—the bill includes measures requiring the Iraqi government to match amounts of some reconstruction assistance and prohibiting the use of funds to establish permanent bases in Iraq, and it extends mandatory fraud reporting requirements to contractors working abroad; provides $5.8 billion for Gulf Coast hurricane protection levees, as the Administration requested, and deletes $4.6 billion in additional flood-relief funding in the Senate bill, though the final bill also adds $73 million for housing vouchers; provides $4.2 billion for military construction, which is $2.2 billion above the Administration request, $1.2 billion above the Senate level, and $0.4 billion below the House May 15-passed bill; provides $400 million in unrequested funds for science programs rather than $1.2 billion as in the Senate bill; provides $150 million to bolster Food and Drug Administration safety programs, compared to $275 million in the Senate bill; and provides $178 million for the Bureau of Prisons and $210 million for the Bureau of the Census, as requested by the agencies, though not formally included in the Administration's May 2, 2008, supplemental request, and as included in both the House and Senate bills. How Long FY2008 Funding Would Have Lasted In advance of additional FY2008 supplemental funding, the Defense Department had available funds provided (1) in the regular FY2008 defense appropriations act ( P.L. 110-116 ) and (2) in the FY2008 consolidated appropriations action ( P.L. 110-161 ). Defense officials had calculated that funding for the Army appropriated in those two bills would begin to run out some time in June—by about the middle of June for Army military personnel accounts and by the end of June for Army operation and maintenance. On May 27, however, the Defense Department requested congressional approval to transfer $9.7 billion of funds to the Army, sufficient, officials said, to extend operations through the end of July. DOD requested that Congress include in a supplemental bill authority to replenish the accounts from which the transfers of funds were to be made. Section 9103 of the final supplemental bill provides DOD authority to transfer up to $2.5 billion of FY2008 funds in the bill between accounts and Section 9203 provides authority to transfer up to $4 billion of FY2009 funds. In addition to, or instead of, transferring funds from other accounts, the Defense Department could have extended Army operations beyond June by invoking the Feed and Forage Act, which allows the Defense Department to obligate funds in advance of appropriations for transportation, housing, subsistence and other purposes. The Defense Department might also have extended operations by using other standing authorities to shift funding between the services. On June 26, hours before the Senate passed the amended bill, Defense Secretary Robert M. Gates said during a press conference that, until the bill was enacted, DOD would continue planning for a possible shutdown of all nonessential operations in July. Key Issues in the Bill Expanded GI Bill Veterans' Education Benefits The initial House- and the Senate-passed versions of the FY2008 supplemental appropriations bill, H.R. 2642 , included a measure to provide substantially increased educational benefits for military personnel who serve abroad for thirty-six months or more (see below for a more detailed review of the main provisions). A key issue in congressional action on the bill was whether to offset the long-term costs of expanded benefits, which CBO estimated would amount to $52 billion through FY2018. In May, under pressure from "Blue Dog" Democrats, the House leadership agreed to add to the bill a 0.5% surcharge on high income taxpayers as a means of offsetting the cost of the program. The Senate, however, did not agree to the tax offset, and it was not included in the May 22 Senate-passed bill. Subsequently, as the House leadership considered how to proceed, "Blue Dog" Democrats in the House continued to warn that they would vote against the final bill if it did not offset the costs. Meanwhile, the White House warned that the President would veto the bill if it included a tax increase. In the end, the House leadership did not include the offset in the final version of the bill. On June 19, the House approved expanded veterans educational benefits as part of Amendment #2 with only 12 votes against it. Aside from the debate about offsetting costs, there were some objections to specific aspects of the main GI bill proposal being considered in the House and Senate. Senior officials in the Defense Department opposed key elements of the measure, and Senate Republicans, with White House support, proposed an alternative that would require longer service before personnel could qualify for full benefits. At a May 8 press conference, Secretary of Defense Robert Gates and Joint Chiefs Chairman Admiral Michael Mullen complained that the measure being proposed in the House and Senate bills would undermine retention of personnel because it would make full educational benefits available for service members who have not reenlisted for a second term. On May 6, at an event to honor military spouses, the President said that he was sending to Congress legislation that would improve benefits for military families, including a measure that would allow educational benefits to be transferred to children or spouses. On May 14, Senate Republicans brought up an alternative GI bill expansion proposal sponsored by Senator Graham as an amendment to pending collective bargaining legislation. That amendment was based on S. 2938 , a measure to increase veterans education benefits that Senator Graham proposed on April 29 with a number of co-sponsors, including Senator McCain. The Graham bill would provide larger benefits for military personnel who serve for at least 12 years and permit benefits to be transferred to other family members. The education benefit measure included in the House and Senate supplemental bills, in contrast, was based on a bill, S. 22 / H.R. 5740 , sponsored by Senator Webb and Representative Mitchell, that provides maximum benefits after as little as thirty-six months of service. In the end, the enacted version of the supplemental adheres to the Webb/Mitchell bill. It provides maximum benefits to personnel with as little as 36 months of service. The final bill, however, also includes a provision allowing service members to transfer benefits to spouses and other dependents. The transfer provision adds $10.8 billion to the ten-year projected cost of the bill. House and Senate Differences Over Other Domestic Spending Apart from the fact that the House rejected funding for military operations (except for military construction funds that were grouped together with funding for domestic programs), the main differences between the initial House and Senate bills had to do with amounts for domestic spending. Both the House and the Senate bills provided $9.9 billion for international affairs programs, though the bills allocated the funds somewhat differently. Both bills also included expanded GI bill educational benefits, with $716 million required in FY2008 and FY2009, and extended unemployment benefits costing $15.6 billion in the first two years. Beyond that, the House bill provided $5.8 billion in FY2009 emergency funds for Gulf Coast levee construction; $210 million for the Bureau of the Census; and $178 million for shortfalls in the federal prison system budget. Representative Obey, the chairman of the House Appropriations Committee, repeatedly noted that all of these funds were requested in some form by the Administration. The Senate-passed bill provided $8.5 billion more than the House bill for domestic programs. Of the additional funds $4.6 billion was for hurricane-related relief and reconstruction and other disaster assistance (for a total in the Senate bill of $10.4 billion), and $1 billion was provided for low-income energy assistance, $590 million for state and local law enforcement assistance, $400 million for secure local schools, $437 million for veterans' administration polytrauma facilities, $275 million for Food and Drug Administration safety programs, and $1.2 billion for a "science initiative" with funds allocated to NASA, the Department of Energy, and the National Institutes of Health. The additional funds in the Senate bill for domestic programs were a matter of considerable debate among House and Senate Democratic leaders. Not wanting to invite a presidential veto, the House leadership resisted adding funds for domestic programs. Except for veterans education benefits, unemployment compensation, and the cost of delaying new Medicaid rules, the House stayed within limits on spending that the White House insisted on. The Senate, however, approved a substantial amount of additional domestic spending as part of an amendment that passed by a vote of 70-26, with more than enough support to override a veto. When the House subsequently took up the Senate-passed version of the bill in June, the House leadership decided to negotiate with the White House in an effort to agree on a bill that would not be vetoed. The final bill included relatively little unrequested domestic funding. That version of the bill, passed by the House June 19 and by the Senate June 26, was signed by the President on June 30. Table 1 provides an overview of House, Senate, and enacted funding compared to the request. It shows funding by title within the bills and it provides a breakdown of defense, international affairs, and domestic spending. Table 2 provides a comparison of House, Senate, and requested funding for selected programs. It is intended mainly to highlight key differences between the House and the Senate. A detailed breakdown of funding by account is provided in Tables B - 1 and B - 2 in Appendix B at end of this report. Iraq Policy House-Passed and Senate Committee Bills The May 15 House-passed version of H.R. 2642 included a package of Iraq-related policy provisions requiring that a redeployment U.S. forces out of Iraq begin within 30 days of enactment of the legislation with a goal of completing withdrawal of combat troops by December, 2009; that any agreement on the status of U.S. forces in Iraq be authorized by Congress; that Iraq match U.S. reconstruction aid dollar-for-dollar; that Iraq agree to subsidize fuel costs for U.S. forces; and that U.S. troops meet guidelines for readiness before being deployed, including guidelines for time at home between rotations. The House-passed Iraq policy amendment also made contractors in war zones subject to prosecution for offenses that would violate U.S. law, prohibited the establishment of permanent bases in Iraq, and prohibited interrogation techniques not authorized in the Army Field Manual. The Senate, however, rejected by a vote of 34-63 a package of Iraq policy provisions that were approved by the appropriations committee. The vote did not necessarily reflect the sentiment of the Senate on policy matters, however—several anti-war Senators said they opposed the measure because they did not want to vote for the $163 billion in funding to which the policy package was attached. The Senate committee measure did not establish a timetable for withdrawal, as in the House bill. The rejected Senate policy provisions would state that the mission of U.S. forces in Iraq should shift to counter-terrorism, training, and force protection; require that units be fully mission capable before being deployed, with a Presidential waiver; set limits on the time units may be deployed of one year in the Army and seven months in the Marine Corps, also with a waiver; require that units be based at home for the same periods between rotations, with a waiver; prohibit permanent bases in Iraq; require congressional approval of any security agreements with Iraq; prohibit an agreement that would place U.S. forces under Iraqi criminal jurisdiction; require a report on Iraq's budget; require Iraq to reimburse U.S. forces for fuel costs; establish criminal statutes against profiteering and other fraud and abuse; prohibit U.S. funding of large-scale infrastructure projects in Iraq; require an agreement with Iraq to share costs of military operations; and require that the International Red Cross be informed of and have access to any detainees. The committee proposal also included expanded oversight of contractors and an extension of laws governing extraterritorial jurisdiction over contractor personnel. The June 19 House-passed bill, which the Senate agreed to June 26, and which the President signed on June 30, drops most of the policy language in the initial House measure. It includes only provisions that would require that Iraq match U.S. State Department and USAID (though not Defense Department) reconstruction funding; prohibit permanent U.S. bases in Iraq; and extend mandatory fraud reporting requirements to contractors working abroad. Defense Funding Issues Between February and October 2007, the Administration requested a total of $189.3 billion in emergency FY2008 supplemental appropriations for the Department of Defense. Through December 2007, Congress had approved $86.8 billion, which left $102.5 billion still pending when the 110 th Congress reconvened in January. In March, 2008, the Defense Department provided the congressional defense committees with a revised allocation of the remaining funds. The main changes were to reduce remaining requested funding for "Other Procurement Army" and to add money for Navy, Army National Guard, and Air Force operation and maintenance accounts. The revision also added about $1 billion in military construction funds to cover escalating base realignment and closure costs. In considering the remaining FY2008 defense request, House and Senate appropriators announced plans to add a "bridge fund" for FY2009 of $65-70 billion, providing funds mainly for personnel and operating accounts sufficient to allow the military services to continue operations into about the middle of calendar year 2008. This would avoid another contentious debate over Iraq policy during the fall election season, accompanied by DOD complaints that it would have to shut down Army and Marine Corps operations early in the following year. It would also leave time for the next Administration to formulate its own full-year war supplemental funding proposal based on any proposed changes in strategy and troop levels. Subsequently, on May 2, 2008, the White House sent Congress a formal request for $70 billion in emergency war-related FY2009 supplemental funding, of which $66 billion was for the Department of Defense and $4 billion for international affairs programs. Table 2 and, with somewhat more detail, Tables B - 1 and B - 2 in Appendix B show House and Senate action on defense funding compared to the unadjusted Administration FY2008 supplemental request and the new FY2009 request. In general, the House leadership bill, like the Senate-passed bill, agreed to the Defense Department's proposed shifts of FY2008 funds—both bills added funding for base realignment and closure costs and for service operation and maintenance accounts and reduced funding for "other procurement Army," an account that has grown dramatically in recent supplementals to cover purchase of force protection equipment, trucks, and communications equipment. The Army has been adjusting its projected requirements in all of these areas. The main congressional initiatives in the FY2008 and FY2009 defense supplemental bills were to add funding for a number of major weapons programs. Both the Senate-passed bill and the House-leadership bill included $3.6 billion in FY2008 to procure 15 C-17 cargo aircraft, which the Administration is officially proposing to terminate, but for which the Air Force requested funds in its FY2008 and FY2009 unfunded priorities lists. Both bills also added $2.5 billion for 34 C-130J cargo aircraft, including a tanker variant for the Marine Corps and a variant for Special Operations Forces. The FY2009 bridge fund request included only a limited amount for procurement, $4.4 billion all, since most of the money in the bridge fund was intended to sustain operations into next year. Neither bill provided funding for F-22 procurement, leaving the issue to be resolved the regular FY2009 defense appropriations bill. The enacted version of the bill, passed by the House June 19 and by the Senate on June 26, includes the earlier Senate amounts for defense, but with an across-the-board cut of $3.6 billion from FY2008 procurement, R&D, and revolving fund accounts, to be applied proportionately to each line item. International Affairs Remaining FY2008 and Additional FY2009 Supplemental Appropriations6 In its initial February 2007 budget for FY2008 and in the October 2007 budget amendment, the Administration requested a total of $6.9 billion in emergency FY2008 appropriations for international affairs programs. Most of the request was for embassy security and reconstruction assistance in Iraq and Afghanistan. Congress did not address these funding requests until it took up the FY2008 Department of State/Foreign Operations appropriations bill, H.R. 2764 , which ultimately became the vehicle for consolidated FY2008 appropriations. Division J of the consolidated appropriations bill comprises a conference agreement on the State/Foreign Operations appropriations bill. It includes, in addition to regular FY2008 appropriations, $2.4 billion of emergency FY2008 funding. Not all of that $2.4 billion was for programs that were part of the Administration's $6.9 billion emergency funding request. Furthermore, some supplemental funds were allocated to the base international affairs budget when Congress appropriated less than requested in regular funding. According to the State Department, only about $1.5 billion of the new emergency funding was for programs as requested, leaving $5.4 billion of the request still to be addressed, of which $2.3 billion is for State Department and related activities and $3.1 billion is for foreign operations. In addition to the remaining FY2008 supplemental request, on May 2, 2008, the Administration amended its regular FY2009 State-Foreign operations request by adding a supplemental request of $2.24 billion to the Department of State FY2009 regular request and nearly $2.88 billion in foreign assistance funding, including $770 million for food security and food aid. Table 3 shows the remaining FY2008 supplemental request and the FY2009 supplemental request for the State Department and international broadcasting. Table 4 shows the remaining FY2008 supplemental request and the FY2009 supplemental request for foreign operations. Table 5 shows rescissions in the House and Senate bills. Congressional Action The enacted version of H.R. 2642 , passed by the House June 19 and by the Senate June 26, provides a total of $6.15 billion in FY2008 supplementals and $3.94 in FY2009 supplementals for the Department of State, Foreign Operations, and Related Programs. It funds about $1.99 billion for the Department of State and adds $2 million for International Broadcasting in FY2008 supplemental spending. About $1.15 billion is provided for Iraq operations in the Diplomatic and Consular Programs (D&CP) account. Compared to the May 15 House-passed bill, the enacted version raises funding for the Inspector General, U.S. Contributions to International Organizations, and U.S. Contributions to International Peacekeeping. The International Broadcasting funds are for increased broadcasting to Tibet. (See Table 3 ) For Foreign Operations, the enacted House bill provides about $4.16 billion in FY2008 funding to various countries and for international food aid. (See Table 4 ) For the FY2009 supplemental, the enacted version of the bill provides a total of $1.07 billion for State Department accounts, including up to $550.5 million for operations in Iraq. In addition, $6 million is provided for international broadcasting. The bill also provides about $2.86 billion for country foreign aid allocations and for international food aid. The enacted legislation made some changes to earlier House and Senate versions. It reduced slightly the amount for the Department of State in FY2008, but increased the amount for State in the FY2009 supplemental. The final bill added funds for international broadcasting—$2 million for FY2008 and $6 million for FY2009—that were not in earlier versions of the legislation. For foreign assistance, the enacted bill reduced somewhat from earlier versions the amount for Iraq and Afghanistan, Jordan, the Democratic Republic of the Congo. It also eliminated funds for Vietnam and Pakistan in FY2008 that had been in earlier versions. The enacted legislation increased funds for Mexico in FY2008 and for Sudan in both supplemental years. (See Table 3 ) While both bills contained some rescissions, most noteworthy were Senate rescissions totaling $525 million from the Millennium Challenge Corporation (MCC). The MCC rescissions were used as offsets to provide $300 million for Jordan, a country expected to sign a compact with MCC next year, and $225 million for International Disaster Assistance. The enacted legislation did not include the $225 million in rescissions from MCC for International Disaster Assistance (IDA), however. (See Table 5 ) Iraq Reconstruction Assistance8 A major issue in congressional action on supplemental funding for international affairs was how much to provide for Iraq reconstruction and how to increase the role of the Iraqi government. With the passage of the Consolidated FY2008 Appropriations Act, nearly half of the Administration's $4.9 billion FY2008 supplemental request for Iraq reconstruction was approved. However, of the roughly $2.1 billion appropriated in this category of assistance, only about $230 million was for economic aid under the foreign operations portion of the bill, the bulk of enacted reconstruction assistance being in the form of DOD appropriations. Remaining outstanding from the FY2008 request and under consideration in the Second FY2008 supplemental was roughly $2.9 billion, of which $986 million was for foreign operations economic assistance. The outstanding FY2008 foreign operations request for Iraq was for three accounts—$797 million in the Economic Support Fund (ESF), $159 million in International Narcotics and Law Enforcement (INCLE), and $30 million in Migration and Refugee Assistance (MRA). However, the bulk of the 2 nd FY2008 supplemental request for assistance to Iraq was for DOD appropriations for the training and equipping of Iraqi security forces ($1.5 billion under the Iraq Security Forces Fund, ISFF), for development programs delivered under the Commander's Emergency Response Program (CERP) (Iraq could expect at least half of the $719 million still outstanding for both Iraq and Afghanistan), and for the Task Force to Improve Business and Stability Operations in Iraq ($100 million under the Iraq Freedom Fund account). On May 2, 2008, the Administration issued a request for FY2009 emergency supplemental funding. The request included $398.8 million for foreign operations reconstruction—$212.8 million in ESF, $141 million in MRA, and $45 million in IDA accounts. The DOD appropriations reconstruction request included $2 billion for the ISFF, $1.7 billion for the CERP in Iraq and Afghanistan, of which at least half would go to Iraq, and $50 million for the Business Task Force. Both DOD and Foreign Operations portions of the FY2009 emergency request were considered by Congress at the same time as the FY2008 supplemental. The accounts to be funded under both FY2008 and FY2009 supplemental requests for Iraq support a wide range of reconstruction programs. ESF is the primary source of funding for assistance disbursed by the Provincial Reconstruction Teams (PRTs), which have grown in number under the surge to 25, including 13 newly established ePRTs (embedded PRTs) embedded with U.S. combat battalions and concentrated mostly in Baghdad and Anbar province. The ePRTs are intended to help stabilize areas secured by U.S. and Iraqi forces by supporting local small-scale, employment-generating, economic projects, using ESF-funded community development grants, job training and micro-loan programs, among other activities. PRTs also utilize ESF to increase the capacities of local government officials to spend Iraqi-owned capital funds allocated by the Iraqi government for infrastructure programs. At the national level, ESF supports ministerial capacity development, agriculture and private sector reform, and the strengthening of democratization efforts. Of the ESF request, $25 million, accompanied by proposed authorization language, would allow the Administration to establish a new Iraq enterprise fund based on the model created for east Europe and the former Soviet Union in the late 1980s and early 1990s. Enterprise funds are U.S. government-funded private sector-run bodies that primarily provide loans or equity investments to small and medium business. In the former communist countries, enterprise funds also encouraged growth of the private sector, including support for mortgage lending markets and establishment of private equity funds. The most successful example, the Polish Fund, made many profitable investments, helping companies grow that otherwise were unable to obtain financial support in the period just after the fall of communism. Some of the funds, however, have been much less successful, either because they took on poor investment risks, or because they were unable to locate promising businesses due to the poor business climate or competition from other private sector funding sources. Some observers question the usefulness of the funds because their ostensible development purpose seems often to conflict with pressures for economic profit. The INCLE account largely would support rule of law and corrections programs. The Administration request was expected to fund prison construction, something that Congress has sometimes cut from previous requests. The request was also intended to extend judicial reform and anticorruption efforts to the provinces. The MRA request would address the continuing refugee crisis in the region; an estimated 2.0 million Iraqis have fled the country and another 2.2 million have been displaced due to sectarian violence and instability. The CERP allows military commanders to support a wide variety of economic activities at the local level, from renovating health clinics to digging wells to painting schools, provided in the form of small grants. CERP also funds many infrastructure efforts no longer supported with other U.S. assistance, such as provision of electric generators and construction of sewer systems and roads. Commanders are able to identify needs and dispense aid with few bureaucratic encumbrances. More recently, the CERP has paid salaries to the so-called Sons of Iraq, mostly Sunnis who are joining with U.S. forces to provide security. The DOD Business Task Force seeks to stimulate the economy and create employment for Iraqi citizens by rehabilitating some of the roughly 200 state-owned enterprises that comprised a large portion of the Iraqi economy prior to the U.S. occupation. News reports have suggested some difficulty with the program, resulting from the lack of electricity, the insecure environment, and a lack of enthusiasm from U.S. companies that had been expected to invest in the facilities, among other reasons. To date, about 29 factories have been assisted, responsible for about 10,000 jobs. Outstanding FY2008 supplemental funds include operational costs (not counted in the reconstruction aid total or the table) for staffing and administering reconstruction programs: $679 million for PRTs. The new FY2009 supplemental request includes funding for PRT operations (an unspecified portion of a total $921 million Embassy/PRT request), $23.6 million for USAID operational expenses, and $15 million for the Special Inspector General for Iraq Reconstruction (SIGIR). May 15 House Action on Iraq Reconstruction The combined funding amendments #1 and #3 to H.R. 2642 which the House considered on May 15 would have provided a total of $4.0 billion in additional economic and security reconstruction funding for Iraq, about two-thirds of the $6.2 billion Administration request for the two years of assistance. See Table 6 for details under each account. However, DOD reconstruction appropriations, contained in amendment #1, were rejected in a House vote on May 15. Of the total FY2008 and FY2009 DOD appropriations request of $4.9 billion, the failed amendment would have provided $3.1 billion, or 64%. Only amendment #3 of the two funding amendments was approved. It contained the foreign operations portion of Iraq reconstruction assistance. Of the total FY2008 and FY2009 foreign operations request of $1.4 billion, the House bill provided $921 million, or 66%. Judging by the allocations made by the Appropriations Committee for the $440 million in FY2008 ESF, the committee favors a significant shift in the direction of the economic aid program toward local-level assistance programs. Of the total amount, at least $355 million would be targeted to provincial and local community activities, rather than programs supporting the national government. PRT programs would get $140 million. Related community-based programs, the Community Stabilization Program (CSP) and the Community Action Program (CAP), would receive $100 million and $75 million respectively. Provincial economic growth, including microcredit and agriculture, would get $40 million. The only significant national-level effort, the National Capacity Development program, would receive $70 million, a cut of $178 million from the request. Another request for a nationally-based effort, $70 million for the provision of infrastructure security protection, was cut entirely. Democracy assistance, requested under ESF, is being provided under the Democracy Fund account at $75 million, and is expected to be implemented through the National Endowment for Democracy (NED) and other non-governmental organizations (NGOs). Two other reconstruction provisions in the May 15 House bill are noteworthy. No funding was provided for the Iraqi Enterprise Fund, and such a fund was specifically prohibited. The FY2008 INCLE Iraq program funding, at $85 million, was cut substantially, by $74 million, from the request, and no prison construction funding was included. Because operational funds for the PRTs are blended with those of the Embassy and USAID operating expenses are provided for both Iraq and Afghanistan, it is not possible to say with certainty whether the full request was met by the House amendment. The amendment did provide the SIGIR with $2.5 million and $46.5 million for FY2008 and FY2009, respectively. May 22 Senate Action on Iraq Reconstruction With regard to Iraq funding levels, the Senate bill, approved on May 22, differed from the May 15 House-passed bill in one large respect—it contained $2.8 billion in DOD reconstruction appropriations and the House bill had none. In other respects, the bills were similar. See Table 6 for account levels. In all, the Senate bill provides $4.2 billion for both DOD and foreign operations appropriations in FY2008 and FY2009, 67% of the Administration request. Like the House, the Senate bill shifted funding strongly in the direction of local-level assistance programs. Of the $398 million in FY2008 ESF, at least $313 million would be targeted to provincial and local community activities, rather than programs supporting the national government. PRT programs would get $138 million. As in the House bill, the CSP and CAP would receive $100 million and $75 million respectively, and the National Capacity Development program would receive $70 million. Infrastructure security protection was cut out. Again, like the House, the Senate bill would provide democracy assistance under the Democracy Fund account at $75 million. The proposed enterprise fund would also not be funded in the Senate bill. The May 22 Senate bill provided the SIGIR an operating expense level of $2.5 million in FY2008 and $36.5 million in FY2009. PRT and USAID operating expense levels are not specified. House and Senate Action on Iraqi Role in Reconstruction Reflecting recent indications that Members of both parties desired to see the Iraqi government pay a greater share of the costs of reconstruction, under the approved House amendment #2, the May 15 House bill contained a measure that would require most reconstruction funds to be matched by Iraqi obligations on a dollar-for-dollar basis. The exceptions are for democracy and human rights programs, the USAID Community Action Program and other NGO-assisted programs, humanitarian demining, refugee and displaced persons assistance, intelligence activities, and CERP projects with a value less than $750,000. It is not clear from the language whether the match would have to be made project-by-project or whether total Iraqi funding for reconstruction in general would suffice to permit continued U.S. assistance at the same level. If the latter, the provision might not affect U.S. funding significantly as, in the past year, Iraqi obligations for security and economic reconstruction have approached the U.S. contribution and will likely surpass it in 2008. The May 22 Senate bill contained the above matching fund language. The Senate bill also contained language requiring the Secretary of Defense to develop a process with Iraq to institute equal sharing of reconstruction costs for all DOD-funded projects costing over $750,000, beginning by October 1, 2008. The bill debated on the floor on May 22 would also have prohibited DOD funding of large-scale infrastructure projects costing over $2 million, but this section was rejected along with other so-called policy provisions. As the CERP was exempted from this restriction, the likely effect would have been only to ensure that Iraq funds construction of security-related facilities, such as military barracks and training centers. Enacted Version of FY2008/2009 Supplemental The version of the FY2008 and FY2009 supplemental approved on June 19 by the House, approved by the Senate June 26, and signed by the President June 30 differs from its predecessor in a few important respects. First, it approves DOD appropriations for Iraq security, adopting the Senate's figures for the ISFF, the CERP, and the Business Task Force (see table below for details). Second, where the two bodies differed in their respective first versions of the bill—i.e., in the foreign operations appropriations ESF account—the House compromised with the Senate figure. The enacted version of the bill provides $424 million in FY2008 ESF and $102.5 million in FY2009 ESF, for a total of $526.5 million, $483.3 million less than the combined ESF request. The supplemental provides a total for both years of $175 million for PRT programs; $132.5 million for the CSP; $107.5 million for the CAP; $10 million for infrastructure maintenance; $25 million for Provincial Economic Growth (agriculture and microcredit); $70 million for National Capacity Development; and $7.5 million for the Marla Ruzicka War Victims Fund. A third significant difference between the first version of the House bill and the version enacted on June 30 is the range of conditions placed on economic aid. The bill maintains prohibitions on prison construction and an enterprise fund. It withholds funding on infrastructure maintenance ($10 million) until the Department of State certifies that Iraq has entered into and begun to implement an asset transfer agreement, including an Iraqi agreement to maintain U.S.-funded infrastructure. It releases no more than 40% of rule of law (INCLE) funding until the State Department reports that an anti-corruption strategy has been developed and is being implemented by the Iraq government. It withholds all PRT operating expenses and program funds until the State Department reports on a strategy for winding down and closing out the PRTs, on the costs of the PRT program, expenses, security, and any Iraq contribution, and on the future costs and placement of U.S. consulates in Iraq. The bill withholds half of the Community Stabilization Program (CSP) appropriation until the State Department certifies that USAID is implementing the Inspector General's recommendations regarding accountability. Finally, the bill only releases its foreign operations appropriations for Iraq to the extent that U.S. funds are "matched" on a dollar-for-dollar basis by Iraq. Exceptions are made for democracy and human rights programs, the Community Action Program and other civil society efforts, demining, and assistance to refugees and displaced persons. The Secretary of State must submit a report by end of September 2008 with amounts obligated and expended by the Government of Iraq. Afghanistan Reconstruction Assistance11 Background Afghanistan's political transition was completed with the convening of a parliament in December 2005, but in 2006 insurgent threats to Afghanistan's government escalated to the point that some experts began questioning the success of U.S. stabilization efforts. In the political process, a new constitution was adopted in January 2004, successful presidential elections were held on October 9, 2004, and parliamentary elections took place on September 18, 2005. The parliament has become an arena for factions that have fought each other for nearly three decades to debate and peacefully resolve differences. Afghan citizens have started to enjoy new personal freedoms, particularly in the northern and western regions of the country, that were forbidden under the Taliban. Women are beginning to participate in economic and political life, including as ministers, provincial governors, and senior levels of the new parliament. The next elections are planned for 2009. The insurgency, led by remnants of the former Taliban regime, escalated in 2006, after several years in which it appeared the Taliban was mostly defeated. U.S. and NATO military commanders have had recent successes in counter-insurgency operations, but the Taliban continues to present a considerable threat to peace and security in parts of Afghanistan. Some experts argue that slow reconstruction, corruption, and the failure to extend Afghan government authority into rural areas and provinces, particularly in the south and east, have contributed to the Taliban resurgence. Political leadership in the more stable northern part of the country have registered concerns about distribution of reconstruction funding. In addition, narcotics trafficking is resisting counter-measures, and independent militias remain throughout the country, although many have been disarmed. The Afghan government and U.S. officials have said that some Taliban commanders are operating across the border from Pakistan, putting them outside the reach of U.S./NATO forces in Afghanistan. In 2007, the Administration unveiled the Reconstruction Opportunity Zones (ROZ) in Afghanistan and the border regions with Pakistan, an initiative to stimulate economic activity in underdeveloped, isolated regions. The United States and partner stabilization measures focus on strengthening the central government and its security forces and on promoting reconstruction while combating the renewed insurgent challenge. As part of this effort, the international community has been running PRTs to secure reconstruction. Despite these efforts, weak provincial governance is seen as a key obstacle to a democratic Afghanistan and continues to pose a threat to reconstruction and stabilization efforts. The FY2008 Original and Amended Emergency Supplemental Request The Administration requested $339 million in ESF for Afghanistan reconstruction assistance in the FY2008 emergency supplemental in February 2007. Other parts of the supplement request for Afghanistan included increases in embassy operations and security. The Administration amended the FY2008 supplemental request in October 2007 for a total request of $839 million for reconstruction, which included several provisions intended to continue U.S. efforts to stabilize Afghanistan and continue economic reconstruction efforts. The amended supplemental included additional funding for democratic governance and reconstruction efforts to continue security and development strategy that would be allocated as follows: $275 million to strengthen provincial governance and responsiveness to the Afghan people. Funding would support a wide range of programs, preparation activities for the 2009 election and ongoing programs, such as the National Solidarity Program ($40 million), the Afghanistan Reconstruction Fund ($25 million), and the Provincial Governance Fund ($50 million); $50 million as part of an effort to invest in basic social services, such as health and education, particularly in rural areas; and $170 million for economic growth and infrastructure, including the development of power sector projects ($115 million); road projects ($50 million) focused on those segments that are of strategic military importance and provide key connections between the central and provincial government capitals; and funding to support Reconstruction Opportunity Zones ($5 million) in designated economically isolated areas and to create employment alternatives. In addition to ESF funding, the amended FY2008 request included $5 million in Non-proliferation, Anti-terrorism, Demining and Related Programs (NADR) to support the Afghan leadership through the Presidential Protection Service. The FY2008 consolidated appropriations act funded most government operations for which regular FY2008 appropriations bills—11 in all—had not been enacted. Although emergency funds for military operations in Afghanistan were appropriated as part of the bridge supplemental in the consolidated appropriations act (which included $1.35 billion in DOD funds for Afghan security forces), the FY2008 supplemental request of $839 for reconstruction was not approved. The FY2009 Regular and Supplemental Request The regular FY2009 Administration request for Afghanistan totals $1.054 billion. On May 2, 2008, the Administration issued an amendment to the regular FY2009 budget request which would provide supplemental funding for Afghanistan totaling $924.9 million, including $749.9 million for ESF and $175 million for INCLE. Congressional Action The version of the supplemental appropriations bill approved by the House on June 19, by the Senate June 26, and then signed by the President June 30 provides $859 million for Afghanistan in FY2008 supplemental appropriations for ESF, which is $25 million above the request of $834 million, with allocations as follows: $360 million to strengthen governance, including preparation activities for the 2009 elections ($70 million), governance and capacity building ($165 million), support for the National Solidarity Program ($65 million), Civilian Assistance ($10 million), and PRTs ($50 million); $77 million for basic social services, such as health and education ($75 million) and NATO/ISAF Post-Operations Humanitarian Relief Fund ($2 million); and $422 million for economic growth and infrastructure, including power sector projects ($150 million), roads ($200 million), rural development ($65 million), and trade and investment ($7 million). In addition to ESF funding, the final supplemental bill includes $35 million for International Narcotics Control and Law Enforcement (INCLE) to support programs to strengthen narcotics eradication efforts in Afghanistan, including police training and development of the justice sector, with specific reporting requirements for the State Department to the Committees on Appropriations (not later than 180 days after the of this act) on levels of counternarcotics cooperation by the Government of Afghanistan; and $5 million in Non-proliferation, Anti-terrorism, Demining and Related Programs (NADR) to support the Afghan leadership through the Presidential Protection Service. For FY2009 the House,. Senate, and enacted bills provide $455 million for ESF assistance for Afghanistan, $294.9 million lower than requested. The enacted version of the bill specifies allocations of $20 million for the National Solidarity Program; not less than $35 million for the 2009 elections; and not less than $35 million for rural development and alternative livelihoods. The final bill also provides that funding "shall be programmed in a manner consistent with the Afghan National Development Strategy. The final bill does not include $175 million for INCLE, which was in the Administration's original request. In addition, the enacted version of the bill provides $76.7 million for Afghanistan in the Embassy, Construction, and Maintenance account, as in earlier versions passed by the House and Senate. In addition, the final bill provides up to $5 million to be transferred to the Special Inspector General for Afghanistan Reconstruction for reconstruction oversight, which earlier House and Senate versions also had approved. Like earlier House and Senate versions, the enacted version of the bill also provides an additional amount of $41.3 million for Embassy Security, Construction, and Maintenance to become available on October 1, 2008. Pakistan14 The Federally Administered Tribal Areas (FATA) of Pakistan are considered strategically important to combating terrorism, while continued terrorist and militant activities in the frontier region remain a threat to the United States and its interests in Afghanistan. The Government of Pakistan has developed a FATA Sustainable Development Plan to be implemented over 10 years. In support of this plan, the State Department and the U.S. Agency for International Development have put forward a five-year $750 million development assistance strategy for the frontier region (a pledge of $150 million per year) that complements the Government of Pakistan's plan. The U.S. objectives are to improve economic and social conditions in the FATA in order to address the region's use by terrorists and militants. Programs would include governance, health and education services, and economic development, such as agricultural productivity, infrastructure rehabilitation, credit, and vocational training. On November 3, 2007, President Musharraf imposed emergency rule and suspended Pakistan's constitution. In light of these events, the Administration announced a review of U.S. assistance. However, no action was taken in 2007 and in February 2008, Pakistan held what was reported to be a reasonably credible national election that seated a new civilian government. On April 9, 2008, Secretary of State Condoleezza Rice determined that a democratically elected government had taken office in Pakistan on March 25, 2008, which permitted the removal of coup-related sanctions on Pakistan and the resumption of assistance. The FY2008 Original and Amended Supplemental Request In the FY2008 regular budget, the President asked for $90 million for the frontier region development plan, which left a gap of $60 million in the overall U.S. pledge of $150 million. The Administration did not request funding for Pakistan in its original FY2008 emergency supplemental request in February 2007. The October 2007 FY2008 amended supplemental request included $60 million for ESF. This would address the funding gap and meet the full pledge as follows: Investment in governance and planning ($13 million); health and education programs ($15 million); and local economic development ($32 million). The $60 million emergency supplemental request is in addition to the regular appropriations from various accounts in the FY2008 budget. The FY2009 Regular and Supplemental Request The Administration requested $826.3 million for Pakistan in its regular FY2009 budget request. On May 2, 2008, the Administration requested additional FY2009 supplemental funds for Pakistan totaling $170.0 million, of which $70 million was in the Economic Support Fund account for "district elections support, good governance programs, and rural health and basic education initiatives in conflict regions outside of the Federally Administered Tribal Areas" and $100 million was in the Foreign Military Financing account for assistance "to reduce terrorist and militant activity in the Afghanistan-Pakistan border region including efforts to train and equip Pakistan's Frontier Corps." Congressional Action The House May 15-passed bill provided no FY2008 supplemental funding for Pakistan, while the Senate May 22-passed bill provided the requested amount of $60 million for ESF for that year. The final enacted bill provides no funds for Pakistan in the FY2008 supplemental. For the FY2009 supplemental, the House May 15-passed bill included $175 million in ESF funds for Pakistan, and the Senate May 22-passed bill provided $150 million. The final bill provides $150 million in ESF funds for Pakistan in the FY2009 supplemental. Sudan16 FY2008 Supplemental Request No funding was requested for Sudan in the original FY2008 emergency supplemental in February 2007. The Administration sought a total of $868.6 million for Sudan in the October 2007 emergency supplemental amendment, most of which was for humanitarian and peacekeeping support in the Darfur region. Major elements of the FY2008 amended emergency supplemental request included the following: A $70 million request in ESF for Sudan to support upcoming national elections that are to take place before July 2009, as determined in the 2005 Comprehensive Peace Agreement between north and south Sudan. The assistance will focus on strengthening political parties, drafting the electoral law, supporting an electoral commission, promoting civic education, and supporting election-related institutions and processes. The United Nations estimates that the elections could cost nearly $400 million because of the logistical hurdles in conducting elections in a post-conflict environment. $70 million remains in the pending FY2008 emergency supplemental; and $723.6 million in support of the African Union/United Nations Hybrid Operation in Darfur (UNAMID) in the amended FY2008 supplemental. In the consolidated appropriations act, $468 million was appropriated; $333.6 remains in the pending FY2008 emergency supplemental. FY2009 Regular and Supplemental Request It the FY2009 regular foreign operations request, the Administration included a total of $332.6 million for Sudan. The May 2008 FY2009 supplemental request included funds for diplomatic security and for USAID operations in Sudan. Of a total of $1.1 billion requested for the Department of State for Diplomatic and Consular programs, $36 million was requested "for security and operational support in Sudan and Somalia, and to support several diplomatic Middle East Peace Missions." And of $60 million requested for USAID operational expenses, $2.9 million was request for operations in Sudan. Congressional Action In the FY2008 consolidated appropriations act, P.L. 110-161 , Sudan received $334.8 million in the regular FY2008 foreign operations budget and also $468 million for the African Union/United Nations Hybrid Operation in Darfur (UNAMID) peacekeeping mission. For FY2008 UNAMID operations, the House May 15, the Senate May 22, and the final enacted bills all provide $333.6 million in the State Department's U.S. Contributions to International Peacekeeping (CIPA) account. The final bill also provides $40.1 million "to meet unmet fiscal year 2008 assessed dues for the international peacekeeping missions to countries such as the Democratic Republic of the Congo, Cote d'Ivoire, Haiti, Liberia, and Sudan." The House, Senate, and final bills also provide $45 million for ESF assistance to Sudan for the FY2008 supplemental, less than the Administration's requested amount of $70 million. For the FY2009 supplemental, the Administration did not make a request for ESF funding for Sudan. Nevertheless, both House and Senate bills provided $25 million for ESF, and the final bill concurs. The enacted bill also provides $10 million in FY2008 and $10 million in FY2009, offset by equivalent rescissions, in the International Narcotics Control and Law Enforcement (INCLE) account to support police units in Sudan. And it includes $15 million in FY2009 funds for State Department Diplomatic and Consular Activities for personnel and security requirements in Sudan. In addition, a general provision, Section 1411, in the final bill provides that money appropriated earlier in the FY2008 consolidated appropriations act, P.L. 110-161 or in previous appropriations bills, may be used to provide helicopters and related equipment to the African Union/United Nations peacekeeping operation in Darfur. Other Humanitarian Assistance18 Although proposed aid packages for specific countries anticipate and identify some humanitarian needs, the Administration also seeks funding for what it describes as unmet or unforeseen humanitarian needs. Migration and Refugee Assistance (MRA) The Administration's FY2008 emergency supplemental request, as amended through October 2007, asked for $230 million for Migration and Refugee Assistance (MRA) for anticipated and unanticipated refugee and migration emergencies, of which $195 million was requested for humanitarian assistance to Iraqi refugees. In addition, $35 million was requested for the emergency needs of Palestinian refugees in Gaza and West Bank, and for Palestinian refugee camps in Lebanon. In the Consolidated Appropriations Act ( P.L. 110-161 ), $200 million was appropriated for MRA of which $195 was allocated for Iraqi refugees, leaving $30 million (of the original $230 million request) as part of the pending FY2008 supplemental request for assistance to Iraqi refugees. The Administration requested $191 million in the FY2009 supplemental request. For the FY2008 supplemental, the June 30 enacted version of H.R. 2642 provides $315 million for MRA, which is $285 million above the request, to meet global refugee needs worldwide, including for Iraqi refugees in Jordan, Syria, Lebanon, Turkey, Egypt, and the region, and for Internally Displaced Persons (IDPs) in Iraq. These funds may also be used to support the admissions costs of Iraqi refugees and other requirements of the Iraqi refugee program. The amended bill raises concerns about the level of resources the Government of Iraq has so far dedicated to assisting Iraqi refugees and IDPs. The bill also refers to the welfare and security of the Lao Hmong in the Thai military camp in Petchaboon, northern Thailand. The final June 30 version of the bill also provides $350 million for MRA in the FY2009 supplemental, nearly 50% more than requested, to respond to urgent humanitarian and refugee admissions requirements, including assistance for refugees from Iraq, Afghanistan, and Central Africa. Emergency Refugee and Migration Assistance Fund (ERMA) The Administration did not request funding for ERMA in the FY2008 or FY2009 supplemental requests. For FY2008, the enacted legislation includes $31 million for ERMA, but it does not provide additional funds in FY2009. International Disaster Assistance (IDA) The Administration's regular FY2008 budget request included $80 million for IDA. In the Consolidated Appropriations Act ( P.L. 110-161 ), $110 million was appropriated for emergency humanitarian assistance. The Administration's FY2008 supplemental request did not include funding for IDA. The Administration requested $45 million in its FY2009 supplemental request. For FY2008, the June 30 enacted version of H.R. 2642 includes $220 million for IDA for urgent humanitarian crises worldwide, including in Burma, Bangladesh, the People's Republic of China, and other countries affected by the ongoing food crisis. For FY2009, the bill includes $200 million for IDA for ongoing humanitarian needs in Bangladesh, Burma, and the People's Republic of China. In addition, some of these funds may be allocated to assist IDPs in Iraq and Afghanistan and be used in response to the international food crisis. Food Security and Food Aid The October 2007 amendment included $350 million in additional P.L. 480 - Title II assistance to meet emergency food needs in the Darfur region of Sudan and eastern Chad and elsewhere worldwide, including places such as southern Africa, and the Horn of Africa and Kenya. In April 2008, Senators Durbin and Casey proposed adding $200 million in response to recent global increases in food prices. On May 1, the President announced a new request for $770 million in FY2009 emergency supplemental funding for food-related international aid, including $395 million for P.L. 480 Title II emergency food assistance; $225 million for U.S. Agency for International Development (USAID) International Disaster Assistance (IDA), mainly for Africa, for local and regional procurement of food abroad and for other humanitarian needs created by high food prices; $150 million for the Development Assistance (DA) account for food security and improved production in insecure countries. The enacted legislation provides for P.L. 480 more than double ($850 million) the amount requested ($350 million) by the Administration for the FY2008 supplemental. Also, for FY2008 is an additional $20 million for food security assistance within DA or IDA accounts. For the FY2009 supplemental, the final bill provides $395 million for P.L. 480 and another $200 for other food security assistance. Mérida Initiative In its October 2007 supplemental budget amendment, the Administration included $550 million for the Mérida Initiative, a multi-year plan for U.S. counterdrug and anticrime assistance to Mexico and Central America. The initiative is aimed at helping the Mexican and Central American governments combat drug trafficking, gangs, and other criminal organizations. Of the $550 million in proposed supplemental assistance, Mexico would receive $500 million and Central America would receive $50 million. On May 14, 2008, the House Committee on Foreign Affairs approved a bill, H.R. 6028 (Berman), which would authorize $1.6 billion over three years, FY2008-FY2010, for the Mexico-Central America Mérida Initiative. In legislative action on H.R. 2642 , the second FY2008 supplemental appropriations measure, the House May-15 passed version of the bill included $400 million for Mexico and $61.5 million for Central America, Haiti, and the Dominican Republic. The Senate version of H.R. 2642 , as amended on May 22, 2008, provided $350 million for Mexico and $100 million for Central America, Haiti, and the Dominican Republic. Both versions had human rights conditions, some of which the Mexican government has objected to on the grounds that they would violate Mexico's national sovereignty. The final, June 30 enacted version of H.R. 2642 provides $465 million in FY2008 supplemental funding for the Mérida Initiative. Of that total, $400 million is for Mexico and $65 million (a slight increase from the earlier House bill) for Central America, Haiti, and the Dominican Republic. The compromise language in the House-amended bill reduces the amount of funding subject to human rights conditions, from 25% to 15%, and softens the language of those conditions. Domestic Programs In addition to funding for defense and international affairs, the Administration's original FY2008 supplemental request included a limited amount of funding for domestic programs, including counter-terrorism-related programs of the Justice Department particularly the FBI. Along with its regular FY2009 budget, the Administration requested emergency FY2009 appropriations of $5.8 billion for Gulf Coast hurricane protection measures carried out by the Corps of Engineers. Individual agencies, including the Census Bureau, the Federal Prison System, and the U.S. Marshals office, also reported shortfalls in funds to the appropriations committees. In action on the 2 nd FY2008 supplemental, H.R. 2642 , the House and Senate supplemental bills chambers provided requested funding for these programs. In addition, the Senate bill added $4.6 billion for hurricane and other disaster relief programs, $1.2 billion for a science R&D initiative across several agencies, $1 billion for low income energy assistance, $590 million for state and local law enforcement grants, and $400 million for Secure Rural Schools. Also, most significantly, both the House and the Senate approved three major measures that the Administration did not request. The are an expansion of veterans' educational benefits, initially estimated to cost $52 billion over the next ten years; extended unemployment benefits, initially estimated to cost a total of about $11 billion over ten years, net of reduced payments in future years; and a moratorium on new Medicaid rules that would reduce payments to the states, for which the House and Senate supplemental bills include $450 million in FY2008 and $1.15 billion in FY2009. The Senate bill also provides $80 million in FY2008 and $75 million in FY2009 for increases in the SCHIP children's health insurance program net of offsetting savings from limiting Medicare payments to new specialty hospitals. The following sections provide background on some of the major congressional additions. Expansion of Montgomery GI Bill Education Benefits23 Both the House- and Senate-passed bills included provisions that would enhance veterans' educational benefits. The benefit enhancements were based on the Post-9/11 Veterans Educational Assistance Act of 2008 ( S. 22 ), sponsored by Senator Webb, which has broad bipartisan support, with 56 co-sponsors in the Senate; and the House companion bill, H.R. 5740 , sponsored by Representative Mitchell, which has 261 cosponsors. S. 22 and H.R. 5740 would offer 36 months of tuition (limited to in-state tuition charged at the most expensive public institution in the state in which the veteran is enrolled), a monthly stipend to cover living expenses (based on average housing prices in the area in which the veteran is enrolled), and a $1,000 annual stipend for books and required educational expenses. Provisions for funds for tutorial assistance, licensing, and certification tests are also included. The bills would apply to active duty, Reserve, and National Guard members who serve some period of active duty beginning on or after September 11, 2001. Servicemembers and veterans who serve 36 months on active duty would be eligible for full benefits. Individuals who serve less than 36 months on active duty would be eligible for benefits calculated as a percentage of the total maximum benefits. The bills also establish a new program under which the government would match dollar for dollar (up to 50% of the tuition difference) any voluntary additional contributions to veterans from institutions whose tuition is more expensive than the maximum educational assistance provided under the bills. Differing views on the pros and cons of S. 22 were offered at a hearing before the Senate Committee on Veterans' Affairs on May 9, 2007. Senator Webb argued that S. 22 was comparable to the post-World War II GI bill, would lead to similar economic growth and expansion, and would also have a positive effect on military recruitment and on the readjustment experience of veterans. In the same hearing, Daniel Cooper, the Department of Veterans' Affairs (VA) Under Secretary for Benefits, stated the VA's opposition, criticizing the bill's complexity, cost, and administrative burden. He also argued that it might lead to lower rates of reenlistment in the military services. The Graham alternative An alternative to S. 22 and H.R. 5740 was proposed by Senator Graham on April 29, 2008. S. 2938 , the Enhancement of Recruitment, Retention, and Readjustment Through Education Act of 2008, proposed somewhat more limited increases in GI Bill educational benefits for servicemembers and veterans. For individuals with 12 or more years of active duty service, the benefits would be $1,650 per month in FY2009, in addition to a $500 annual stipend for books and supplies (for those attending on at least a half-time basis). As under the current Montgomery GI Bill (MGIB), servicemembers would have accept a pay reduction of $100 per month for the first 12 months of pay, the benefits would be for 36 months and would have to be used within 10 years of discharge or release from active duty, and provisions for tutorial assistance and licensing and certification tests are included. In addition, active duty servicemembers would be able to use up to $6,000 per year of educational benefits to repay federal student loans, and eligibility would be extended to certain individuals not currently eligible for MGIB, including service academy graduates and Senior Reserve Officers' Training Corps officers (under some conditions and with some stipulations). The bill also proposed a matching grants program, the 'College Patriots Grant Program,' in which up to an additional $3,000 per year could be paid by the Department of Veterans Affairs in return for schools, through the use of institutional or other non-federal aid, making a matching reduction in cost of attendance for a servicemember. Additionally, S. 2938 included a transferability of benefits provision. Servicemembers would be allowed to transfer up to half of their education benefits to dependents after six years of service and to transfer all of their education benefits after 12 years of service. Under existing law, the different service branches were authorized to operate limited transferability programs, but only the Army offers one at this time. The Army's program allowed servicemembers in designated critical skills areas with at least six years of service who re-enlist for at least four years to transfer up to 18 months, or half, of their educational benefits to dependents. President Bush proposed expanding the transferability of veterans' educational benefits to dependents in his State of the Union address and repeated it in his May 8 address commemorating Military Spouse Day. PAYGO, Military Retention, and Transferability Issues The GI bill enhancements became major issue in congressional consideration of the FY2008 supplemental, holding up action on the entire measure for some time. In the House, members of the Democratic "Blue Dog" caucus initially warned that they would not support a rule on the bill because the cost was not offset as the rules of the House required. At the beginning of the 110 th Congress, the new Democratic majority agreed to changes in House rules to require that increases in mandatory spending or cuts in revenues be paid for either by cuts in other mandatory programs or by increases in revenues. These requirements, which are based on provisions initially included in the Budget Enforcement Act of 1990, are known as "pay as you go" or PAYGO rules. The House leadership subsequently agreed to support an income tax surcharge as an offset to the costs of the bill. The Senate, however, did not concur. In addition, the Defense Department was consistently critical of the Webb and Mitchell bill because of concern that it might weaken retention of military personnel. Because the bill would provide full benefits to servicemembers after as little as 36 months of service, DOD officials feared the program would encourage personnel to leave for college rather than to reenlist in the military. Secretary of Defense Gates raised these issues in an April 29 letter to Senator Levin and in a Pentagon press conference on May 8, at which Chairman of the Joint Chiefs, Admiral Michael Mullen, echoed his concerns. In the May 8 press conference, Secretary Gates and Admiral Mullen both emphasized their preference, as well, for a bill that would permit servicemembers to transfer educational benefits to family members. On May 6, President Bush announced that he was sending legislation to Congress to permit benefit transfers as well. Congressional Action The May 15 House-passed version of the FY2008/FY2009 supplemental included expanded GI bill benefits as in the original Webb/Mitchell proposals. The bill also included a measure that would raise an estimated $52.3 billion in revenues through FY2008 by imposing a surcharge on the tax bills of individuals earning over $500,000 a year and couples earning over $1 million. The Senate approved a similar expansion of benefits in its May 22-passed version of the bill, but did not agree to an offsetting increase in revenues. Although House Blue Dog Democrats insisted on offsetting the cost of expanded GI Bill benefits it to the very end, the House leadership ultimately decided not to include offsets in the amendments brought to the floor on June 19—and only 12 Representatives voted against Amendment # 2 that included the GI Bill expansion. The final version of H.R. 2642 , as passed by the House on June 19 and the Senate on June 26, includes a version of the initial Webb/Mitchell expansion of veterans educational benefits, with a provision added to allow benefits to be transferred to spouses or other dependents, as the White House had urged. The inclusion of a transfer provision increased the estimated cost by $11.6 billion, to a total of $63.8 billion from FY2008 through FY2018. Hurricane Katrina Repairs and Coastal Louisiana Restoration The Administration's FY2009 budget included a request for $5.761 billion in emergency supplemental funds for the Army Corps of Engineers for hurricane protection programs on the Gulf Coast. The Corps is responsible for much of the repair and fortification of the hurricane protection system of coastal Louisiana, particularly in the greater New Orleans area. Since Hurricane Katrina, most of the Corps' work on the region's hurricane protection system has been funded through emergency supplemental appropriations, not through the annual appropriations process. Congress has provided about $7 billion in emergency funding to date. The Administration estimated that the $7 billion in previously appropriated funds were insufficient to complete required measures because of increased costs, improved data on costs, and other factors. The Corps anticipated that available funds would be used by the end of FY2008, but that much remaining work was required to reduce the hurricane flooding risk to the New Orleans area to a 100-year level of protection (i.e., 1% probability of flooding in any given year) and to restore and complete hurricane protection in surrounding areas to previously authorized levels of protection by 2011. Congressional Action The House and Senate differed significantly on emergency funding for hurricane related programs. Both bills provided $5.761 billion in emergency FY2009 funding for the Corps of Engineers, as the Administration requested. The Senate-passed bill provided $4.6 billion in net additional funding for hurricane and other natural disaster-related programs. Senate additions included $3.0 billion more than requested for the Corps of Engineers, $500 million for wildland fire fighting, $451 million for the Emergency Highway Relief program, $350 million for emergency Medicare and Medicaid services, and $146 million, offset by rescissions, for housing programs and community development block grants. After the Senate approved its version of the supplemental on May 22, large rain storms caused extensive flooding in many parts of the Midwest. In response, the White House informally urged Congress to add $1.8 billion or more to the supplemental to replenish emergency accounts expected to be depleted by flood-related federal relief and recovery expenditures. The House added about $2.7 billion for flood relief to the June 19-passed version of the bill, which the Senate approved on June 26 and the President signed on June 30. The final bill did not, however, included the $4.6 billion that the Senate had added. The final bill provides $8.4 billion for disaster relief, as opposed to $5.8 billion in the request and the initial House bill and $10.4 billion in the Senate May 22-passed bill. The Census and Other Domestic Issues Several other, smaller domestic programs also received funding in the pending supplemental. Decennial Census As a result of newly discovered difficulties with equipment planned to be used in various aspects of the 2010 Decennial Census, the Census Bureau faced substantial shortfalls in funding for FY2008. At hearings, the Secretary of Commerce stated that the shortfall for FY2008 would be between $160-$230 million, which the agency proposed to pay for through internal transfers within the Department of Commerce. Both the House- and Senate-passed supplemental bills provided $210 million in emergency FY2008 supplemental appropriations for the Bureau of the Census, and that amount is included in the final, enacted bill. Other additions Other agencies also reported shortfalls of funds to the appropriations committees. The initial May 15 House-passed bill included $178 million to make up shortfalls in the federal prison system, and the May 22 Senate-passed bill included that amount and also added $50 million for the Federal Marshals Service and $275 million for Food and Drug Administration enforcement activities. The final, enacted bill includes $178 million for prisons and $150 million for the FDA. Other Senate Additions of Funding for Domestic Programs In all, excluding FY2008 and FY2009 costs of extended unemployment compensation, enhanced GI Bill education benefits, and the delay of Medicaid rules, the May 15 House-passed bill included $6.6 billion for domestic programs, the May 22 Senate-passed bill $15.1 billion, and the final, enacted bill $10.3 billion. Of the Senate additions to the House bill, $4.6 billion was for disaster recovery programs. The remaining Senate additions included a $1.2 billion science initiative that provides $200 million for the NASA return to flight program, $200 million for the National Science Foundation, $400 million for Department of Energy defense and non-defense cleanup and science programs, and $400 million for the National Institutes of Health, $1 billion for the Low-Income Heating Emergency Assistance Program (LIHEAP); $590 million for state and local law enforcement assistance grants; $400 million for the Secure Rural Schools homeland security program. The final, enacted bill included $2.7 billion more than the initial request and the initial House bill for disaster recovery. That amount was for accounts expected to be used in response to Midwest floods. The final bill also added to the initial House bill $400 million for science programs, and, as noted earlier, $150 million for the Food and Drug Administration. In all, however, the final bill did not included nearly as much as the Senate bill for unrequested domestic programs. Appendix A. Status of FY2008 Supplemental Funding Through December 2007 Status of FY2008 Supplemental Funding During the first session of the 110 th Congress, which ended on December 31, 2007, the Administration requested $196.5 billion in emergency supplemental appropriations for Fiscal Year (FY) 2008, including $189.3 billion for military operations, $6.9 billion for international affairs, and $325 million for other purposes. Through the end of December, Congress had approved $86.8 billion of the total requested for defense and $2.4 billion for international affairs, of which the State Department calculated that $1.5 billion was for requested programs. Of the President's total emergency request, $102.5 billion for defense and $5.4 billion for international affairs remained outstanding. For defense, much of the remaining requested funding was to repair, replace, and upgrade weapons and other equipment used in the war. For foreign operations, remaining funding included additional sums for reconstruction assistance to Iraq and Afghanistan and for a major new counter-narcotics initiative in Mexico and Central America. For State Department operations, outstanding requests included additional amounts for Diplomatic and Consular Program security upgrades and for Contributions to International Peacekeeping Activities in Darfur and elsewhere. Congressional Action on FY2008 Supplemental Appropriations Through December 2007 Administration Requests Between February and October of 2007, the Administration submitted requests for FY2008 emergency supplemental appropriations in three blocks. Along with the regular FY2008 budget that the White House sent to Congress on February 5, 2007, the Administration requested $141.7 billion in emergency supplemental funding for the Defense Department, $3.3 billion for the State Department and international affairs, and $325 million for other agencies. By submitting the defense request along with the President's FY2008 budget, the Administration complied with Section 1008 of the FY2007 national defense authorization act ( P.L. 109-364 ), which required the President's budget to included a request for estimated full year costs of operations in Iraq and Afghanistan and a detailed justification of the funds. The request constituted a Defense Department estimate of the full year costs of continuing operations in Iraq and Afghanistan at about the same pace as in 2006. The Defense Department acknowledged, however, that the estimate was only a rough, straight-line projection of current costs. By the time the budget was submitted, the Administration was proposing a surge in troops to Iraq that was not reflected in the budget, and it was expected that the Administration would later provide revised cost projections. These were submitted in October. On July 31, 2007,the White House requested an additional $5.3 billion for the Department of Defense to procure, outfit, and deploy 1,520 Mine Resistant Ambush Protected (MRAP) vehicles for the Army and Marine Corps. On October 22, 2007, the President proposed an amendment to the FY2008 budget requesting an additional $45.9 billion in emergency funding for military operations, economic and reconstruction assistance, embassy security, and other activities mainly related to ongoing conflicts in Iraq, Afghanistan, and elsewhere. The request included $42.3 billion for the Department of Defense for military operations and $3.6 billion for international affairs programs. In all, the Administration requested $195.6 billion in emergency supplemental appropriations for FY2008, mainly for military operations in Iraq, Afghanistan and elsewhere and for related foreign affairs programs. Congressional Action Congressional action on FY2008 emergency supplemental funding began in earnest in September 2007 and was not completed until shortly before Christmas. At the end of September, Congress included $5.2 billion in emergency funding for Mine Resistant Ambush Protected (MRAP) vehicles ($5.3 billion was requested in July) in a provision attached to the first FY2008 continuing resolution, H.J.Res. 52 , that the President signed on September 29, P.L. 110-92 . On November 8, 2007, the House and Senate approved a conference agreement on the FY2008 defense appropriations bill, H.R. 3222 , and the President signed the bill into law, P.L. 110-116 , on November 13. The measure provided $460 billion for baseline Defense Department activities in FY2008, including $27.4 billion for Army and $4.8 billion for Marine Corps operation and maintenance, which may be used to finance both peacetime activities and military operations abroad. The bill also provided an additional $11.6 billion in emergency funding for MRAP vehicles. Except for the MRAP money, however, the bill did not include funding to cover additional costs associated with ongoing military operations in Iraq, Afghanistan, and elsewhere. On November 14, 2007, by a vote of 218-203, the House approved the "Orderly and Responsible Iraq Redeployment Appropriations Act, 2008," H.R. 4156 , providing $50 billion for U.S. military operations in Iraq, Afghanistan, and elsewhere. The bill included enough money in Army and Marine Corps operating accounts to sustain military operations in Iraq and elsewhere through about April 2008. It also (1) required the President to commence the withdrawal of U.S. forces from Iraq within 30 days of enactment of the legislation and to provide within 60 days a plan for withdrawing most troops from Iraq by December 15, 2008; (2) limited the mission of remaining U.S. forces in Iraq to force protection, training, and pursuit of international terrorists; (3) prohibited deployment of units that are not fully trained and equipped; and (4) extended prohibitions on torture to all U.S. government agencies. On November 16, 2007, by a vote of 53-45, with 60 votes required, the Senate refused to close debate on a motion to proceed to consideration of H.R. 4156 as passed by the House, effectively killing the measure. The Senate also rejected, by a vote of 45-53, a motion to proceed to consideration of H.R. 2340 , a substitute offered by Senator McConnell, to provide $70 billion for the Defense Department without requiring withdrawal from Iraq. (Ultimately, however, with some revisions in the allocation of funds, the McConnell amendment was approved as part of the final consolidated appropriations act—see below.) Meanwhile, in a November 15, 2007, Pentagon press conference, Secretary of Defense Robert Gates warned that the Army and Marine Corps would have to begin implementing steps to limit operations unless Congress approved additional funding very soon. Without additional money, he said, the Army would have to cease operations at all Army bases by mid-February 2008, which would require furloughs of about 100,000 government employees and a like number of contractor personnel. Plans would have to begin to be implemented in mid-December, he said. On November 20, the Defense Department announced that it was transferring $4.5 billion to the Army and to the Joint IED Defeat Organization to extend their operations. The Army, DOD said, would only be able to operate with available funds, including the transfer, until February 23, 2008. Senior defense officials continued to warn that the Army and Marine Corps would have to halt all but essential operations very soon unless Congress approved additional funding. On December 17, 2007, the House brought up the foreign operations appropriations bill, H.R. 2764 , that had earlier been passed by the House and then amended by the Senate, as a vehicle for FY2008 "omnibus" or "consolidated" appropriations. The House approved two amendments to the Senate-passed bill. The first amendment, approved by a vote of 253-154, struck the Senate foreign operations language and inserted the text of conference agreements on 11 of the 12 FY2008 appropriations bills. In all, it provided $485 billion in regular and emergency appropriations for programs covered by all of the regular, annual appropriations bills except for defense, for which appropriations had already been enacted. The second amendment, approved by a vote of 206-201, provided $31 billion in emergency defense appropriations, mostly restricted to Operation Enduring Freedom (OEF), which encompasses operations in Afghanistan and elsewhere, excluding Iraq. Funding for Army and Marine Corps operation and maintenance was made available only for OEF, except for amounts for force protection that could be allocated to any area. On December 18, 2007, the Senate took up the House-passed consolidated appropriations bill and, by a vote of 70-25, adopted an amendment by Senator McConnell to delete the House-passed $31 billion for OEF and to provide, instead, $70 billion in emergency supplemental appropriations for the Department of Defense for overseas operations, without limits on where the money could be used and without requiring a withdrawal of forces from Iraq. On December 19, 2007, the House considered H.R. 2764 as amended by the Senate. By a vote of 272-142, the House approved a motion to agree to the Senate amendment to the House-passed bill, thus clearing the measure for the President. The President signed the bill into law, P.L. 110-161 , on December 26. Remaining FY2008 and Additional FY2009 Defense Request The Administration requested a total of $189.3 billion in emergency FY2008 supplemental appropriations for the Department of Defense. Through December 2007, Congress had approved $86.8 billion, which leaves $102.5 billion still pending. Since December, the Defense Department has made some adjustments in its budget request. Table 1 shows by title and account (1) total FY2008 supplemental funding requested for DOD through the October 22, 2007, budget amendment; (2) the amount Congress has approved to date; (3) adjustments to the remaining amounts that the Defense Department proposed—though not with a formal budget amendment—as of the end of March, 2008, and (4) the remaining adjusted DOD budget request. In preparing a bill to provide remaining FY2008 defense funds, the congressional appropriations committees decided to add a "bridge fund" for FY2009 that would provide enough money to sustain both day-to-day peacetime activities and war-related operations until well into calendar year 2009. This would leave it to the next Administration to decide what it will request in total supplemental funding to cover war costs based on any planned changes in strategy. The committees discussed with the Defense Department how to allocate funds among accounts so as to sustain critical operations through about June of 2009. On May 2, the Office of Management and Budget formally sent Congress a request for $70 billion in FY2009 supplemental funding, of which $66 billion was for defense and intelligence and $4 billion was for international affairs. Along with the pending FY2008 supplemental request, Table A -1 shows the breakdown of the May 2 Administration request for a $66 billion defense bridge fund. CRS calculates that a bridge fund of about $57 billion, if allocated by account to maximize the amount of time critical operating accounts would last, could allow the services to operate through the end of July, 2009, at DOD's planned monthly rates of obligations. Appendix B. Summary Funding Tables

On June 30, 2008, President Bush signed into law a bill, H.R. 2642 (P.L. 110-252), that makes supplemental appropriations for FY2008 and FY2009, extends unemployment payments, and expands veterans' educational benefits. The House approved the measure on June 19 and the Senate on June 26. As enacted, the bill reflects compromises with the White House on several key issues. It extends unemployment benefits for 13 weeks but not 26, allows veterans' educational benefits to be transferred to dependents, does not include an offsetting tax increase, limits other domestic spending, and delays implementation of six, rather than seven, new Medicaid rules. The amended bill also drops most Iraq-related policy provisions that had been in earlier versions. In all, the bill provides $183.5 billion in supplemental appropriations, including $2.65 billion of newly added funds to respond to Midwest floods. Extended unemployment benefits are estimated to cost a net of $10 billion over ten years and enhanced veterans educational benefits $63 billion. Earlier, the House approved an initial version of the bill on May 15, 2008. Procedurally, the House took up H.R. 2642, a bill on a different topic, and considered three amendments. By a vote of 141-149, with 132 Republicans voting "present," the House rejected an amendment providing $162.5 billion in FY2008 and FY2009 for military operations. It adopted a second amendment setting out Iraq-related policies, including a requirement that combat forces be withdrawn from Iraq within 18 months. And it approved a third amendment to expand veterans' educational benefits offset by a tax surcharge; extend unemployment compensation; delay new Medicaid regulations; and provide $21 billion in supplemental appropriations. On May 22, 2008, the Senate approved an amended version of the bill providing $194 billion in supplemental funding. The Senate-passed bill included $162.5 billion for defense and about $8 billion more than the House bill for domestic programs. The bill expanded veterans' educational benefits without an offset and limited Medicare payments to new specialty hospitals. On key roll calls, the Senate rejected by 34-63 an amendment to provide defense funding and to establish Iraq-related policies; approved by 75-22 an amendment to provide defense funding without policy restrictions; and approved by 70-26 an amendment to fund domestic, international affairs, and military construction programs. During its first session, the 110th Congress approved FY2008 emergency supplemental appropriations of $86.8 billion for the Department of Defense and $2.4 billion for international affairs. This left unresolved Administration requests for $102.5 billion for defense and $5.4 billion for international affairs. For congressional action on FY2008 supplemental funding through December 2007, see CRS Report RL34278, FY2008 Supplemental Appropriations for Global War on Terror Military Operations, International Affairs, and Other Purposes, which will not be updated further. This CRS report, RL34451, reviews congressional action on remaining FY2008 and additional FY2009 supplemental funding.

The Federal Response to a Flu Pandemic A flu pandemic is a worldwide epidemic of an influenza virus. As such, the United States' response to a flu pandemic would have both international and domestic components. Additionally, the domestic response effort would depend upon contributions from every governmental level (local, state, tribal, and federal), non-governmental organizations, and the private sector. This report will focus largely on the role of the Department of Defense (DOD) in supporting the nation's domestic response effort, although it will also touch on DOD's international role. The National Response Framework The federal response to a flu pandemic would be broadly shaped by statute and executive branch plans and policies. Statutes such as the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act), the Public Health Service Act, and other public health emergency authorities permit the federal government to provide various forms of assistance to eligible applicants, including state and local governments, non-profit organizations and individuals. While these statutes authorize the federal government to provide assistance, the manner in which the array of federal agencies provide that assistance in coordination with other levels of government, non-governmental organizations, and the private sector is guided by an executive branch planning document known as the National Response Framework (NRF). The NRF "is a guide to how the Nation conducts all-hazards response." Among other things, it establishes broad lines of authority for federal government agencies to prepare for and respond to any terrorist attack, major disaster, or other emergency (i.e., "all-hazards"). Under the NRF, the Secretary of State is responsible for "managing international preparedness, response and recovery activities relating to domestic incidents and the protection of U.S. citizens and U.S. interests overseas." The Secretary of Homeland Security is "the principal Federal official for domestic incident management...[and is] responsible for coordination of Federal resources utilized in the prevention of, preparation for, response to, and recovery from terrorist attacks, major disasters, and other emergencies." However, the Secretary of Health and Human Services (HHS) "leads all Federal public health and medical response to public health emergencies and incidents covered by the NRF." Given the centrality of public health and medical response during a flu pandemic, HHS would be the primary response agency for the domestic response, even while DHS coordinates the overall domestic response effort. The role of the Department of Defense (DoD) in supporting domestic response efforts under the NRF is potentially significant, while recognizing certain limits due to the Department's principal mission of national defense: The primary mission of the Department of Defense (DOD) and its components is national defense. Because of this critical role, resources are committed after approval by the Secretary of Defense or at the direction of the President. Many DOD components and agencies are authorized to respond to save lives, protect property and the environment, and mitigate human suffering under imminently serious conditions, as well as to provide support under their separate established authorities, as appropriate. The provision of defense support is evaluated by its legality, lethality, risk, cost, appropriateness, and impact on readiness. When Federal military and civilian personnel and resources are authorized to support civil authorities, command of those forces will remain with the Secretary of Defense. DOD elements in the incident area of operations and National Guard forces under the command of a Governor will coordinate closely with response organizations at all levels. A more thorough discussion of the types of support DoD might be called upon to provide to civil authorities, and the process whereby such support can be requested, occurs later in this report. The National Strategy for Pandemic Influenza While the NRF provides an "all-hazards" response framework, the federal government also has a strategic plan which specifies in more detail precisely how it will prepare for and respond to a flu pandemic within the context of the NRF. The National Strategy for Pandemic Influenza ( hereafter National Strategy) provides an overarching outline of how the federal government will prepare for, detect and respond to a such an event. It is based on three "pillars": preparedness and communications; surveillance and detection; and response and containment. A related document, the National Strategy for Pandemic Influenza Implementation Plan ( hereafter Implementation Plan) , details the specific actions and policy decisions which will be needed to execute this strategy and bring all the resources of the federal government to bear in a coordinated manner. Like the NRF, it affirms that the Secretary of State would be responsible for the coordination of the international response, the Secretary of Homeland Security would have overall responsibility for the federal government's response to a pandemic, and the Secretary of Health and Human Services would be responsible for the "overall coordination of the public health and medical emergency response during a pandemic...." It describes the role to the Secretary of Defense as follows: The Secretary of Defense will be responsible for protecting American interests at home and abroad. The Secretary of Defense may assist in the support of domestic infrastructure and essential government services or, at the direction of the President and in coordination with the Attorney General, the maintenance of civil order or law enforcement, in accordance with applicable law. The Secretary of Defense will retain command of military forces providing support. Subsequently, the Implementation Plan assigns some 300 tasks to various federal agencies. For each of these tasks, a lead federal agency is identified and, if need be, supporting agencies as well. The Role of the Department of Defense A DoD analysis of the Implementation Plan identified 31 tasks which were assigned primarily to DoD and 83 which were assigned to other agencies with DoD in a supporting role. Of the tasks assigned primarily to DoD, most were related to one of these four objectives: Assisting in disease surveillance Assisting partner nations, particularly through military-to-military assistance Protecting and treating US forces and dependents Providing support to civil authorities in the United States Each of these general objectives is discussed in more detail below. Disease Surveillance The Department of Defense plays an important role in detecting and tracking diseases. Given the wide dispersal of U.S. military forces around the globe, the Department of Defense has long maintained a system for detecting infectious diseases in order to maintain intelligence on possible threats to force readiness. DoD conducts continuous worldwide influenza surveillance at domestic laboratories as well as at military installations around the world. More than a dozen different DOD entities cooperate with each other, foreign militaries, and some nonmilitary organizations in a complex arrangement that allows global surveillance of emerging infections. International cooperation is important due to the rapid transmission of disease made possible by high levels of global travel. DOD policy is designed to provide for detection capabilities at the lowest possible organizational level. The Institute of Medicine reviewed DOD's global influenza surveillance network in 2007 and issued a mainly favorable assessment, although the Implementation P lan required the Department of Defense to improve its capacity to detect and monitor new influenza strains, and to enhance its ability to share information with international organizations and agencies. DOD's influenza surveillance programs actively coordinate with the Centers for Disease Control and Prevention, Food and Drug Administration, and World Health Organization. Partner Nation Assistance Under the Implementation Plan , the Secretary of State is responsible for the coordination of the international response, including ensuring that other nations join us in our efforts to contain or slow the spread of a pandemic virus, helping to limit the adverse impacts on trade and commerce, and coordinating our efforts to assist other nations that are impacted by the pandemic. However, DoD has well-developed relationships with key leaders in many nations -- particularly with respect to foreign military officers and defense officials – and it also has expertise and capabilities that could be useful to the efforts of foreign governments to detect and contain a pandemic. As such, the Implementation Plan directed DoD to conduct a number of actions, in coordination with the Department of State and other appropriate agencies, to assist partner nation militaries in preparing for a pandemic. Examples of this type of assistance include assessing the preparedness and response plans of foreign militaries, validating these response plans with military-to-military exercises, conducting training programs to improve military infection control and case management, and assessing the capacity of foreign military labs and response teams. The Implementation Plan also directed DoD to support the Department of State in providing U.S. response capabilities to international response efforts. Examples of this type of support would include participating in investigative or technical assistance teams, or delivering countermeasures to affected countries. Additionally, if the Secretary of Defense approves a request from another federal agency for such support or if the President so directs, DoD may support containment operations or stability operations in another nation. Protecting and Treating U.S. Forces and Dependents In responding to an influenza pandemic, the Department of Defense would place a very high priority on protecting DoD personnel, including uniformed military servicemembers, DoD civilian employees, and contractors performing critical roles. The rationale for this is based on the national security implications of a virus disabling a sizable proportion of the DoD workforce. For example, an influenza pandemic could conceivably render naval ships unable to perform missions, shut down training and support activities on major bases, seriously degrade security at critical sites, and break the supply chain that sustains forward deployed forces. The Implementation Plan states: The primary responsibility of DOD is to preserve national security by protecting American forces, maintaining operational readiness, and sustaining critical military missions. DOD's first priority with respect to protecting human health will be to ensure sufficient capability to provide medical care to DOD forces and beneficiaries. DOD can provide medical, public health, transportation, logistical, communications, and other support [to non-DOD beneficiaries] consistent with existing legal authorities and to the extent that DOD's National Security preparedness is not compromised. In addition to conducting world-wide surveillance of potential disease threats (discussed previously), DoD protects its workforce through preparedness, communication, and medical response. Preparedness Preparedness includes acquisition and prepositioning of vaccines, medicines, and other supplies. For example, DOD reports having 8.2 million treatment courses of Tamiflu on hand. With respect to the current H1N1 flu outbreak, testing to date shows the virus is susceptible to the antivirals Tamiflu and Relenza. However, over time, increasing resistance is a possibility. DOD also reports that it has an 80-day supply of personal protective equipment (gowns, masks, and gloves) for medical providers. Although at this time there is no vaccine available for H1N1, DOD has policies and organizations, such the Army's Military Vaccine Agency (MILVAX), in place to issue vaccination policies and guidance and to coordinate with the Department of Health and Human Services in acquiring vaccines when they are available. In general, it is DOD policy to follow the immunization recommendations of the Centers for Disease Control and Prevention and its Advisory Committee for Immunization Practices consistent with requirements and guidance of the Food and Drug Administration and consideration for the unique needs of military settings and exposure risks. Communications With respect to communications, DOD has developed both passive and active channels for disseminating relevant guidance and information. DOD established a medical "watch board" web site ( http://fhp.osd.mil/aiWatchboar d /dodleadership.jsp ) to provide the up-to-date information and links to other sources of information. The Assistant Secretary of Defense for Health Affairs maintains three other websites tailored to different audiences with the DOD community. DOD's influenza pandemic policies anticipate the need for flexibility as circumstances change, such that, for example, if a shortage of antiviral medications were encountered, treatment priority categories could be identified and implemented. On April 24, 2009, NORTHCOM issued a force health protection advisory including guidance for North America that included general influenza risk reduction measures. Medical Response If a servicemember or other eligible person becomes infected, the military health system operates both direct care and purchased care systems through which he or she may receive treatment. The direct care system's primary objectives are first, to support the national security mission and second, to provide beneficiaries enrolled in the Tricare Prime and Tricare Plus programs with primary care at military treatment facilities. The purchased care system, consisting of three regional Tricare contract providers, allows beneficiaries using the Tricare Standard program to access care from civilian providers. Defense Support of Civil Authorities During a serious flu pandemic, there is a strong possibility that local, state, and federal responders will request assistance from the Department of Defense. DoD has a broad range of capabilities that could be useful to civil authorities in emergency situations, including transportation assets, medical personnel and supplies, security forces, and communications equipment The NRF and the Implementation Plan refer to this type of assistance as Defense Support of Civil Authorities (DSCA), while DoD often refers to it as Civil Support (CS) or Military Assistance to Civil Authorities (MACA). This report will follow the NRF terminology unless otherwise specified. Examples of Defense Support Which Civil Authorities Might Request During a Flu Pandemic The types of defense support which would likely be in greatest demand during a flu pandemic are contained in the Implementation Plan and the NRF's Emergency Support Function (ESF) # 8, Public Health and Medical Response Annex . A review of these documents indicates an anticipated demand for the types of support from DOD listed below. Note, however, that DOD's ability to support these requests would be limited by its national defense and force protection responsibilities. providing disease surveillance and laboratory diagnostics transporting response teams, vaccines, medical equipment, supplies, diagnostic devices, pharmaceuticals and blood products treating patients evacuating the ill and injured processing and tracking patients providing base and installation support to federal, state, local, and tribal agencies controlling movement into and out of areas, or across borders, with affected populations supporting law enforcement supporting quarantine enforcement restoring damaged public utilities providing mortuary services Mechanisms for Providing DSCA The two principal ways in which such support could be provided are by way of an "immediate response," or in response to a formal "request for assistance" (RFA). Additionally, in extreme circumstances the federal government may expedite or suspend the RFA process and initiate a "proactive federal response." Immediate Response Certain defense officials can provide DSCA in a limited manner using "immediate response" authority. Immediate response authority enables local military commanders and certain DOD civilians to act immediately "to save lives, prevent human suffering, or mitigate great property damage" when they receive a request from a civil authority and "[w]hen such conditions exist and time does not permit prior approval from higher headquarters." Assistance provided under this authority might include providing medical care, restoring critical public services, distributing food and other supplies, and disposing of the dead. However, commanders using this authority are obligated to seek approval or authorization through their chain of command as soon as possible. It is therefore likely that this authority would only be used if the onset of a flu pandemic were abrupt and unanticipated. Providing DSCA in this manner would typically be limited to the fairly short period of time, until a more systematic federal response could be undertaken within the context of the NRF and the Implementation Plan . Once that occurred, support would normally be provided in response to an RFA. Responding to a Request for Assistance One of the tenets of the NRF is "tiered response." Tiered response means that the response to any emergency should be "managed at the lowest possible jurisdictional level and supported by additional capabilities when needed." This means that response efforts typically begin at the local level and, if the need arises, support is requested from neighboring jurisdictions, the state, or the federal government. The federal government has a number of broad statutory authorities it can use to assist state, local, and tribal governments in responding to such requests. This assistance typically takes the form of funding, personnel, equipment, supplies, services, facilities, information and technical assistance. In the event of a flu pandemic, the federal government would establish one or more operational response centers to coordinate the federal response. State, local, or tribal entities would submit their RFAs to the designated response center. The lead federal agency – either HHS for public health and medical response requests or DHS for all other requests -- would receive these requests and attempt to fill them by drawing on the full range of assets and capabilities available throughout all the federal agencies. Those RFAs which needed DoD assets would be forwarded to the Defense Coordinating Officer (DCO), who serves as the single point of contact for DOD resources for other government agencies in the center. The DCO would be responsible for "processing requirements for military support, forwarding mission assignments to the appropriate military organizations through DOD-designated channels, and assigning military liaisons, as appropriate, to activated [Emergency Support Functions]." The DCO would submit any such requests to the Office of the Secretary of Defense, where they would be evaluated by the Assistant Secretary of Defense for Homeland Defense and Americas' Security Affairs (ASD/HD & ASA) according to the following criteria: legality, readiness, lethality, risk, cost, and appropriateness. This would be done on an expedited basis and then forwarded to the Secretary of Defense for approval. The Secretary of Defense has the principal authority for approving DSCA requests. His office retains approval authority for all requests for assistance from civilian agencies and retains control of all DOD assets provided. Once the Secretary of Defense approved the requests, they would be forwarded to the Joint Director of Military Support within the Joint Staff, who in turn would provide the appropriate orders to NORTHCOM. (See Figure 1 ). U.S. Northern Command (NORTHCOM) has the operational responsibility for providing DSCA for most of the United States. It carries out the DSCA missions approved by the Secretary of Defense with forces assigned as required from all the armed services, typically through the creation of a joint task force. Although NORTHCOM has had an Army brigade assigned to it since October 1, 2008, it probably would not be used to conduct DSCA missions in support of a pandemic flu response. Rather, additional forces would be assigned to NORTHCOM to conduct approved DSCA missions. These additional forces could include units from multiple military services and could include activated members of the National Guard and Reserve. Note, however, that National Guard forces remain under the control of their respective governors unless ordered into federal service. Current DOD plans do not anticipate the mobilization of Reserve or National Guard personnel . This topic is discussed in more detail later in the report. Proactive Federal Response The NRF provides for a proactive federal response to a "catastrophic incident." If a flu pandemic were severe enough – that is, if it caused extraordinary levels of death or illness which had severe societal impacts -- it could qualify as a catastrophic incident. A proactive response would allow for the prepositioning of federal assets in anticipation of state, local, or tribal requests for assistance; it would also permit the federal government to take charge of coordinating the response if the affected state, local, or tribal governments were unable to do so. Key guidelines for a proactive federal response are quoted below: •The primary mission is to save lives, protect property and critical infrastructure, contain the event, and protect the national security. •Standard procedures outlined in the NRF regarding requests for assistance may be expedited or, under extreme circumstances, temporarily suspended in the immediate aftermath of an incident of catastrophic magnitude, pursuant to existing law. •Pre-identified Federal response resources are mobilized and deployed, and, if required, begin emergency operations to commence life-safety [sic] activities. •Notification and full coordination with States occur, but the coordination process should not delay or impede the rapid mobilization and deployment of critical Federal resources. As indicated by the above, if a flu pandemic were severe enough to qualify as a catastrophic incident, the DoD response could be anticipatory in nature. This anticipatory response would likely conform to the general requirements contained in the NRF Catastrophic Incident Annex, which specifies that DoD would be expected to "provide capabilities in the following support categories: aviation, communication, defense coordinating officer/defense coordinating element, medical treatment, patient evacuation, decontamination, and logistics." If possible, the standard RFA process would be used with DHS or HHS submitting requests to DoD. However, this process could be expedited or even temporarily suspended in certain circumstances. The Role of the Reserves and National Guard The Difference Between the Reserves and the National Guard Although the term "reserves" is often used as a generic term to refer to all members of the seven individual reserve components, there is an important distinction between the five reserve components which are purely federal entities (the Army Reserve, Navy Reserve, Marine Corps Reserve, Air Force Reserve, and Coast Guard Reserve) and the two reserve components which are both federal and state entities (the Army National Guard and the Air National Guard). In this context, the purely federal reserve components are sometimes referred to collectively as the Reserves, while the dual federal/state reserve components are referred to collectively as the National Guard. The Reserves are of comparatively recent origin, having all been established in the 20 th century. They were organized under Congress' constitutional authority "to raise and support Armies" and "to provide and maintain a Navy." The National Guard has a much longer historical pedigree. It is descended from the colonial era militia which existed prior to the adoption of the Constitution. The Constitution does, however, contain provisions that recognize the existence of the militia and that give the federal government a certain amount of control over it. Unlike the Reserves, which are exclusively federal organizations, the National Guard is usually both a state and a federal organization. The National Guard of the United States is made up of 54 separate National Guard organizations: one for each state, and one each for Puerto Rico, Guam, the U.S. Virgin Islands, and the District of Columbia. While the District of Columbia National Guard is an exclusively federal organization and operates under federal control at all times, the other 53 National Guards operate as state or territorial organizations most of the time. In this capacity, each of these 53 organizations is identified by its state or territorial name (e.g., the California National Guard or the Puerto Rico National Guard), and is controlled by its respective governor. Due to their dual federal and state role, National Guardsmen can be called to duty in several different ways, which will be discussed later in this report. Activating the Reserves for Pandemic Flu Response Current DOD plans do not anticipate mobilizing the Reserves to respond to a flu pandemic. However, these plans could be modified if circumstances warranted (for example, if the severity of the pandemic significantly exceeded DOD's planning assumptions). Members of the federal reserves are always activated under Title 10 of the U.S. Code. Therefore, they always operate under the control of the President, receive federal pay and benefits, and are subject to the Posse Comitatus Act in the same way that active duty military personnel are. There are a number of statutory authorities that can be used to activate members of the reserves, but the one most likely to be used in a flu pandemic would be 10 USC 12302. This authority may be used "in time of national emergency declared by the President...or when otherwise authorized by law," and permits the President to involuntarily activate up to one million members of the Ready Reserve for up to 24 consecutive months. Activating the National Guard for Pandemic Flu Response National Guard personnel would almost certainly be involved in state efforts to respond to a flu pandemic as members of their state militia under the control of their governor. Current DOD plans do not anticipate calling the National Guard into federal service to respond to a flu pandemic. However, as with the case of the federal reserves, these plans could be modified if circumstances warranted it. DOD policy guidelines currently specify that, if Reserve Component medical personnel are required to respond to a flu pandemic, the military services are to "use [federal] Reserve forces first, leaving National Guard forces to be available to meet their state-based missions." Members of the National Guard can be activated under state law, under Title 32 of the U.S. Code, and under Title 10 of the U.S. Code. Depending on which authority it used, the duty status of National Guard members is characterized as State Active Duty, Title 32 status, and Title 10 status. A brief discussion of each status is provided below. State Active Duty Normally, the National Guard operates under the control of state and territorial governors. As part of a state-level response to a flu pandemic, governors could order their National Guard personnel to perform full-time duty under state law. This is commonly referred to as "state active duty." In this state capacity, National Guard personnel operate under the control of their governor, are paid according to state law, can assist civil authorities in a wide variety of tasks, and are not subject to the restrictions of the Posse Comitatus Act (that is, they can perform law enforcement functions). "Title 32" Status Another way in which National Guard personnel can be activated and remain under the control of their governor is under the authority of 32 U.S.C. 502(f). This provision of federal law provides that "a member of the National Guard may...without his consent, but with the pay and allowances provided by law...be ordered to perform training or other duty in addition to [inactive duty for training or annual training]." The advantage of using this authority is that the National Guard personnel called will receive federal pay and benefits and are entitled to certain legal protections as though they were in federal service, but they remain under the control of their governor and are therefore not subject to the restrictions of the Posse Comitatus Act. This is the provision of law which was used to provide federal pay and benefits to the National Guard personnel who provided security at many of the nation's airports in the aftermath of the terrorist attacks of September 11, 2001. It has also been used to respond to major disasters such as Hurricane Katrina in 2005. Federal Status National Guard personnel can also be activated in a purely federal status. The authorities used to do this include all of the Title 10 authorities discussed in footnote 50 . When in this federal status, National Guard personnel serve under the control of the President, receive federal pay and benefits, and are subject to the Posse Comitatus Act in the same way that active duty military personnel are. National Guard personnel can also be called into federal service under 10 USC 331-335 and 12406. If called up under one of these authorities, National Guard personnel would operate under the control of the President, receive federal pay and benefits, and could perform law enforcement duties. Considerations When considering the federal activation of the Reserves and National Guard, one important consideration is the impact this would have on state, local, or tribal response efforts that are already ongoing. For example, the activation of Reserve and National Guard medical personnel may pull them out of local hospitals where they are already engaged in the response effort, thereby undermining state and local response efforts. Such activations are a particular concern with respect to National Guard personnel, who often constitute a large portion of a state's emergency response force. Another important factor to consider when federalizing National Guard forces is the impact of the Posse Comitatus Act. While they remain in a state status (either state active duty or Title 32 status), National Guard personnel are not covered by the Act and therefore are a valuable tool for state governors in maintaining public order. Federalization of the National Guard generally brings them under the restrictions of the Act and thereby limits their utility for law enforcement purposes.

A flu pandemic is a worldwide epidemic of an influenza virus. As such, the United States' response to a flu pandemic would have both international and domestic components. Additionally, the domestic response effort would include contributions from every governmental level (local, state, tribal, and federal), non-governmental organizations, and the private sector. This report will focus largely on the role of the Department of Defense (DOD) in supporting the nation's domestic response effort, although it will also touch on DOD's international role. The Department of State would lead the federal government's international response efforts, while the Department of Homeland Security and the Department of Health and Human Services would lead the federal government's domestic response. The Department of Defense would likely be called upon to support both the international and domestic efforts. An analysis of the tasks assigned by the National Strategy for Pandemic Influenza Implementation Plan indicates that DOD's role during a flu pandemic would center on the following objectives: assisting in disease surveillance; assisting partner nations, particularly through military-to-military assistance; protecting and treating US forces and dependents; and providing support to civil authorities in the United States With respect to providing support to civil authorities in the United States, the types of defense support which would likely be in greatest demand during a flu pandemic include: providing disease surveillance and laboratory diagnostics; transporting response teams, vaccines, medical equipment, supplies, diagnostic devices, pharmaceuticals and blood products; treating patients; evacuating the ill and injured; processing and tracking patients; providing base and installation support to federal, state, local, and tribal agencies; controlling movement into and out of areas, or across borders, with affected populations; supporting law enforcement; supporting quarantine enforcement; restoring damaged public utilities; and providing mortuary services. Note, however, that DOD's ability to support these requests would be limited by its national defense and force protection responsibilities. The two principal ways in which defense support could be provided to civil authorities are by way of an "immediate response," or in response to a formal "request for assistance" (RFA). Additionally, in extreme circumstances the federal government may expedite or suspend the RFA process and initiate a "proactive federal response." National Guard personnel would almost certainly be involved in domestic response efforts as members of their state militia under the control of their governor. Current DOD plans do not anticipate federal mobilization of the National Guard or Reserves to respond to a flu pandemic. However, these plans could be modified if circumstances warranted it (for example, if the severity of the pandemic significantly exceeded DOD's planning assumptions). In the event such a federal mobilization is contemplated, an important consideration would be the impact it would have on any response efforts that were already occurring at the state and local levels. For example, the activation of Reserve and National Guard medical personnel may pull them out of local hospitals where they are already engaged in the response effort, thereby undermining state and local response efforts.

Introduction In the 108th Congress, the House and Senate passed competing versions of the Patient Safetyand Quality Improvement Act ( H.R. 663 , S. 720 ). Despite broad bipartisansupport for the legislation, no further action took place before adjournment in December 2004. OnMarch 9, 2005, the Senate Committee on Health, Education, Labor, and Pensions (HELP)unanimously approved a new patient safety bill ( S. 544 ), which is identical to last year'sSenate-passed measure. The patient safety legislation is intended to encourage the voluntaryreporting of information on medical errors by establishing federal evidentiary privilege andconfidentiality protections for such information. Health care providers are reluctant to reportmedical errors because they fear that the information will damage their reputations and be used inmedical malpractice lawsuits. Patient safety emerged as a major health policy issue in late 1999 with the release of theInstitute of Medicine's (IOM) report To Err Is Human. (1) The IOM report concluded that preventable medical errors causeas many as 98,000 deaths each year and called on all parties to make improving patient safety anational health policy priority. It recommended establishing a national mandatory reporting systemto hold hospitals and other health care facilities accountable for errors that lead to serious injury ordeath. Emphasizing that medical errors are primarily the result of faulty systems, process, andconditions that lead people to make mistakes, the IOM also recommended the development ofvoluntary, confidential systems for reporting medical errors that result in no harm (i.e., close calls)or minimal harm. Analysis of such voluntarily reported information could then be used to identifysystem vulnerabilities and develop preventive strategies. The Patient Safety and QualityImprovement Act attempted to implement that recommendation. The IOM based its conclusions on epidemiologic studies published in the 1980s and early1990s. While medical researchers were familiar with the published estimates of the prevalence ofmedical errors in hospitals and other inpatient settings, the information was new to the public andit caught the attention of federal and state legislators and health care policymakers. Indeed, a 1999survey showed that patient safety was the most closely followed health policy story of the year. (2) As a result of the IOM report,numerous patient safety initiatives were initiated within the federal government and throughout theprivate sector, in health plans and health care trade organizations and accrediting andstandard-setting bodies. States responded to the IOM report by considering legislation to expand existing mandatoryreporting systems and, in some cases, enact new systems. Currently, 22 states have mandatoryreporting systems. The goal is to hold hospitals and health care providers accountable to the publicfor the most serious mistakes in the delivery of health care. In an effort to encourage providers toreport errors, most states have adopted measures to protect reporting system data from use bymalpractice attorneys. Policymakers have had to balance provider concerns about the legalconsequences of making information available to attorneys and patients with the desire for publicaccountability. Legislation to encourage medical errors reporting was first introduced in the 106th Congress,following the release of the IOM report. (3) Much of it was reintroduced in the 107th Congress and again in the108th. Patient safety lies at the heart of the current debate on medical malpractice reform. Many trialattorneys defend the current tort system, claiming that the threat of litigation makes providerspractice safer medicine. They view tort law as an important driver of health care quality. Butexperts on health care quality reject this argument. Echoing the IOM's recommendations, theycontend that the only way to realize significant improvements in patient safety is by improving healthcare systems. And that, in turn, requires the analysis of medical errors report. By discouragingphysicians from reporting such information, the tort system is in conflict with this approach to safetyimprovement. This report provides an overview and some analysis of medical errors reporting and theHouse and Senate patient safety bills. It begins with background information on the nature andcauses of medical errors, followed by a brief comparison of the differences between mandatory andvoluntary reporting systems. The report then discusses some of the legal and policy issues facingstate mandatory reporting systems and major national voluntary reporting systems, and identifiesdesign features of effective reporting programs. It concludes with a discussion and side-by-sidecomparison of H.R. 663 and S. 544 . Medical Errors: A Systems Problem The IOM report defined error as the failure of a planned action to be completed as intended(an error of execution) or the use of a wrong plan to achieve an aim (an error of planning). Medicalerrors can happen at all stages of the process of care, from diagnosis, to treatment, to preventive care. Not all errors result in harm. Those that do are referred to as preventable adverse events. An adverseevent is an injury related to a medical intervention and not due to the underlying medical conditionof the patient. While adverse events are often attributable to error and, therefore, preventable, theyneed not always be the result of medical mismanagement (see discussion of adverse drug reactionsbelow). A limited number of published studies have examined adverse events among hospitalizedpatients. Extrapolating from the results of two large, retrospective reviews of hospital records, theIOM estimated that more than 1 million medical errors occur each year in the United States, of whichbetween 44,000 and 98,000 are fatal. (4) It also concluded that errors may cost the nation as much as $29billion annually in direct medical costs and lost income and productivity. Some researchers havechallenged the accuracy of the IOM's numbers, but there is general agreement that the problem isserious. (5) Still others saythe IOM may have underestimated the true incidence of medical errors because it only considerederrors that occur among hospital patients, which represent a small proportion of the total populationat risk. Many patients receive increasingly complex care in ambulatory settings such as outpatientsurgical centers, physicians' offices, and clinics. Echoing the views of most health care analysts, the IOM emphasized that medical errors areprimarily a systemic problem and generally not attributable to individual negligence or misconduct. Errors are the result of faulty systems, processes, and conditions that lead people to make mistakes. According to the IOM, health care lags behind other industries (e.g., aviation, nuclear power) thatpay attention to factors that affect performance, such as work hours, work conditions, informationtechnology, team relationships, and the design of tasks to make errors more difficult to commit. Medication Errors While there have been few studies that examined all types of adverse events occurring inhospitals and other provider settings, there is an abundant literature that focuses on adverse drugevents (i.e., adverse events specifically associated with ordering and administering medication topatients). Adverse drug events are often found to be the most common type of adverse eventdocumented in hospital settings. In its report, the IOM estimated that drug-related adverse eventskill up to 7,000 Americans annually. Although the distinction is not always clear, researchers divide adverse drug events into twotypes: adverse drug reactions resulting from previously known or newly detected side effects ofdrugs that are correctly prescribed and administered; and injuries that are caused by errors inprescribing, dispensing, and administering medication. Examples of medication errors includephysicians who prescribe antibiotics to patients with documented allergies to those medications,nurses who do not properly dilute intravenous solutions, and patients who fail to take medicationsas directed. Studies reveal that adverse drug events occur in 6.5% to more than 20% of hospitalizedpatients, and that between one-quarter and one-half of these are due to medication errors and are,therefore, avoidable. (6) Newly published research on medication safety among Medicare patients in outpatient settingssuggests that the Medicare population as a whole may experience as many as 180,000life-threatening or fatal adverse drug events annually. (7) It is important to recognize that the majority of medication errorsdo not lead to an adverse drug event, either because they are caught before the drugs areadministered, or because they result in no ill effects. In the IOM's analysis, medication errorstypically result from one or more failures in the increasingly complex systems of medicationmanagement, rather than from negligence on the part of individual health care practitioners. Medical Errors Reporting Systems The IOM recommended establishing a nationwide mandatory reporting system for statesto collect standardized information (initially from hospitals, but eventually from other institutionaland ambulatory health care settings) on adverse events that result in death or serious harm. Theprimary purpose of mandatory reporting systems is to hold providers accountable by ensuring thatserious mistakes are reported and investigated and that appropriate follow-up action is taken.Organizations that continue unsafe practices risk citations, penalties, sanctions, suspension orrevocation of licenses, and possible public exposure and loss of business. The IOM proposed thatmandatory reporting system data be made available to the public once they have been validated. To complement the mandatory reporting of serious and fatal errors, the IOM alsorecommended the development of voluntary reporting systems for collecting information on errorsthat result in little or no harm. The focus of voluntary reporting is the analysis and identification ofsystemic problems that could lead to more serious types of errors, and the development of preventionstrategies. To encourage reporting, the IOM further recommended that information collected undera voluntary reporting system be strictly confidential and protected from legal discovery. Table 1 summarizes the differences between mandatory and voluntary reporting systems. State Mandatory Reporting Systems State adverse event reporting systems date back to the 1970s. The IOM reviewed reportingsystems in 13 states to learn more about their scope and operations during the preparation of its 1999report. Since the report's release, more than half of the states have introduced legislation to addressthe problem of medical errors, and several have enacted laws to create new mandatory reportingsystems or modify existing ones. Twenty-two states now have laws or regulations that requiregeneral and acute care hospitals to report medical errors. (8) Table 1. Characteristics of Mandatory and Voluntary MedicalErrors Reporting Systems as Proposed by the IOM Sources : Institute of Medicine; National Academy for State Health Policy. The reporting requirements vary widely from state to state, though all require disclosure ofevents that result in unanticipated death. For example, Washington requires the reporting ofmedication-related errors, whereas Tennessee requires health care facilities to report any "unusualevents." In Florida, hospitals are required to report errors that result in certain specified injuries(e.g., brain or spinal damage), whereas in Pennsylvania they must report "any situation or occurrencethat could seriously compromise quality assurance or patient safety." Arizona requires health carefacilities to review reports made by medical practitioners regarding violations of professionalstandards or the law. In contrast, New Jersey requires hospitals and other institutions to report"serious medical errors" to regulators and patients. Some states also include in their reportingmandates provisions to prevent the discovery of error information in civil or administrativeproceedings. Few states have the experts to analyze more than a fraction of the reports they receive. Most reports are not investigated and few hospitals receive any feedback. (9) States face a difficult challenge in designing their reporting systems as they attempt toreconcile two competing objectives. They must motivate health care providers and facilities toreport errors promptly and accurately, while at the same time holding them accountable through asystem of public disclosure of information about errors. The IOM concluded that the public has aright to information concerning the safety of the health care system. Providers, however, arereluctant to report adverse events. They fear that publicly released data will lead to an increase inmalpractice lawsuits. The more comprehensive and organized the reporting system database, thegreater the legal threat it may pose to providers. In a 2003 report on state error reporting systems, the National Academy for State HealthPolicy (NASHP) concluded that the balance between protecting data from legal discovery anddisclosing information to the public appears to be tipped in favor of data protection. (10) Data Protection Attorneys may compel disclosure of information considered confidential by the state througha variety of legal processes including: (1) Freedom of Information or Open Records requests; (2)subpoenas; (3) legal discovery; and (4) admission into evidence in a civil or administrativeproceeding. To allay providers' concerns about litigation, states have pursued a variety of legaloptions to protect mandatory reporting system data. (11) Some states have exempted reporting system data from theirpublic disclosure (i.e., Freedom of Information) laws, while others have relied on their existing peerreview statutes. (12) Peerreview laws can provide strong protections for reporting system data if they cover (or are interpretedto cover) all activities related to the administration of the reporting system. However, courts haveoccasionally found that the rights of an individual to information relating to a personal lawsuittrumps peer review protection. For these reasons, most of the mandatory reporting systems established since the IOM reporthave comprehensive, system-specific protections of data and reporters built into the authorizingstatute. For example, information may be protected from discovery, subpoena, search warrant, andevidence in civil or administrative proceedings. Protections for reporters may include exclusionfrom civil and criminal lawsuits, monetary liability, state antitrust lawsuits, compelled testimony,and employer retaliation (i.e., "whistleblower" protection). System design features, such as de-identifying data and receiving reports anonymously, mayreduce the need for strong legal protections by making it more difficult to link specific incidents toindividuals or institutions. Of course, such measures also limit the utility of the information toanalysts. Despite their efforts to shield error information from legal discovery and public disclosure,states have had limited success in encouraging providers to report adverse events. Underreportingis a serious issue for state reporting systems and it can have important consequences for health carequality. (13) Failure toinform a patient of a medical error may delay or deprive prompt treatment, which in turn may exposethe physician to greater liability. Underreporting also hinders research on the prevalence and rootcauses of errors, hampering quality improvement initiatives. While providers' fears of legal exposure are real and must be addressed, it remains unclearwhether they have merit. There are no studies on whether reported error information is being usedin malpractice litigation. Moreover, there is little research on the influence of specific laws onreporting behavior. Further complicating the issue is the fact that fear of liability is just one ofseveral factors that lead to the underreporting of medical errors. Other factors include facilities' lackof internal systems to identify events, the culture of medical practice that discourages drawingattention to errors, fear of institutional sanctions, anxiety about maintaining good relationships withpeers, loss of business, damage to reputation, and whether the amount of feedback and the potentialbenefits from reporting justify the time and effort it takes to report. There is not enough evidenceto predict the impact that eliminating one or more of these disincentives would have on reportingbehavior. (14) Somedegree of legal protection may be necessary to encourage reporting, but it may not be sufficient tocreate an environmental conducive to reporting. (15) Data Disclosure The IOM recommended that mandatory reporting systems publicly disclose all informationuncovered during investigations. Polls indicate broad public support for such disclosure, and someanalysts argue that disclosure is necessary to drive improvements in health care. However, accordingto NASHP, public disclosure of adverse event information is "sporadic and inconsistent." Whilesome states are prohibited from releasing certain data by statute, others that are permitted todisclosure certain information refrain from doing so because of concerns that the data are incompleteand unreliable and may be misinterpreted by the public. In some cases, states are also reluctant todisclose information in order to alleviate the concerns of hospitals and practitioners. (16) NASHP found that seven states with mandatory reporting systems release incident-specificdata. The remaining states issue or plan to issue aggregate reports. Incident-specific data are mostcommonly provided on a request only basis. Where information is available to the public, it is oftendifficult to access or requires specific information on how and where to request the information inorder to access it. The data may be provided in raw form without accompanying analysis to assistwith interpretation. (17) Overall, it appears that state reporting systems have had at best a modest impact onimproving patient safety. Evidence from hospitals that the reporting and investigation of seriousevents has led to improvement in patient safety is largely anecdotal. As noted above, most stateprograms are plagued by underreporting, especially in their early years of operation. The IOM reportobserved that few states aggregate the data or analyze them to identify general trends. Analysis andfollow-up tend to occur on a case-by-case basis. The report cited limited resources and the absenceof standard reporting requirements as major impediments to making greater use of the reported data. It concluded that "state programs appear to provide a public response for investigation of specificevents, but are less successful in synthesizing information to analyze where broad systemimprovements might take place or in communicating alerts and concerns to other institutions." Insome states, reporting systems established by law are not operating due to a lack of funds. The IOM recommended that state regulatory programs continue to operate mandatoryreporting systems as they have the authority to investigate specific cases and issue penalties or fines. However, in order to establish a nationwide mandatory reporting system, the IOM recommended thatCongress (1) designate the National Quality Forum as the entity responsible for issuing andmaintaining reporting standards to be used by states, (2) require health care institutions to reportstandardized information on a defined list of adverse events, and (3) provide funds and technicalexpertise to state governments to establish or improve their error reporting systems. The National Quality Forum (NQF), established in May 1999 following the recommendationof the President's Advisory Commission on Consumer Protection and Quality in the Health CareIndustry, is a private, nonprofit voluntary consensus standards setting organization created to developand implement a national strategy for the measurement and reporting of health care quality. Actingon the IOM's recommendation, the NQF in 2002 released a list of 27 serious, preventable adverseevents that should be reported by all licensed health care facilities. The list includes standardizeddefinitions of key terms to encourage consistent use and implementation across the country. (18) The IOM further proposed that the Department of Health and Human Services (HHS) collecterror reports should a state choose not to implement a mandatory reporting system. Currently, HHSdoes not require health care institutions or providers to report information on medical errors. (19) The IOM alsorecommended the establishment of a Center for Patient Safety within AHRQ for states to shareinformation and expertise, and to receive and analyze aggregate reports from states to identifypersistent safety issues. Voluntary Reporting Systems As a complement to the mandatory reporting of serious errors, the IOM recommendedestablishing voluntary reporting systems to collect information on less serious mistakes that resultin little or no harm. Information gathered by voluntary reporting systems may be used to identifyvulnerabilities and weaknesses in health care systems and to make improvements to prevent seriouserrors from occurring. Aviation Safety Reporting System The IOM report and several more recent analyses have all highlighted the Aviation SafetyReporting System (ASRS) as a potential model for establishing national voluntary systems forreporting medical errors. ASRS was created in 1975 to encourage pilots, controllers, flightattendants, maintenance personnel, and others in the civilian airline industry to report incidents orsituations in which aviation safety was compromised. The program has become well-established andtrusted within the airline industry and is credited with contributing to improvements in aviationsafety over the past 28 years. ASRS analyzes the voluntarily submitted aviation safety incidentreports to identify deficiencies and discrepancies in the national aviation system so that correctiveaction can be taken. ASRS data are also used to support policies and planning for improving thenational aviation system, and to strengthen the foundation of aviation human factors safety research. This is especially important given estimates that as much as two-thirds of all aviation accidents andincidents are rooted in human performance error. ASRS provides feedback to the aviationcommunity in the form of alert messages identifying problems that may require immediate action,analytical reports, an online database, a monthly safety newsletter, and a quarterly safety bulletin. ASRS is administered by the National Aeronautics and Space Administration (NASA) underan agreement with the Federal Aviation Administration (FAA), which provides most of theprogram's funding. ASRS receives more than 3,200 reports each month. The program's annualoperating budget of approximately $2.5 million (or about $70 per report received) covers reportprocessing, alert messages, data dissemination functions, special studies, and publication activities. Persons who submit reports are given two types of protection: confidentiality, and limitedimmunity from disciplinary action in the case of a potential violation of federal air regulations. TheFAA will not impose penalties upon individuals who complete and submit written incident reportsto ASRS within 10 days after the violation provided that: the violation was inadvertent and not deliberate; the violation did not involve a criminal offense or action which discloses a lackof qualification or competency; and the person has not been found in any prior FAA enforcement action to havecommitted a violation for a five-year period prior to the date of the incident. (20) ASRS administrators attribute the program's success to various factors. (21) First, the reports are heldin strict confidence and reporters are immune from disciplinary action if they report promptly. Second, reporting is simple and involves a one-page form. Third, the program is responsive --reporters receive timely feedback -- and viewed as worthwhile by those that use it. And finally, theprogram is administered by an agency (i.e., NASA) that is independent of the FAA, which regulatesthe aviation industry. ASRS is seen as complementing the work of the National TransportationSafety Board (NTSB), which investigates aviation accidents that result in death or serious injury orin which the aircraft sustains significant damage. National Medical Error Reporting Systems There are several national voluntary reporting systems for medical errors. They include thePatient Safety Information System within the Department of Veterans Affairs (VA) and the JointCommission on Accreditation of Healthcare Organizations (JCAHO) Sentinel Events ReportingSystem. Two national programs focus on medication errors: the Medication Error Reportingprogram and the MedMARx program. In addition to its mandatory reporting requirements for drugand medical device manufacturers, the Food and Drug Administration also encourages health careproviders and the public voluntarily to report suspected adverse events involving prescription andover-the-counter drugs. VA Patient Safety Information System. TheDepartment of Veterans Affairs (VA), which manages one of the largest health care networks in theUnited States, is generally recognized as a leader in the growing patient safety movement. (22) In 1999, the VAestablished a National Center for Patient Safety (NCPS) to lead the agency's patient safety effortsand develop a culture of safety throughout the VA health care system. The NCPS developed aninternal, confidential, non-punitive reporting and analysis system, the Patient Safety InformationSystem (PSIS), which permits VA employees to report both adverse events and close calls withoutfear of punishment. The PSIS is not a blame-free system. Events that are judged to be anintentionally unsafe act (i.e., any events that result from a criminal act, a purposefully unsafe act, oran act related to alcohol or substance abuse or patient abuse) can result in the assignment of blameand punitive action. Drawing on the experience of aviation and other "high-reliability" industries, NCPS officialsargue that confidential, non-punitive reporting systems are key to identifying vulnerabilities andanalyzing underlying systemic problems in health care. They contend that an over-reliance onpunitive accountability systems has been a major impediment to improving patient safety. Accountability systems do not encourage identification of potential problems, nor do they provideany incentive for reporting. The PSIS is intended to supplement the VA's existing accountability systems. It takes asystems approach to improving patient safety based on prevention, not punishment. Using toolsdeveloped by NCPS, multidisciplinary teams conduct a root cause analysis of reported adverseevents. Root cause analysis is a process for identifying the causal factors that underlie an event. Itfocuses primarily on systems and processes, not individual performance. The end product of a rootcause analysis is an action plan outlining strategies that the organization intends to implement toreduce the risk of a similar event occurring in the future. Following PSIS implementation, NCPS saw a 900-fold increase in reporting of close calls,and a 30-fold increase in reporting of adverse events. For its efforts in improving patient safety inthe VA health care system, NCPS was awarded the prestigious Innovations in American GovernmentAward in 2001. The PSIS now serves as a benchmark and is being used and emulated by otherhealth care programs, nationally and internationally. (23) In May 2000, the VA signed an agreement with NASA to develop the Patient SafetyReporting System (PSRS), an independent, external reporting system. The PSRS, which wasinaugurated in 2002 at VA hospitals nationwide, is operated by NASA and modeled after the ASRS.It is intended to provide VA employees with a "safety valve" that allows them confidentially toreport close calls or adverse events that, for whatever reason, would otherwise go unreported. Allpersonnel and facility names, facility locations, and other potentially identifying information areremoved before reports are entered into the PSRS database. Only NASA personnel assigned to thereporting system can review data until the de-identification process is complete. (24) JCAHO Sentinel Events Reporting System. JCAHO is an independent, nonprofit organization that evaluates and accredits nearly 18,000 healthcare organizations and programs in the United States, including hospitals, health care networks,managed care organizations, and health care organizations that provide home care, long term care,behavioral health care, laboratory, and ambulatory care services. JCAHO initiated a sentinel eventreporting system for hospitals in 1996. A sentinel event is defined as one that results in anunanticipated death or major permanent loss of function not related to the natural course of thepatient's illness or underlying condition. Sentinel events also include: patient suicide in a settingthat provides round-the-clock care; rape; infant abduction or discharge to the wrong facility; majorincompatibility reactions in blood transfusion recipients; and surgery on the wrong patient or bodypart. (25) Accredited hospitals are expected to identify and respond to all sentinel events by conductinga root cause analysis, implementing improvements to reduce risk, and monitoring the effectivenessof those improvements. To encourage sentinel event reporting, JCAHO has established a policy ofnot penalizing the accreditation status of an organization that reports such events and performs a rootcause analysis. Reporting sentinel events to JCAHO is not entirely voluntary. If a hospital fails toreport an event and JCAHO learns of it from a third party, it requires the hospital to conduct a rootcause analysis or risk loss of accreditation. JCAHO analyzes the error-related information it receivesand publishes recommendations in the Sentinel Event Alert . Despite these efforts, few hospitalsreport sentinel events because they view the program as cumbersome, time-consuming,unresponsive, and potentially risky. They are concerned about the confidentiality of the informationand fear that public disclosure of reports may damage their reputation and lead to a decline inbusiness, a loss of license or accreditation, and litigation. (26) Medication Errors Reporting Program. TheMedication Errors Reporting (MER) program was started in 1975 by the Institute for SafeMedication Practices (ISMP), a nonprofit organization that works with healthcare practitioners,regulatory agencies, professional organizations, and the pharmaceutical industry to provide educationabout adverse drug events and their prevention. Since 1991, the MER program has been owned andadministered by the U.S. Pharmacopeia (USP). USP is a nonprofit, private organization thatestablishes legally recognized standards for the quality, strength, purity, packaging, and labeling ofmedicines for human and veterinary use. The MER program receives voluntary and confidential reports from practitioners -- primarilypharmacists -- via mail, telephone, and the Internet. Reporters are informed that a de-identified copyof the report is routinely sent to ISMP, the Food and Drug Administration (FDA), and thepharmaceutical company whose product is mentioned in the report. With permission, the reporter'sname is disclosed to ISMP, which provides an independent review of the report. Errors ornear-errors reported through the MER program include administering the wrong drug, strength, ordose, confusion over look-alike and sound-alike drugs, incorrect route of administration, and errorsin prescribing and transcribing. ISMP publishes biweekly reports with recommendations andperiodic special alerts. (27) MedMARx Program. USP's MedMARxprogram, begun in 1998, is an Internet-based, voluntary system for hospitals to report medicationerrors. Hospitals must subscribe to MedMARx in order to use the program. Employees of hospitalsthat subscribe may report a medication error anonymously to MedMARx by completing astandardized form. Hospital management is then able to retrieve compiled data on its own facilityand also obtain nonidentifiable comparative information on other participating hospitals. Information is not shared with FDA. The JCAHO framework for conducting a root cause analysisis on the MedMARx system for the convenience of reporters to download the forms, but theprograms are not integrated. In December 2004, USP released its fifth annual national report, which summarizes themedication error data collected by MedMARx during 2003. (28) The analysis was basedon 235,159 medication errors voluntarily reported by 570 hospitals and health care facilitiesnationwide. The report also includes a five-year trend analysis of data submitted to MedMARxbetween 1999 and 2003, with a focus on technology related errors. MedMARx has received generally favorable reviews from analysts. The programincorporates some of the same design features that are found in ASRS. Hospital employees viewMedMARx reporting as relatively safe and straightforward. Unlike JCAHO's system for hospitalsto report events with serious outcomes, MedMARx relies on individual employees submittinganonymous reports of all types of medication errors, whether or not they result in harm. MedMARxis also very responsive. The data are analyzed by experts, and reporters receive timely feedback ofuseful information. (29) Food and Drug Administration. The FDAregulates the manufacturers of prescription and over-the-counter drugs, medical andradiation-emitting devices, and biological products (e.g., antitoxins, vaccines, blood), among otherthings. After FDA approves a new drug or device, the agency continues to monitor its safety throughpostmarketing surveillance. Adverse event reporting is a major component of postmarketingsurveillance. For medical devices, manufacturers are required to report deaths, serious injuries, andmalfunctions to FDA. Hospitals, nursing homes, and other user facilities are also required to reportdeaths to both the manufacturer and FDA, and to report serious injuries to the manufacturer. Forsuspected adverse events associated with drugs, reporting is mandatory for manufacturers. Healthcare professionals and consumers may voluntarily report suspected adverse drug events and deviceproblems through FDA's Medical Products Reporting Program, MedWatch, which allows reportingby phone (toll-free), fax, direct mail (using a postage-paid form), and Internet. All MedWatchreports are evaluated and entered into one of the agency's databases for analysis. (30) FDA receives approximately 235,000 reports annually for adverse drug events and more than80,000 reports on device problems. The agency decides whether any corrective action is necessaryon a case-by-case basis, by considering the unexpectedness and seriousness of the event, thevulnerability of the population affected, and the available options for prevention. If corrective actionis warranted, FDA generally pursues one of three strategies. The first and most common strategyis to negotiate with the manufacturer to make the desired changes. Second, FDA may take regulatoryaction to compel a manufacturer to act. Finally, the agency may attempt to inform health careprofessionals and the public about the risks associated with a particular drug through publishedarticles, direct mailings, and the Internet. On February 26, 2004, FDA published a final rule requiring bar codes on the labels of mostprescription drugs and all over-the-counter drugs used in hospitals and dispensed pursuant to aphysician's order. (31) The agency estimates that the use of bar-coded medications, which nurses scan to match the correctdrug and dose with the intended patient, could prevent more than 500,000 adverse events and save$93 billion over the next 20 years. In addition, the rule requires bar codes on the labels of blood andblood components used for transfusion. On March 14, 2003, FDA proposed revising manufacturer's reporting requirements toimprove the agency's ability to monitor and improve the safe use of medications. (32) The proposal requiresmanufacturers to submit to FDA, within 15 days, all reports they receive of actual and potential (i.e.,near-miss) medication errors. An example of a potential medication error would be a pharmacistwho selects the wrong drug because of a similar sounding name but catches the mistake beforedispensing the medication. If the pharmacist elects to report the incident to the manufacturer, thenunder the proposed rule the manufacturer must report it to FDA. The proposal also requires the useof internationally agreed definitions and reporting formats, which will allow companies to preparea single report for submission to major regulatory agencies worldwide. Designing Effective Reporting Systems Table 2 summarizes the design features that analysts have identified as essential for aneffective reporting program. An effective program is one that encourages reporting, analyzes thedata to identify vulnerabilities in the health care system, and promotes the development of preventivestrategies to improve patient safety. (33) The IOM report recommended against establishing acomprehensive national voluntary reporting system modeled after ASRS. For one thing, severalnational reporting systems already exist, particularly for medication errors. Moreover, acomprehensive national reporting system would require an enormous investment in funding andpersonnel, in view of the potential volume of reports. With an estimated 1 million errors each yearin hospital settings alone, plus an even greater number of close calls, the analysis of even a fractionof these events would require many expert analysts, all of whom would have to be recruited andtrained. Table 2. Design Characteristics of Voluntary Medical ErrorsReporting Systems Source : Based on Leape, "Reporting of Adverse Events"; Raymond and Crane, "DesignConsiderations." The IOM said that the existing reporting systems should be encouraged and promoted withinhealth care organizations and that better use should be made of the reported information. Newsystems should be focused on specific areas of medical care (e.g., surgery, pediatrics) and evenparticular care settings. That approach would help manage the potential volume of reports and matchthe expertise to the problems. There also needs to be a mechanism for sharing information acrossdifferent reporting systems. A report in one system may have relevance for another system (e.g.,errors in surgery that also involve medications). Along with its recommendation on reportingsystems, the IOM also recommended the establishment of a federal Center for Patient Safety to setnational goals, fund research, evaluate methods for identifying and preventing medical errors, anddisseminate information on best practices. Patient Safety and Quality Improvement Act To encourage providers to report errors without fear of the data being used in a medicalmalpractice lawsuit, the IOM recommended that information collected under a voluntary reportingsystem be protected from legal discovery and admission as evidence in civil cases. The PatientSafety and Quality Improvement Act seeks to implement that recommendation by providing legalprotection for information about medical errors that is voluntarily submitted to patient safetyorganizations (PSOs). PSOs would collect and analyze the information submitted by providers anddevelop and disseminate recommendations for systems-based solutions to improve patient safety andhealth care quality. This section of the report provides an overview of H.R. 663 , as passed by theHouse during the 108th Congress. That is followed by some analysis of key differences between H.R. 663 and the version that passed the Senate during the 108th and that was recentlyreintroduced and approved by the HELP Committee. Overview of H.R. 663 The House passed the Patient Safety and Quality Improvement Act ( H.R. 663 , H.Rept. 108-28 ) on March 12, 2004, by a vote of 418-6. H.R. 663 would have providedlegal protection to certain categories of documents and communications termed "patient safety workproduct," which are developed by health care providers for reporting to PSOs. Patient safety workproduct would be privileged and not subject to: a civil or administrative subpoena; discovery inconnection with a civil or administrative proceeding; or disclosure under the Freedom of InformationAct. Moreover, it could not be used in any adverse employment action against an employee who ingood faith reports the information to a provider (with the intention of having it reported to a patientsafety organization) or reports the data directly to a patient safety organization. Patient safety workproduct would not encompass documents or communications that are part of traditional medicalrecord keeping. Such information includes patients' medical records, billing records, hospitalpolicies, and records of drug deliveries, that is, information that has been developed, maintained,or which exists separately from patient safety work product. Only information specifically createdfor PSOs would be protected. Under the House-passed bill, PSOs would be certified by AHRQ to collect and analyzepatient safety work product submitted by providers, and to develop and disseminaterecommendations for systems-based solutions to improve patient safety and health care quality. Anypublic or private organization seeking PSO certification would have to meet certain criteria. Forexample, they would have to contain appropriately qualified staff, including licensed or certifiedmedical professionals, and not be part of a health insurance company. A PSO would also have tobe managed and operated independently from any provider that reported to it. The House bill didnot include any language to encourage the establishment of PSOs in every state or region of thecountry. H.R. 663 would have required AHRQ to establish a national database to receiveand analyze de-identified information submitted by PSOs. Information in the national databasewould be available to the public. The bill also would have required AHRQ to develop voluntarynational standards to promote the interoperability of health information technology systems. (34) In addition to the provisions aimed at supporting voluntary reporting of medical errors, H.R. 663 instructed the FDA to issue standards for unique product identifiers (e.g., barcodes) on the packaging of drugs and biological products. It also would have authorized grantprograms for electronic prescribing and other information technology to prevent errors. Finally, H.R.663 would have created a Medical Information Technology Advisory Board to makerecommendations to HHS and Congress on fostering the development and use of informationtechnologies to reduce medical errors. Analysis of H.R. 663 v. S. 544 The Senate took up H.R. 663 on July 22, 2004, substituted alternative language( S. 720 , as amended), and passed the measure by voice vote. While S. 720had the same basic structure as the House-passed legislation, there were several key differences. Lawmakers were unable to reconcile those differences before the 108th Congress adjourned. OnMarch 8, 2005, Senator Jeffords reintroduced the Patient Safety and Quality Improvement Act( S. 544 ). S. 544 , which is identical to last year's Senate-passed measure( S. 720 ), was unanimously approved by the Senate HELP Committee on March 9, 2005. Table 3 on page 22 compares the patient safety legislation with the IOM report's recommendations. Table 4 , which begins on page 23, provides a side-by-side comparison of H.R. 663 and S. 544 . Definition of Protected Information. As passedby the House, H.R. 663 would have provided legal protection to "patient safety workproduct," which it defined as any document or communication that is: developed by a provider forthe purpose of reporting to a PSO, and reported to a PSO; created by a PSO; or that would reveal theworkings of a "patient safety evaluation system." The bill defined a patient safety evaluation systemas a process for collecting, managing, or analyzing information submitted to or by a PSO. Patientsafety work product would not include a document or communication that is developed, maintained,or exists separately from any patient safety evaluation system (e.g., a patient's medical record or anyother patient or hospital record). The legal protections in S. 544 apply to all "patient safety data." When theSenate bill was first approved by the HELP Committee during the 108th Congress, some analystsraised concerns that the definition of patient safety data was too broad. It included, for example,"any data ... that could result in improved patient safety or health care quality or health careoutcomes, that are ... collected from a provider ...." Critics of this language argued that it wouldextend the bill's evidentiary privilege and confidentiality protections to a wide range of quality- andoutcomes-related information. As a result, the bill would have the unintended effect of preemptingstate laws that require hospitals to report infection rates, medical outcomes, and serious adverseevents. To address those concerns, the definition of patient safety data was modified to more closelyresemble the language in H.R. 663 , which was tied to the activities of PSOs. S. 544 defines patient safety data as any data, reports, records, memoranda, analyses,or written or oral statements that are: collected or developed by a provider for reporting (within 60days) to a PSO; requested by a PSO and reported within 60 days; reported to a provider by a PSO;or collected by a PSO from another PSO, or developed by a PSO. The definition also states that"patient safety data shall not include information (including a patient's medical record, billing anddischarge information or any other patient or provider record) that is collected or developedseparately from and that exists separately from patient safety data." This separate data provision hasbeen criticized as circular, because it says in effect that information that is not patient safety data isnot patient safety data. S. 544 also includes a provision that is intended to protect mandatory statereporting laws. The provision states that nothing in the bill limits the reporting of information thatis not patient safety data to a "federal, state, or local governmental agency for public healthsurveillance, investigation, or other public health purposes or health oversight purposes. H.R. 663 included comparable language. It said that nothing in the bill preempts orotherwise affects "state law requiring a provider to report information ... that is not patient safetywork product." Privilege. H.R. 663 would haveprotected patient safety work product from discovery in connection with a civil and administrativeproceeding, and from admission as evidence or disclosure in any such proceeding. Patient safetywork product would not be protected from use in criminal proceedings. By comparison, S. 544 would prohibit lawyers from obtaining or using patient safety data in civil,administrative, and criminal proceedings, unless a judge determined that the information containedevidence of "a wanton and criminal act to directly harm the patient." That language was includedis an effort to ensure that the legislation does not unduly compromise the rights of injured patientsto obtain compensation. In its 1999 report, the IOM focused on protecting voluntarily reported patient safetyinformation from discovery and admission as evidence in civil and administrative proceeding, notingthat "instances of criminal prosecution for medical errors are exceptionally rare." The intent was toencourage the voluntary reporting of information about near misses and other problems that wouldotherwise go unreported were it not for legal protection. Analysis of such information would thenbe used to identify vulnerabilities in health care systems. Voluntary reporting systems, as envisionedby the IOM, would not interfere with the mandatory reporting of more serious errors, as requiredunder state law and other accountability systems. Confidentiality. S. 544 designatespatient safety data as confidential and not subject to disclosure, except in certain specifiedcircumstances (e.g., disclosure by a provider to a PSO). Negligent or intentional disclosure of patientsafety data in violation of the bill's confidentiality provisions is subject to civil fines of up to $10,000per violation. H.R. 663 also specified the circumstances under which disclosure of patientsafety work product (identifiable and nonidentifiable) was permitted and provided for penalties ofup to $10,000 per violation for disclosures other than those permitted. Unlike S. 544 ,the House bill did not expressly state that work product is confidential, though this was implied inthe bill's language. H.R. 663 said that disclosures in violation of the bill's provisionsare unlawful and subject to fines, provided such disclosures constitute "a negligent or knowingbreach of confidentiality." Both H.R. 663 and S. 554 state that if the disclosure is in violationof the HIPAA privacy rule, then the HIPAA penalties apply instead. For details of the civil andcriminal penalties under HIPAA, see CRS Report RS20500 , Medical Records Privacy: Questionsand Answers on the HIPAA Rule . PSO Certification and Listing. Under the patientsafety legislation, providers would voluntarily submit information on medical errors to public orprivate entities designated as PSOs. The PSOs would analyze the data and develop and disseminateevidence-based information to providers to help them implement changes that would improve patientsafety. H.R. 663 would have required AHRQ to establish a process for certifying PSOs. The bill listed several criteria for certification. For example, a PSO must not be "a component ofa health insurer or other entity that offers a group health plan or health insurance coverage," and mustbe "managed, controlled, and operated independently from any provider" that reports patient safetywork product to the PSO. That would appear to exclude the Department of Veterans Affairs (VA),among others, from PSO certification. As previously discussed, the VA has developed an internal,confidential, non-punitive reporting and analysis system and is widely recognized as a leader inpatient safety. H.R. 663 also would have required PSOs that are components of otherorganizations to protect the confidentiality of patient safety work product and ensure that theirmission did not create a conflict of interest with the rest of the organization. By comparison, S. 544 relies on a process of PSO self-certification.Organizations would be required to submit a certification to AHRQ that they intend to perform thevarious PSO activities specified in the legislation. The agency would review the submission and,if acceptable, place the name of the organization on a list of certified PSOs. S. 544 doesnot include any criteria that place limits on the types of public or private entities that seek PSOcertification and listing, nor does it address the issue of conflict of interest. Civil Penalties. As noted above, both billsprovide for civil monetary penalties of up to $10,000 for each negligent or intentional disclosure ofpatient safety information in violation of the provisions in the legislation. The bills also prohibit ahealth care provider from taking any adverse employment action against an employee who in goodfaith reports information to the provider with the intention of having it reported to a PSO, or whoreports the information directly to a PSO. But whereas H.R. 663 included civil finesof up to $20,000 per violation for providers who took such action, S. 544 permits anemployee to sue their employer to enjoin a wrongful adverse employment action and to obtainequitable relief, including reinstatement, back pay, and restoration of benefits. Unlike the House bill, S. 544 specifies that providers include state-run facilities.Because the federal government cannot give state employees a right to sue the state, S. 544 includes a provision requiring state hospitals to agree to be subject to such civil action in orderto assert the privileges established by the legislation. Drug and Biological Product Identification. H.R. 663 instructed FDA to require unique product identifiers on the packaging of drugsand biological products. That provision would appear to have been met by the agency's February26, 2004 bar code rule. There is no comparable provision in S. 544 . Health Information Technology (IT) Standards, Grants andAdvisory Board. Both bills would require the Secretary of Health and HumanServices to adopt voluntary, national interoperability standards for the electronic exchange of healthcare information. H.R. 663 contained three additional health IT provisions, none ofwhich are included in the Senate version. The House measure authorized grants to physicians forelectronic prescription programs, and to hospitals for purchasing health IT systems. It also wouldhave created a Medical Information Technology Advisory Board (MITAB) to makerecommendations to the Secretary and Congress on promoting electronic information exchange toimprove patient safety and the quality of health care. Congress and the Administration have taken a number of important steps in the past twoyears to promote the adoption of IT systems for the electronic collection and exchange of patientinformation in order to reduce medical errors, lower health care costs, and improve the quality ofcare. The health IT provisions in the patient safety legislation duplicate some of those actions. Forexample, the Medicare Prescription Drug, Improvement, and Modernization Act ( P.L. 108-173 )required the Secretary to adopt electronic prescribing standards and establish a Commission onSystemic Interoperability to develop a comprehensive strategy for the adoption and implementationof health IT data standards. P.L. 108-173 also authorized IT grants for physicians and establisheddemonstration projects to determine how to improve the quality of care through the adoption of ITsystems. On July 21, 2004, National Coordinator for Health Information Technology David Brailerreleased a 10-year Framework for Strategic Action outlining steps to transform the delivery of healthcare by adopting electronic health records and developing a national health information infrastructure(NHII) to link such records nationwide. (35) The framework sets out a bottom-up approach in which the roleof HHS is to promote and encourage the private sector to build community-level electronic healthinformation networks. Adopting interoperability standards will over time permit these localnetworks to connect with one another to form a NHII. Table 3. Comparison of Patient Safety Legislation with the IOMRecommendations Table 4. Side-by-Side Comparison of Patient Safety and Quality Improvement Act

In the 108th Congress, the House and Senate passed competing versions of the Patient Safetyand Quality Improvement Act ( H.R. 663 , S. 720 ), but the differencesbetween the two measures were never resolved. On March 9, 2005, the Senate Committee onHealth, Education, Labor, and Pensions unanimously approved S. 544 , which isidentical to S. 720 . The legislation would establish legal protections for data andreports on medical errors in an effort to encourage voluntary reporting of such information. Thepatient safety bills are in response to the 1999 Institute of Medicine (IOM) report To Err Is Human ,which concluded that preventable medical errors cause as many as 98,000 deaths a year. The IOMfound that medical errors are primarily the result of faulty systems, processes, and conditions thatlead people to make mistakes. It recommended establishing a national mandatory reporting systemto hold hospitals accountable for serious medical errors, as well as developing voluntary, confidentialsystems for reporting errors that result in little or no harm. Analysis of such voluntarily reported datacould be used to identify vulnerabilities in health care systems. Twenty-two states mandate medical error reporting by hospitals. However, providers arereluctant to report adverse events in part because they fear that the information will be used inmalpractice litigation. States have sought to allay those concerns by passing laws to protect reporteddata from legal discovery and by de-identifying data and receiving reports anonymously. Suchmeasures risk limiting the usefulness of the data for research and quality management. There are several national voluntary reporting systems for medical errors, including thePatient Safety Information System within the Department of Veterans Affairs. Analysis of these andother voluntary reporting systems -- notably the Aviation Safety Reporting System -- has identifiedseveral design features associated with effective programs. For example, the reporting processshould be user-friendly and the information kept confidential and protected from legal discovery. Also, reports should be promptly evaluated by experts who are trained to recognize underlyingsystems causes, and reporters should receive timely feedback with recommendations forsystems-based improvements. To encourage voluntary reporting, H.R. 663 would have protected reportedinformation from legal discovery in civil and administrative proceeding, and from a Freedom ofInformation Act request. The bill required the Agency for Healthcare Research and Quality (AHRQ)to certify patient safety organizations to collect and analyze the information reported by providers. Such organizations would develop and disseminate recommendations for systems-based solutionsto improve patient safety and health care quality. H.R. 663 also would have requiredAHRQ to establish a national database to receive and analyze de-identified information submittedby patient safety organizations. S. 544 would protect information from use in criminalas well as civil and administrative proceedings, unless a judge determined that it contained evidenceof an intentional act to directly harm the patient. This report will be updated as legislative eventsin the 109th Congress warrant.

GIs in Multilateral Trade The United Nations distinguishes two main approaches for protecting GIs at the national level: 1. The p ublic l aw a pproach applies to cases whereby public authorities enact legislation dedicated to the specific protection of GIs (a sui generis system such as a special regime of protection) and generally consists of an official recognition of GIs by granting the status of a public seal of quality—often through a common official logo—where governments can protect the use of the GI ex officio based on its official designation. 2. The p rivate l aw a pproach is the use of laws against unfair competition and usurpation. It also involves trademark laws (such as using collective or certification marks), where the protection is primarily based on private actions. These approaches differ with respect to the conditions for protection or the scope of protection, but they share some common features in that both establish rights for collective use by those who comply with defined standards. GI protections often differ by country and have been developed in accordance with different legal, historical, and economic traditions. In the United States, GIs are generally treated as a subset of trademarks, whereas the EU protects GIs through a series of established "quality schemes." GIs are also protected by various multilateral trade agreements. GIs are protected by the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which sets binding minimum standards for IP protection that are enforceable by the WTO's dispute settlement procedure. Under TRIPS, WTO members have a mandatory responsibility to recognize and protect GIs as intellectual property. The United States and each of the EU countries are signatories of TRIPS and subject to its rights and obligations. Accordingly, under TRIPS, the United States has committed to providing a minimum standard of protection for GIs (i.e., protecting GI products to avoid misleading the public and prevent unfair competition) and an "enhanced level of protection" to wines and spirits that carry a geographical indication, subject to certain exceptions. (See text box .) TRIPS defines GIs as "indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characterist ic of the good is essentially attributable to its geographical origin" (Article 22(1)). Accordingly, a product's quality, reputation, or other characteristics can be determined by where it comes from, and GIs are place names (or in some countries words associated with a place) used to identify products that come from these places and have these characteristics. Previously, the United States challenged the EU's GI laws under WTO Dispute Settlement in 1999, alleging discrimination against U.S. GIs and failure to protect U.S. trademarks. A WTO panel ruled that aspects of the EU's GI laws were inconsistent with TRIPS, resulting in changes to the EU program. TRIPS builds on treaties administered by the World Intellectual Property Organization (WIPO). WIPO is a specialized agency in the U.N. system with the mission to "lead the development of a balanced and effective international intellectual property (IP) system." WIPO has 188 member states, including the United States and each of the EU countries. WIPO defines GIs as "a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin." To function as a GI, "a sign must identify a product as originating in a given place," "the qualities, characteristics or reputation of the product should be essentially due to the place of origin," and there must be "a clear link between the product and its original place of production." WIPO also oversees the "International Register of Appellations of Origin" established in the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration ("Lisbon Agreement"). The Lisbon Agreement is among the major IP conferences and ensures for its members the protection against any "usurpation or imitation, even when used in translation or accompanied by words such as 'kind', 'type' or the like." The agreement was adopted in 1958 (later revised in 1967) and entered into force in 1966. The United States is not a party to the agreement. Several EU countries are members, including Bulgaria, Czech Republic, France, Greece, Hungary, Italy, Portugal, Romania, Slovakia, and Spain. The agreement's multilateral register ("Lisbon Register") covers food products and beverages and related products, as well as non-food products (including Cuban cigars). The register covers appellations of origin (AO) only, which comprise a category of GIs. AOs refer to "geographical denomination of a country, region or locality which serves to designate a product originating therein, the quality or characteristics of which are due exclusively or essentially to the geographical environment, including natural and human factors." Both AOs and GIs require a qualitative link between the product and its place of origin, but AO designations generally result "exclusively or essentially to the geographical environment," while for GIs a single criterion attributable to geographic origin may be sufficient to qualify. As of May 2016 the registry contained more than 1,000 products. More recent developments have raised U.S. concerns about the possible expansion of GI restrictions promoted by the EU. Specifically, the so-called Geneva Act under the Lisbon Agreement would allow for the international registration of GIs and could allow the EU (as well as other countries in Africa and the Americas) to place further limits on the use of GIs and product names linked to geographic regions. The United States opposes expansion of the agreement given ongoing opposition to the GI registration of cheese names that the United States argues to be generic or common names. Congressional trade and judiciary committee leaders expressed disappointment that all WIPO members were not allowed "meaningful participation" in the negotiation process and that the Geneva Act was adopted despite the "objection of multiple WIPO members." Some private stakeholders also expressed concerns about the process. U.S. interests may now be focused on ensuring that any expansion of the Lisbon Agreement does not allow the agreement's members to place further limits on the ability of trademark owners and others to use, in foreign markets, names linked to geographic regions that the United States argues are generic. The Geneva Act will enter into force three months after five eligible parties have ratified or acceded to it. To date, no party has done so. Protection of GIs in the EU In the EU, a series of regulations governing GIs was initiated in the early 1990s covering agricultural and food products, wine, and spirits. Legislation adopted in 1992 covered agricultural products (not including wines and spirits), but it was replaced by changes enacted in 2006 following a WTO panel ruling that found some aspects of the EU's scheme inconsistent with WTO rules. The new rules came into force in January 2013. The EU laws and regulations cover three EU-wide quality labeling schemes: 1. Protected Designation of Origin (PDO) covers agricultural products and foodstuffs whose quality or characteristic is essentially or exclusively due to a particular geographic environment and is produced, processed, and prepared in a given geographical area using recognized know-how. 2. Protected Geographical Indication (P G I) covers agricultural products and foodstuffs whose quality, reputation, or other characteristic is closely linked to the geographical area and where at least one of the stages of production, processing, or preparation takes place in the area. 3. Traditional Specialties Guaranteed (TSG) covers foodstuffs highlighting a traditional character, either in the composition or means of production (e.g., resulting from a traditional production or processing method or composed of raw materials or ingredients used in traditional recipes). Unlike PDO and PGI marks, the geographical origin of a TSG registered product is irrelevant. Product registration markers for these three quality schemes, along with the relevant regulations, are shown in the text box below. The EU regulations establish provisions regarding products from a defined geographical area given linkages between the characteristics of products and their geographical origin. The EU defines a GI as "a distinctive sign used to identify a product as originating in the territory of a particular country, region or locality where its quality, reputation or other characteristic is linked to its geographical origin." According to the EU, GIs matter "economically and culturally" and "can create value for local communities through products that are deeply rooted in tradition, culture and geography" and "support rural development and promote new job opportunities in production, processing and other related services." Because of their commercial value, the protection of GIs is a major priority for the EU. A 2012 study estimates that GI product sales were valued at €54.3 billion (roughly $72.0 billion given 2010 exchange rates). More than one-half of this estimated value is for wines. Leading EU member states, by value of GI sales, include France, Italy, Germany, the United Kingdom, Spain, Greece, and Portugal. EU trade policy actively supports stronger protection of GIs internationally, including as part of its multilateral and bilateral negotiations, given concerns about GI "violations throughout the world" from misuse and imitation. Regarding protection of GIs, the EU is seeking certain "TRIPS-Plus" provisions that would establish a list of EU names to be protected "directly and indefinitely" in countries outside the EU, allow coexistence with prior trademarks (if they are "registered in good faith"), phase out other uses of EU names, ensure a right to use (as opposed to trademark license system), guarantee administrative protections, and create a cooperation mechanism and dialogue. As of May 2016, more than 4,500 product names are registered and protected in the EU for foods, wine, and spirits originating in both EU member states and other countries ( Table 1 ). Nearly two-thirds are wine registrations. Overall, about one-fourth of all registrations are for non-EU ("third country") registrations, and these are also overwhelmingly wine registrations. Food and Agriculture GI Registrations As of May 2016, there were 1,341 product names registered as PDO, PGI, or TSG products for agriculture and food products, based on information in the EU's Database of Origin and Registration. Compared to two years ago, the number of product registrations has increased about 10%. Figure 1 illustrates the breakdown of product registrations. Figure 2 highlights that about one-half of all food and agriculture registrations originate in Italy, France, and Spain. Countries outside the EU have also registered product names under the EU's quality scheme, including Asian and Eastern European countries, among others. Wine GI Registrations As of May 2016, there were 2,885 registered wine names, based on information in the EU's "E-Bacchus" database. Wines may be registered as PDOs regarding "quality wines produced in a specified region" and PGIs regarding "table wines with geographical indication." Both systems establish geographical names for certain products that originate in the region whose names they bear. Both require a registration process, and both establish certain controls and intellectual property protections for GI products. Differences between the two types pertain to particular product attributions, such as a product's reputation, its linkages to the geographical environment, number of production steps, and origin of raw materials used in production, among others. Figure 3 shows that of all registrations, 1,750 (about 60%) are EU wine PDO/PGIs, and the remaining 1,135 (40%) are "third country" GIs originating in other non-EU countries. The majority of EU wine PDO/PGI registrations (about 75%) originate in Italy and France. Examples of French and Italian wines with PGIs include Alpes-de-Haute-Provence and Pompeiano. Wines with PDOs include Montagne-Saint-Emilion and Terre di Pisa. Examples of wines from third countries, such as the United States, include wines protected as PGIs, such as Napa Valley, and wines with a name of origin, including Calaveras County and Humboldt County. Among EU countries, Figure 4 highlights that most registrations originate in Italy, France, Greece, and Spain. However, countries outside the EU ("third countries") hold a large number of registered wine names, including South Africa, Australia, and Chile ( Figure 3 ). Nearly 700 "Names of Origin" registrations are held by the United States, in accordance with a 2006 agreement between the United States and EU, obliging each party to recognize certain wine names of origin in each other's markets. Spirits GI Registrations As of May 2016, there were 332 existing spirit name registrations, based on information in the EU's "E-Spirit-Drinks" database. Spirits may be registered as PDOs or PGIs. Figure 5 shows that fruit spirits comprise 22% of all registrations. Most registrations are from France (about 23%), along with Italy, Germany, Spain, and Portugal ( Figure 6 ). Other registered product names include other European and Eastern European countries. Protection of GIs in the United States In the United States, GIs are treated as brands and trademarks and administered by the U.S. Patent and Trademark Office (PTO). In addition, labeling requirements for wine, malt beverages, beer, and distilled spirits are under the jurisdiction of the Alcohol and Tobacco Tax and Trade Bureau (TTB). As discussed later, U.S. trade policy is actively engaged in addressing concerns in the United States regarding the EU's GI protections to ensure that they "do not undercut U.S. industries' market access" and to defend the use of certain "common food names." In general, the United States is seeking protection for current U.S. owners of trademarks that overlap with EU-protected GIs, the ability to use U.S. trademarked names in third countries, and the ability to use U.S. trademarked names in the EU. U.S. Patent and Trademark Office In the United States, GIs generally fall under the common law right of possession or "first in time, first in right" as trademarks, collective, or certification marks under the purview of the existing trademark regime administered by PTO and protected under the U.S. Trademark Act. Accordingly: Trademarks "protect words, names, symbols, sounds, or colors that distinguish goods and services from those manufactured or sold by others and to indicate the source of the goods. Trademarks, unlike patents, can be renewed forever as long as they are being used in commerce." Trademarks registrations are renewable for 10-year terms. Trademarks are distinctive signs that are used by a company to identify itself and its products or services to consumers and can take the form of a name, word, phrase, logo, symbol, design or image, or a combination of these elements. Trademarks do not refer to generic terms, nor do they refer exclusively to geographical terms. Trademarks may refer to a geographical name to indicate the specific qualities of goods as either certification marks or collective marks. Certification marks refer to "any word, name, symbol, device, or any combination, used, or intended to be used, in commerce by someone other than its owner, to certify regional or other origin, material, mode of manufacture, quality, accuracy, or other characteristics of such person's goods or services, or that the work or labor on the goods or services was performed by members of a union or other organization." Collective marks refer to "a trademark or service mark used, or intended to be used, in commerce, by the members of a cooperative, an association, or other collective group or organization, including a mark that indicates membership in a union, an association, or other organization" and "may include a mark which indicates membership in a union, and association, or other organization." PTO defines GIs, consistent with TRIPS, as "indications that identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographic origin." According to PTO, a GI can take many forms, including a geographic place name (such as "Napa Valley"), a symbol (such as a picture of the Eiffel Tower, the Statue of Liberty, or an orange tree), the outline of a geographic area (e.g., the outline of the state of Florida or a map of the Dominican Republic), a color, or "anything else capable of identifying the source of a good or service." GIs are protected under U.S. trademark laws against unfair competition and trademark infringement regardless of whether they are registered with PTO. According to PTO, GIs "serve the same functions as trademarks, because like trademarks they are: source-identifiers, guarantees of quality, and valuable business interests." Establishing a product based on its geography can be complicated, involving establishing a trademark or a brand name through an extensive advertising campaign. Limited information specific to food and agricultural products regarding the application process on certification or collective marks is available from PTO. PTO does not protect geographic terms that are considered "generic" or "so widely used that consumers view it as designating a category of all of the goods/services of the same type, rather than as a geographic origin." PTO does not provide oversight of any applicable standards or standards established by private industry (such as American National Standards Institute and Underwriters Laboratories). PTO does not have a special register for GIs in the United States. PTO's trademark register, the U.S. Trademark Electronic Search System (TESS), contains GIs registered as trademarks, certification marks, and collective marks. Statements by USTR claim that EU farm products hold nearly 12,000 trademarks in the United States. These register entries are not designated with any special field (such as "geographical indications") and cannot be readily compiled into a complete list of registered GIs. Thus, there does not appear to be specific data available about GIs registered in the United States in the way that there are for the EU (see above sections). Some GI names protected under U.S. trademark laws include Idaho Potatoes, Florida Oranges, Vidalia Onions, Napa Valley Wines, and Washington State Apples. Examples of foreign GI certification marks protected in the United States include Brunello Di Montalcino (Italy), Cognac (France), Liebfraumilch (Germany), Mosel (Germany), Vino Nobile Di Montepulciano (Italy), Darjeeling (India), and Jamaica Blue Mountain Coffee (Jamaica). U.S. law provides that the trademark owner has the exclusive right to prevent confusing uses of the mark by unauthorized third parties. Although registration is not necessary to establish rights, PTO promotes owning a federal trademark registration to provide for the following advantages: Constructive notice to the public of the registrant's claim of ownership of the mark, A legal presumption of the registrant's ownership of the mark and the registrant's exclusive right to use the mark nationwide on or in connection with the goods/services listed in the registration, The ability to bring an action concerning the mark in federal court, The use of the U.S registration as a basis to obtain registration in foreign countries, and The ability to file the U.S. registration with the U.S. Customs Service to prevent importation of infringing foreign goods. For more general information on the PTO, see CRS Report RL34292, Intellectual Property Rights and International Trade . Alcohol and Tobacco Tax and Trade Bureau (TTB) TTB is the regulatory agency that oversees the labeling resources and guidance for wine, malt beverages, beer, and distilled spirits. For grape wine, regulations govern "generic, semi-generic, and non-generic designations of geographic significance." These rules state that "examples of generic names, originally having geographic significance, which are designations for a class or type of wine are: Vermouth, Sake," whereas "examples of nongeneric names which are also distinctive designations of specific grape wines are: Bordeaux Blanc, Bordeaux Rouge, Graves, Medoc, Saint-Julien, Chateau Yquem, Chateau Margaux, Chateau Lafite, Pommard, Chambertin, Montrachet, Rhone, Liebfraumilch, Rudesheimer, Forster, Deidesheimer, Schloss Johannisberger, Lagrima, and Lacryma Christi." TTB regulations also list "approved names by country" for grape wines from Germany, France, Italy, Portugal, and Spain. Other rules also apply. TTB also oversees designations and reviews petitions to establish new or expand existing American Viticultural Areas (AVAs) in the United States: "A viticultural area for American wine is a delimited grape-growing region having distinguishing features ... and a name and delineated boundary." AVA designations "allow vintners and consumers to attribute a given quality, reputation, or other characteristic of a wine made from grapes grown in an area to its geographic origin." TTB's list of current and pending AVAs in the United States is available from TTB's website. The oversight authority also rests with the U.S. Treasury Department. Mandatory labeling requirements apply for distilled spirits and malt beverages. Regulations specify certain "standards of identity" for the several classes and types of distilled spirits, such as vodka and grain spirits, whiskeys, gin, brandy, applejack, rum, tequila, cordials and liqueurs, flavored spirits, and imitations. These same regulations also specify standards of identity for "Class 11; geographical designations" and "Class 12; products without geographical designations but distinctive of a particular place." Class 11 GIs are geographical names for distinctive types of distilled spirits that have not become generic, such as Eau de Vie de Dantzig (Danziger Goldwasser), Ojen, or Swedish punch. Class 12—products without geographical designations but distinctive of a particular place—include, for example, whiskies produced in a foreign country. The oversight authority also rests with the U.S. Treasury Department. Issues involving generic and nongeneric grape wine names were formally addressed through bilateral negotiations in 2006 as part of the U.S.-EU Agreement on Trade in Wine. This agreement addressed a range of issues regarding wine production, labeling, and import requirements and was intended to establish predictable conditions for bilateral wine trade (as discussed later). Goals and Challenges within Ongoing Negotiations EU Views and Objectives EU officials publicly declared their intentions to maintain GI protections as part of the T-TIP negotiations, but the EU's tabled March 2016 proposals included annex lists with roughly 200 protected food and agricultural products, including meats and cheese, fruits and vegetables, and wines and spirits. EU member state Greece has also threatened to veto T-TIP unless GIs are protected, including feta cheese—a name claimed by the Greeks under the EU's GI regime. According to dairy industry representatives, cheese names on the EU's GI list represent about "14% of U.S. cheese production, valued at approximately $4.2 billion per year." More recent reports suggest that the EU might consider prioritizing this list to roughly 50 GIs. The EU's March 2016 proposal further notes the need to include specific GI provisions in T-TIP given perceived shortcomings in the U.S. system relating to GIs. The EU cites concerns regarding registration and judicial costs, ineffective protection against fraud and infringements, and misleading indications of origin, among other concerns. USTR claims that the U.S. trademark system provides adequate protection for European products in the United States. The EU's March 2016 proposal on wines and spirits includes provisions that would go beyond the 2006 U.S.-EU Agreement on Trade in Wine as part of the overall stated objectives to "improve cooperation" and "enhance the transparency of regulations" between the United States and EU. Previously, some in the U.S. wine industry had expressed concerns given public comments by European trade groups indicating their desire to renegotiate some provisions in the 2006 agreement. Recently concluded trade agreements between the EU and other third countries have raised concerns among U.S. winemakers and could restrict U.S. exports to these countries of wines that use certain "semi-generic" or "traditional" terms. The EU's T-TIP proposal would restrict the use of semi-generic wine terms and also extend the agreement to spirits. U.S. Views and Objectives Many U.S. food manufacturers view the use of common or traditional names as generic terms and the EU's protection of its registered GIs as a way to monopolize the use of certain food and wine terms and as a form of trade protectionism. Specifically, several industry groups have expressed concern that the EU is using GIs to impose restrictions on the use of common names for some foods—such as parmesan, feta, and provolone cheeses and certain wines—and limit U.S. food companies from marketing these foods using these common names. The United States does not protect a geographic term that is considered "generic"—that is, being "so widely used that consumers view it as designating a category of all of the goods/services of the same type, rather than as a geographic origin." Bilateral trade concerns arise when a product name recognized as a protected GI in Europe is considered a generic name in the United States. For example, in the United States, "feta" is considered the generic name for a type of cheese. However, it is protected as a GI in Europe. As such, feta cheese produced in the United States may not be exported for sale in the EU, since only feta produced in countries or regions currently holding GI registrations may be sold commercially. According to USTR, "The United States continues to have serious concerns with the EU's system for the protection of GIs, including with respect to its negative impact on the protection of trademark and market access for U.S. products that use generic names." Complicating this issue further are GI protections afforded to registered products in third country markets. This has become a concern for U.S. agricultural exporters following a series of recently concluded trade agreements between the EU and countries such as Canada, South Korea, South Africa, and other countries that are, in many cases, also major trading partners with the United States. Specifically, provisions in these agreements may provide full protection of GIs and not defer to a country's independent assessment of generic status for key product names. For example, separate recent agreements negotiated by the EU with Canada and South Africa could reportedly recognize up to 200 EU GIs for milk and dairy products, and could affect U.S. trade with Canada and South Africa. The text box below lists some of the cheese names where use is now restricted or at risk of being restricted in certain markets because of the EU's GI protections. Similar types of GI protections are reportedly also in other trade agreements between the EU and other countries, affecting a range of food products and wine. In addition to facing trade restrictions for U.S. products in the EU market, these protections may limit the future sale of U.S. exported products bearing such names to these third countries, regardless of whether the United States may have been exporting such products carrying a generic name for years. USTR's 2016 Special 301 Report on the status of global IPR protection and enforcement outlines U.S. concerns related to the treatment of GIs in the U.S.-EU trade negotiations and other initiatives with Canada, China, Costa Rica, El Salvador, Japan, Jordan, Morocco, the Philippines, South Africa, Vietnam, and others. According to this report, among the stated U.S. goals are ensuring that the grant of GI protection does not violate prior rights (e.g., in cases in which a U.S. company has a trademark that includes a place name); ensuring that the grant of GI protection does not deprive interested parties of the ability to use common names, such as parmesan or feta; ensuring that interested persons have notice of, and opportunity to oppose or to seek cancellation of, any GI protection that is sought or granted; ensuring that notices issued when granting a GI consisting of compound terms identify its common name components; and opposing efforts to extend the protection given to GIs for wines and spirits to other products. Some Members of Congress have long expressed their concerns about EU protections for GIs, which they claim are being misused to create market and trade barriers. They are also concerned about the implementation of GI protections in other trade agreements that have been or are being negotiated by the EU with other countries. USDA Secretary Tom Vilsack has also expressed concerns that the EU's system of protections for GIs "doesn't fit well into our trademark system because U.S. law seeks to protect the end agricultural product, not the process through which it is made." Previously, Secretary Vilsack indicated that the United States would not agree to EU demands to reserve certain food names for EU producers. Others note that the GI debate in the T-TIP threatens U.S. commercial interests by blocking current and future U.S. exports of agricultural products (particularly cheese exports), discriminating against U.S. branded products that have greatly expanded the visibility and demand for certain GI products, and creating inconsistency in EU lists of generic terms—for example, through the inclusion of new and expanded protected names, such as feta. Many U.S. food producers are also members of the Consortium for Common Food Names (CCFN), along with producers in other countries including Canada, Mexico, Argentina, Chile, and Costa Rica. This group aims to protect the right to use common food names and protect legitimate food-related GIs. Among the U.S. agricultural groups that are supporting these efforts are the Wine Institute, the American Farm Bureau Federation, Agri-Mark, the International Dairy Foods Association, the American Cheese Society, the American Meat Institute, the Northwest Horticultural Council, and the Wine Institute, as well as some food groups in Central and Latin America. Support in U.S. for EU GI Protections Some U.S. agricultural industry groups, however, are trying to create a system similar to the EU GI system for U.S. agricultural producers. Specifically, the American Origin Products Association (AOPA) is seeking to protect American Origin Products (AOPs) in the marketplace from fraud and deceptive labeling, increase the value-added for all AOPs as a distinct food category, and create a national system to recognize AOPs through certification, among other goals. This group contends that "GIs respond to new trends in consumer demand, including the growth in a 'foodie' culture; a consumer-driven interest in wine education; the creation of new specialty meats and cheeses; the search for food with a story and a greater demand for regional products." Members include Napa Valley Vintners, California Dried Plum Board, Cuatro Puertas/New Mexico Native Chile Peppers, the Ginseng Board of Wisconsin, the Idaho Potato Commission, the International Maple Syrup Institute, the Kona Coffee Farmers Association, the Maine Lobstermen's Association, Missouri Northern Pecan Growers, and Vermont Maple Sugar Makers. This divide is particularly evident in the U.S. wine industry, which had largely considered some of its concerns regarding the use of traditional and semi-generic names, among other related bilateral trade concerns, to have been partly addressed following bilateral negotiations and the existing agreement on wine in the 2006 agreement. The 2006 agreement addressed a range of issues regarding wine production, labeling, and import requirements and was intended to establish predictable conditions for bilateral wine trade. Among the key provisions in the 2006 agreement were measures regarding the U.S. industry's use of 16 "semi-generic" names of wine that originate in the EU (including Sherry, Chablis, and Chianti) as well as the use of certain traditional labeling terms (such as Chateau and Vintage). (See the following text box for a full listing of these terms.) The EU also agreed to accept all current U.S. winemaking practices and to establish a process to approve new practices. Despite this agreement, ongoing trade concerns include GIs and "semi-generic" terms, market access issues regarding "traditional" terms, new winemaking practices and related technical issues, and issues related to "regulatory coherence" (especially testing and certification). The Wine Institute and other U.S. agriculture groups have long asserted that the current EU GI registration process lacks transparency, often results in substantial bureaucratic delays, and is perceived as discriminating against non-EU products. However, other members of the U.S. wine industry, such as Napa Valley Vintners, have asserted that the real problem for wine GIs at the international level is the absence of a multilateral register for wines and spirits. In June 2016, Napa Valley wine growers expressed their support to EU officials for expanding and protecting the use of GIs in the United States, and many U.S. growing regions have joined a group called Wine Origins, which calls for strict identification of wine by growing region. There is also a divergence of opinion in the U.S. wine industry regarding GIs and "semi-generic" terms and their implications for the domestic wine industry. For more information on the 2006 agreement and the differing positions within the industry, see CRS Report R43658, The U.S. Wine Industry and Selected Trade Issues with the European Union . Next Steps Many in the U.S. agricultural sectors are looking to the proposed Trans-Pacific Partnership (TPP) agreement for indications on how certain proposals in T-TIP could be negotiated, particularly on issues such as regulatory coherence and GI names. For example, regarding GIs, the TPP agreement obligates member countries that recognize GI names to make this process available and transparent to all interested parties within the agreement while also providing a process allowing countries to cancel GI protection. Member countries that recognize GIs are also to adopt a procedure by which interested parties may object to the provision of a GI. Among the reasons the agreement lists for why a country may oppose a GI may include concerns that such protections may cause confusion with a trademark that is recognized within the country. Other provisions apply regarding wine and spirits. As the United States and EU continue to negotiate T-TIP, they are likely considering how GIs have been addressed in the TPP agreement as well as in other negotiated agreements. Stakeholders in the United States are also tracking GI issues in other ongoing negotiations between the EU and other third countries, including Canada and Japan. They also worry about the potential implications for global agricultural trade under these preferential agreements between the EU and its trading partners, as well as establishing precedent on certain issues. However, given concerns voiced primarily by the U.S. dairy industry and the seeming reluctance of either party to compromise on GIs, some have speculated whether this issue would need to be addressed at a higher political level than the negotiators within T-TIP.

Geographical indications (GIs) are place names used to identify products that come from these places and to protect the quality and reputation of a distinctive product originating in a certain region. The term is most often applied to wines, spirits, and agricultural products. Some food producers benefit from the use of GIs by giving certain foods recognition for their distinctiveness, differentiating them from other foods in the marketplace. In this manner, GIs can be commercially valuable. GIs may be eligible for relief from acts of infringement or unfair competition. GIs may also protect consumers from deceptive or misleading labels. Examples of registered or established GIs include Parmigiano Reggiano cheese and Prosciutto di Parma ham from the Parma region of Italy, Toscano olive oil from Tuscany, Roquefort cheese, Champagne from the region of the same name in France, Irish Whiskey, Darjeeling tea, Florida oranges, Idaho potatoes, Vidalia onions, Washington State apples, and Napa Valley Wines. The use of GIs has become a contentious international trade issue, particularly for U.S. wine, cheese, and sausage makers involved in trade between the United States and the European Union (EU). Accordingly, GIs are among the agricultural issues that have been raised in the ongoing Transatlantic Trade and Investment Partnership (T-TIP) negotiations, a potential reciprocal free trade agreement that the United States and the EU are negotiating. Many U.S. food manufacturers view the use of common or traditional names as generic terms and the EU's protection of its registered GIs as a way to monopolize the use of certain wine and food terms and as a form of trade protectionism. Specifically, several industry groups have expressed concern that the EU is using GIs to impose restrictions on the use of common names for some foods—such as parmesan, feta, and provolone cheeses and certain wines—and limit U.S. food companies from marketing these foods using these common names. Complicating this issue further are GI protections afforded to registered products in third country markets. This has become a concern for U.S. agricultural exporters following a series of recently concluded trade agreements between the EU and countries such as Canada, South Korea, South Africa, and other countries that are, in many cases, also major trading partners with the United States. Laws and regulations governing GIs differ between the United States and EU, which further complicates this issue. In the United States, GIs are generally treated as brands and trademarks, whereas the EU protects GIs through a series of established quality schemes. These approaches differ with respect to the conditions for protection or the scope of protection, but both establish rights for collective use by those who comply with defined standards. In the United States, the U.S. Patent and Trademark Office (PTO) administers GI protections, along with labeling requirements for wine, malt beverages, beer, and distilled spirits under the jurisdiction of the Alcohol and Tobacco Tax and Trade Bureau. In the EU, a series of regulations governing GIs was initiated in the early 1990s covering agricultural and food products, wine, and spirits. Legislation adopted in 1992 covered agricultural products (not including wines and spirits), but it was changed in 2006 following a World Trade Organization (WTO) panel ruling that found some aspects of the EU's scheme inconsistent with WTO rules. The new rules came into force in January 2013. GIs are also protected by agreements of the WTO as part of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Some Members of Congress have long expressed their concerns about EU protections for GIs, which they claim are being misused to create market and trade barriers. However, they are also concerned about the implementation of GI protections in other trade agreements that have been or are being negotiated by the EU with other countries.

China's Stake in the Current Crisis China's economy is heavily dependent on global trade and investment flows. In 2007, China overtook the United States to become the world's second-largest merchandise exporter after the European Union (EU). China's net exports (exports minus imports) contributed to one-third of its GDP growth in 2007. China's exports of goods and services as a share of GDP rose from 9.1% in 1985 to 37.8% in 2008 (see Figure 1 ). The Chinese government estimates that the foreign trade sector employs more than 80 million people, of which 28 million work in foreign-invested enterprises. Foreign direct investment (FDI) flows to China have been a major factor behind its productivity gains and rapid economic growth. FDI flows to China in 2007 totaled $75 billion, making it the largest FDI recipient among developing countries and the third largest overall, after the EU and the United States; FDI flows to China in 2008 were $92 billion. The current global economic slowdown (especially among its major export markets—the United States, the EU, and Japan) is having a significant negative impact on China's export sector and industries that depend on FDI flows. The Chinese economy slowed sharply in 2008 and early 2009. China's fourth-quarter 2008 real GDP growth (year-on-year basis) was 6.8%, and its 1 st quarter 2009 growth (year-on-year basis) was 6.1% (reportedly, the slowest quarterly growth in 10 years). Some analysts contend annual economic growth of less than 8% could lead to social unrest in China, given that an estimated 20 million people seek jobs every year (including migrant workers who move to urban centers and high school and college graduates). According to the International Monetary Fund (IMF), China was the single most important contributor to world economic growth in 2007. Thus, a Chinese economic slowdown (or recovery) could also have significant global implications. China's Exposure to the Global Financial Crisis The extent of China's exposure to the current global financial crisis, in particular from the fallout of the U.S. sub-prime mortgage problem, is unclear. On the one hand, China places numerous restrictions on capital flows, particularly outflows, in part so that it can maintain its managed float currency policy. These restrictions limit the ability of Chinese citizens and many firms to invest their savings overseas, compelling them to invest those savings domestically, (such as in banks, the stock markets, real estate, and business ventures), although some Chinese attempt to shift funds overseas illegally. Thus, the exposure of Chinese private sector firms and individual Chinese investors to sub-prime U.S. mortgages is likely to be small. Moreover, Chinese government entities, such as the State Administration of Foreign Exchange, the China Investment Corporation (a $200 billion sovereign wealth fund created in 2007), state banks, and state-owned enterprises, may have been more exposed to troubled U.S. mortgage securities. Chinese government entities account for the lion's share of China's (legal) capital outflows, much of which derives from China's large and growing foreign exchange reserves. These reserves rose from $403 billion in 2003 (year end) to $2.1 trillion as of June 2009. In order to earn interest on these holdings, the Chinese government invests in overseas assets. A large portion of China's reserves are believed to be invested in U.S. securities, such as long-term (LT) Treasury debt (used to finance the federal deficit), LT U.S. agency debt (such as Freddie Mac and Fannie Mae mortgage-backed securities), LT U.S. corporate debt, LT U.S. equities, and short-term (ST) debt. The Treasury Department estimates that, as of June 2008, China's holdings of U.S. securities totaled $1,205 billion (up from $922 billion in June 2007), making it the second-largest foreign holder of such securities (after Japan). Of this total, $527 billion were in LT U.S. agency securities, $522 billion were in LT Treasury securities, $100 billion in LT equities, $26 billion in LT corporate securities, and $30 billion in ST debt. If China held troubled sub-prime mortgage backed securities, they would likely be included in the corporate securities category and certain U.S. equities (which include investment company share funds, such as open-end funds, closed-end funds, money market mutual funds, and hedge funds) which may have been invested in real estate. However, these were a relatively small share of China's total U.S. securities holdings. China's holdings of Fannie Mae and Freddie Mac securities (though not their stock) were likely to have been more substantial, but less risky (compared to other mortgage-backed securities), especially after these two institutions were placed in conservatorship by the Federal Government in September 2008 and thus have government backing. The Chinese government generally does not release detailed information on the holdings of its financial entities, although some of its banks have reported on their level of exposure to sub-prime U.S. mortgages. Such entities have generally reported that their exposure to troubled sub-prime U.S. mortgages has been minor relative to their total investments, that they have liquidated such assets and/or have written off losses, and that they (the banks) continue to earn high profit margins. For example, the Bank of China (one of China's largest state-owned commercial banks) reported in March 2008 that its investment in asset-backed securities supported by U.S. sub-prime mortgages totaled $10.6 billion in 2006 (accounting for 3.5% of its investment securities portfolio). In October 2008, it reported that it had reduced holdings of such securities to $3.3 billion (1.4% of its total securities investments) by the end of September 2008, while its holdings of debt securities issued or backed by Freddie Mac and Fannie Mae were at $10 billion. Fitch Ratings service reported that the Bank of China's exposure to U.S. sub-prime-related investments was the largest among Asian financial institutions, and that further losses from these investments were likely, but went on to state that the Bank of China would be able to absorb any related losses "without undue strain." However, China's economy has not been immune to effects of the global financial crisis, given its heavy reliance on trade and foreign direct investment (FDI) for its economic growth. Numerous sectors were hard hit. To illustrate: The real estate market in several Chinese cities experienced a sharp slowdown in construction, falling prices and growing levels of unoccupied buildings. This increased pressure on the banks to lower interest rates further to stabilize the market. The value of China's main stock market index, the Shanghai Stock Exchange Composite Index, lost nearly two-thirds of its value from December 31, 2007, to December 31, 2008. China's trade and FDI plummeted sharply, as indicated in Figure 2 . Exports and imports from January-July 2009 were down 22.0% and 23.6%, respectively on a year-on-year basis; they declined 10 straight months beginning in November 2008. FDI flows to China from January-July 2009 were down 20.4%; they declined for 10 consecutive months beginning in October 2008 (year-on-year basis). The Chinese government in January 2009 estimated that 20 million migrant workers alone had lost their jobs in 2008 because of the global economic slowdown. During the first four months of 2009, industrial output rose by 5.5% year-on-year, well below the 12.9% growth rate in 2008. China's Response to the Crisis China has taken a number of steps to respond to the global financial crisis. On September 27, 2008, Chinese Premier Wen Jiabao reportedly stated that "what we can do now is to maintain the steady and fast growth of the national economy, and ensure that no major fluctuations will happen. That will be our greatest contribution to the world economy under the current circumstances." In addition to cutting interest rates and boosting bank lending, China has implemented a number of policies to stimulate and rebalance the economy, increase consumer spending, restructure and subsidize certain industries, and boost incomes for farmers and rural poor. China's Stimulus Program On November 9, 2008, the Chinese government announced it would implement a two-year, 4 trillion yuan ($586 billion) stimulus package (equivalent to 13.3% of China's 2008 GDP), largely dedicated to infrastructure projects. The package would finance public transport infrastructure (including railways, highways, airports, and ports) affordable housing, rural infrastructure (including irrigation, drinking water, electricity, and transport), environmental projects, technological innovation, health and education, and rebuilding areas hit by disasters (such as areas that were hit by the May 12, 2008 earthquake, primarily in Sichuan province). China's stimulus, if fully implemented, would likely constitute one of the largest economic stimulus packages (both in spending levels and as a percent of GDP) that have been announced by the world's major economies to date, although it is unclear to what extent the stimulus package represents new spending versus projects that were already in the works before the economic downturn hit China. Table 1 provides a breakdown of the stimulus program spending priorities. The Chinese stimulus program includes steps the government intends to take to assist 10 pillar industries (i.e., industries deemed by the government to be vital to China's economic growth) to promote their long-term competitiveness. These industries include autos, steel, shipbuilding, textiles, machinery, electronics and information, light industry (such as consumer products), petrochemicals, non-ferrous metals, and logistics. Government support policies for the 10 industries are expected to include tax cuts and incentives (including export tax rebates), industry subsidies and subsidies to consumers to purchase certain products (such as consumer goods and autos), fiscal support, directives to banks to provide financing, direct funds to support technology upgrades and the development of domestic brands, government procurement policies, the extension of export credits, and funding to help firms invest overseas. On April 7, 2009, the Chinese government announced plans to spend $124 billion over the next three years to create a universal health care system. The plan would attempt to extend basic coverage to most of the population by 2011, and would invest in public hospitals and training for village and community doctors. A number of efforts have been made to boost rural incomes and spending levels and to narrow the gap in living standards between rural and urban citizens (as well as between coastal and western regions of the country). For example, since February 2009, an estimated 900 million Chinese rural residents have been eligible to receive a 13% rebate for purchase of home appliances. Public housing projects, education, and infrastructure projects are largely targeted to rural areas. The government has also announced plans to boost agricultural subsidies to farmers. On June 24, 2009, China's State Council launched a new pilot rural pension program that will initially cover 10 percent of China's counties beginning in October 2009 (Currently most rural farmers are not covered by pension system). Has China's Economy Bottomed Out? Chinese officials contend that their economic policy efforts are beginning to produce results. They note a number of positive developments: GDP in the second quarter of 2009 grew by 7.9%, compared to 6.1% growth in the first quarter 2009, on a year-on-year basis. Several economic forecasting firms have recently predicted a strong Chinese economic recovery. For example, Global Insight in August 2009, predicted China's real GDP would grow 8.0% in 2009 and 10.1% in 2010, while the Economist Intelligence Unit projected real growth at 8.0% for both years. China's Shanghai Stock Exchange Composite Index has risen by 67.3% since the beginning of the year (through August 14, 2009. A number of sectors have enjoyed healthy growth during the first seven months of 2009. Although they have not achieved levels that occurred before the global economic crisis, they could signify that a recovery is taking place. For example, retail sales were up 15% (6.7 percentage points lower than in the previous, urban fixed-asset investment rose 32.9% (0.7% percentage points lower), and industrial output rose by 7.5% (8.6 percentage points lower). Real estate prices in major cities have also begun to rise over the past few months. Although there are many indicators of a Chinese economic recovery (with the exception of trade and FDI flows), there are numerous concerns over long-term growth prospects. Many analysts note that much of the recent economic growth that has occurred has resulted from large-scale bank lending and infrastructure spending projects, rather than consumer spending. In addition, many analysts have raised concerns that the large level of borrowing by local governments and state-owned enterprises could lead to a sharp rise in non-performing loans on the balance sheets of China's major banks, and could cause local governments to be become heavily indebted. Many analysts are also concerned that the stimulus policies that China has implemented to date could slow efforts to further reform the economy, especially in regards to state-owned enterprises and the banking system. Some have charged that China has rolled backed some it its economic reforms by boosting industrial subsidies and increasing trade and investment barriers, in order to assist firms deemed by the government to be vital to future development. China has also imposed "buy China" regulations to prevent participation by foreign firms and ensure that stimulus money benefit only Chinese firms. Many economists contend that China's long-term economic growth prospects will likely depend on the ability of the government to rebalance the economy by promoting greater domestic consumption and to deepen market-oriented economic reforms. Thus, China's current economic recovery could be short-lived. China's Potential Role and Implications for the United States Analysts debate what role China might play in responding to the global financial crisis, given its huge foreign exchange reserves (at over $2 trillion) but its relative reluctance to become a major player in global economic affairs and its tendency to be cautious with its reserves. Some have speculated that China may, in order to help stabilize its most important trading partner (the United States), boost purchases of U.S. securities (especially Treasury securities) in order to help fund the hundreds of billions of dollars that are expected to be spent by the U.S. government to purchase troubled assets and stimulate the economy. Additionally, China might try to shore up the U.S. economy by buying U.S. stocks (or might do so to take advantage of relatively low prices). During her visit to China on February 21, 2009, Secretary of State Hillary Rodham Clinton stated that she appreciated "greatly the Chinese government's continuing confidence in the United States Treasuries," and she urged the government to continue to buy U.S. debt. Some contend that taking an active role to help the United States (and other troubled economies) would boost China's image as a positive contributor to world economic stability, similar to what occurred during the 1997-1998 Asian financial crisis when it offered financial aid to Thailand and pledged not to devalue its currency. On the other hand, there are a number of reasons why China might be reluctant to significantly increase its investments of U.S. assets. One concern could be whether increased Chinese investments in the U.S. economy would produce long-term economic benefits for China. Some Chinese investments in U.S. financial companies have fared poorly, and Chinese officials could be reluctant to put additional money into investments that were deemed to be too risky. Secondly, a sharp economic downturn of the Chinese economy would likely increase pressure to invest money at home, rather than overseas. Many analysts (including some in China) have questioned the wisdom of China's policy of investing a large volume of foreign exchange reserves in U.S. government securities (which offer a relatively low rate of return) when China has such huge development needs at home. China's holdings of U.S. securities at the end of 2008 are estimated to have been roughly equivalent to over $1,000 per person in China, a significant figure for a country with a per capita GDP of about $3,190 (2008). On March 13, 2009, Wen Jiabao at a news conference stated that he was "a little bit worried" about the safety of Chinese assets in the United States On March 24, 2009, the governor of the People's Bank of China, Zhou Xiaochuan, published a paper calling for the replacing the U.S. dollar as the international reserve currency with a new global system controlled by the International Monetary Fund. Many analysts (including some in China) have questioned the wisdom of China's policy of investing a large level of foreign exchange reserves in U.S. government securities, which offer a relatively low rate of return when China has such huge development needs at home. While additional large-scale Chinese purchases of U.S. securities might provide short-term benefits to the U.S. economy and may be welcomed by some policymakers, they could also raise a number of issues and concerns. Some U.S. policymakers have expressed concern that China might try to use its large holdings of U.S. securities as leverage against U.S. policies it opposes. For example, various Chinese government officials reportedly suggested on a number of occasions in the past that China could dump (or threaten to dump) a large share of its holdings in order to counter U.S. pressure (such as threats of trade sanctions) on various trade issues (such as China's currency policy). In exchange for new purchases of U.S. debt, China would likely want U.S. policymakers to lower expectations that China will move more rapidly to reform its financial sector and/or allow its currency to appreciate more substantially against the dollar. Some analysts have suggested that China could choose to utilize its reserves to buy stakes in various distressed U.S. industries. However, this could also raise concerns in the United States that China was being allowed to buy equity or ownership in U.S. firms at rock bottom prices, that technology and intellectual property from acquired firms could be transferred to Chinese business entities (boosting their competitiveness vis-a-vis U.S. firms), and that becoming a large stakeholder in major U.S. companies could give the Chinese government increased political influence in the United States. U.S. policymakers in the past have sometimes opposed attempts by Chinese firms to acquire shares or ownership of U.S. firms. While attending the G-20 summit in London on the global financial crisis on April 1, 2009, President Obama and President Hu met and pledged "to work together to resolutely support global trade and investment flows, "resist protectionism," and to resume high-level cooperation on long-term economic issues under the Strategic and Economic Dialogue (S&ED). The first round of the S&ED was held in Washington, D.C. on July 27-28, 2009. The two sides agreed to continue cooperation on a number of economic fronts, including promoting balanced economic growth and financial reforms. It is unclear to what extent the global financial crisis will affect U.S.-Chinese economic ties. Prior to the crisis, U.S. officials urged China to adopt economic reforms, especially in terms of the financial system, in ways that would emulate the U.S. economic model. Once the economic crisis hit, China was quick to blame U.S. economic policies for the crisis, and thus, U.S. influence with China on economic issues may have waned somewhat. China's increased use of subsides, "buy China" procurement regulations, and trade and investment barriers could increase pressure in the United States to utilize U.S. trade laws against unfair trade practices and/or to provide temporary relief to U.S. firms and workers injured by import surges from China. Chinese officials have countered with their own complaints over rising U.S. "protectionism." Although China has attempted to diversify its large foreign exchange holdings and to make its currency more convertible in international exchange markets (such as through currency swap arrangements with various countries), it is unlikely ( at least in the near term) to make major changes to its heavy reliance on the dollar as its main source of foreign exchange reserves (and investments in dollar-denominated assets), nor is China in a position to make its currency fully convertible in international exchange rate markets (due to the relative weakness of its banking system). However, Chinese officials are deeply concerned over the security of their dollar holdings if the dollar undergoes a sharp depreciation against major currencies in the future (possibly arising from rising U.S. public debt). Such concerns may also spur the Chinese government to take more steps to promote domestic consumption, and lessen dependence on trade and FDI flows, as a source of economic growth.

Over the past several years, China has enjoyed one of the world's fastest-growing economies and has been a major contributor to world economic growth. However, the current global financial crisis has significantly slowed China's economy; real gross domestic product (GDP) fell from 13.0% in 2007 to 8.0% in 2008. Several Chinese industries, particularly the export sector, have been hit hard by crisis, and millions of workers have reportedly been laid off. This situation is of great concern to the Chinese government, which views rapid economic growth as critical to maintaining social stability. China is a major economic power and holds huge amounts of foreign exchange reserves, and thus its policies could have a major impact on the global economy. The Chinese government has stated that it plans to rebalance the economy by lessening its dependence on exports for economic growth while boosting domestic demand. In November 2008, the Chinese government announced a $586 billion spending package to help stimulate the domestic economy, largely geared towards new infrastructure projects. In addition, the government ordered banks to sharply expand loans to local governments and businesses to expand investment. The government has also offered a number of programs to stimulate domestic consumption of consumer products (such as cars and appliances), especially in the rural areas. As a result, China's economy has shown some improvement. For example, its GDP in the second quarter of 2009 grew by 7.9%, compared to 6.1% growth in the first quarter 2009, on a year-on-year basis. However, from January to July 2009, China's trade was down 23% over the same period in 2008, while foreign direct investment fell 18%. Some analysts have criticized various aspects of China's economic stimulus policies. Some contend that China, in an effort to assist firms impacted by the global economic slowdown, has imposed numerous new trade-distorting policies, such as extensive industrial subsidies and trade and investment restrictions on foreign firms. In addition, many analysts warn that the easy lending policies of Chinese state-owned banks may later lead to a sharp increase in the level of non-performing loans by these banks if loans go to investments that fail to produce long-term returns. China's efforts to stabilize its economy are of major concern to U.S. policy makers. If successful, such policies could boost Chinese demand for U.S. products. In addition, China is a major purchaser of U.S. Treasury securities, which help fund the Federal Government's borrowing needs, and thus its decision whether or not to continue to purchase U.S. debt could impact the U.S. economy. U.S. policy makers also want to ensure that, despite the sharp downturn in the Chinese economy from the effects of current global economic downturn, China will continue to reform its economy and liberalizes its trade regime and refrain from imposing policies that restrict or distort trade.

Introduction On November 4, 2008, the U.S. Court of Appeals for the Federal Circuit issued its decision in Rothe Development Corporation v. Department of Defense , a case involving a challenge to the constitutionality of a "small disadvantaged business" (SDB) program of the Department of Defense (DOD). As part of the SDB program, DOD could apply a 10% price evaluation adjustment to the offers of small businesses owned and controlled by socially and economically disadvantaged individuals in pursuit of its goal of awarding 5% of its contract dollars to such businesses, among others. In determining which small businesses were socially and economically disadvantaged, the SDB program relied upon Section 8(d) of the Small Business Act, which presumes that minorities are socially and economically disadvantaged, while also allowing non-minorities to demonstrate disadvantage. Rothe Development Corporation (RDC) challenged the constitutionality of the SDB program after losing a contract to a Korean-American-owned firm. RDC's offer would have been lower had DOD not applied a 10% price evaluation preference to the Korean-American firm's offer. RDC claimed that the SDB program was unconstitutional, both on its face and as applied, because the program denied it equal protection by treating minority and nonminority businesses differently. Prior litigation had resolved the as-applied challenge in RDC's favor, and, in its decision, the Federal Circuit resolved the facial challenge in RDC's favor as well. The Federal Circuit found that DOD's SDB program was unconstitutional because, when re-enacting the program in 2006, Congress lacked a "strong basis in evidence" for concluding that race-conscious contracting was necessary to remedy discrimination in the defense industry. The Federal Circuit's decision in Rothe was followed on February 27, 2009, by a decision of the U.S. District Court for the Western District of Texas, San Antonio Division, to which the case had been remanded for entry of judgment. This decision enjoined defense agencies from implementing other programs authorized by Section 1207 because these programs were "contingent" on the subsections containing the price preference and must "also fall" when those subsections did. These programs included technical and infrastructure assistance for certain minority-serving institutions (MSIs) of higher education, including historically black colleges and universities (HBCUs), Hispanic-serving institutions (HSIs), Alaska Native- and Native Hawaiian-serving institutions (ANNHIs), and majority-minority institutions (MMIs). However, the 111 th Congress responded to the District Court's decision by enacting legislation authorizing defense agencies to provide assistance similar to that authorized under Section 1207 to MSIs. On September 9, 2011, the Obama Administration proposed amending the Federal Acquisition Regulation (FAR) in light of the decisions by the Federal Circuit and the district court in Rothe . Among other things, the proposed changes would delete those provisions of the FAR which govern price evaluation adjustments to bids or offers submitted by small disadvantaged businesses for defense contracts, as well as relocate and amend those provisions of the FAR regarding monetary incentives and evaluation factors for subcontracting with small disadvantaged businesses. The report examines the Rothe decision in detail; describes existing contracting programs for minority-owned and women-owned small businesses; and analyzes Rothe 's potential effect on these programs, including the Business Development Program under Section 8(a) of the Small Business Act. These programs were not at issue in Rothe and would not be substantively changed by the Obama Administration's proposed amendments to the FAR. However, as numerous commentators and the Small Business Administration (SBA) have recognized, the Rothe decision could have significant implications for other federal contracting programs for small businesses. In particular, commentators wonder whether the government could demonstrate a "strong basis in evidence" for these programs, which include the subcontracting programs under Sections 8(a) and (d) of the Small Business Act, if they were challenged. Background DOD's Small Disadvantaged Business Program The Rothe case involved a constitutional challenge to one specific federal program for minority-owned small businesses: DOD's SDB program. This program was created by Section 1207 of the Department of Defense Authorization Act of 1987, which was captioned "Contract Goal for Minorities." Section 1207 established, as a goal for DOD, that 5% of DOD's contract dollars for procurement, research and development, testing and evaluation, military construction, and operations and maintenance be awarded to "small business concerns ... owned and controlled by socially and economically disadvantaged individuals." Section 1207 further required or allowed DOD to take certain steps in meeting this 5% goal. Among the steps DOD was required to take were (1) making advance payments and (2) providing "technical assistance," such as advice regarding DOD procurement procedures and instruction in preparing proposals. DOD was also given discretion to "enter into contracts using less than full and open competitive procedures," which included applying price evaluation adjustments of up to 10% to offers submitted by small disadvantaged businesses. For purposes of the SDB program, "socially and economically disadvantaged" had the same meaning it has under Section 8(d) of the Small Business Act, which presumes that minorities are socially and economically disadvantaged but allows non-minorities to demonstrate disadvantage. Although Section 1207 originally applied only to DOD and only for FY1987 to FY1989, its re-enactments encompassed the National Aeronautics and Space Administration (NASA) and the Coast Guard, as well as all fiscal years between 1989 and 2009. These periodic re-enactments of Section 1207 to extend DOD's "contracting goal for minorities," illustrated by Table 1 , ultimately determined the outcome in Rothe because, according to the Federal Circuit, Congress did not have sufficient evidence of racial discrimination in defense contracting when it re-enacted Section 1207 in 2006. The Federal Acquisition Streamlining Act (FASA) temporarily granted other federal agencies the same authority that DOD, NASA, and the Coast Guard had under Section 1207. However, these provisions of FASA were not reauthorized when they expired at the end of FY2003. The 5% goal for contracting with small disadvantaged businesses under Section 1207 is not the only government-wide or DOD goal for contracting with such businesses. Sections 644(g)(1) and (2) of the Small Business Act require (1) that the federal government award at least 5% of all contract dollars to small disadvantaged businesses and (2) that DOD establish, in conjunction with the SBA, similar goals that "realistically reflect the potential of ... small business concerns owned and controlled by socially and economically disadvantaged individuals ... to perform such contracts and to perform subcontracts under such contracts." However, while 15 U.S.C. §644(g) establishes or requires goals for contracting with small disadvantaged businesses, such goals are purely aspirational. Section 644(g) does not authorize agencies to use price evaluation adjustments—or any other mechanism—to attain contracting goals. The constitutionality of § 644(g) was not challenged in Rothe , nor was that of any other federal contracting program benefiting minority-owned small businesses. The Facts Underlying the Rothe Litigation The constitutionality of Section 1207 was at issue in the Rothe case because DOD used its price evaluation adjustment authority under Section 1207 in awarding a contract to a competitor of the Rothe Development Corporation (RDC). Beginning in the late 1980s, RDC had a contract with the Department of the Air Force to maintain, operate, and repair computer systems at Columbus Air Force Base in Mississippi. In the late 1990s, the Air Force decided to consolidate the contract that RDC had with a contract for communications services. When doing so, it also decided to let the contract pursuant to Section 1207 and issued a solicitation for competitive bids. RDC bid $5.57 million. However, RDC was not a small disadvantaged business, and International Computer and Telecommunications, Inc. (ICT), a minority-owned small business eligible for the price evaluation adjustment under Section 1207, bid $5.75 million. When 10% (or $575,000) was subtracted from ICT's bid, its bid was lowest, and the Air Force awarded the contract to it. RDC filed suit in U.S. District Court for the Western District of Texas, San Antonio Division, alleging that Section 1207 deprived it of equal protection under the U.S. Constitution both as applied and on its face. RDC's as-applied challenge focused upon Section 1207 in its 1992 re-enactment, which governed DOD's award of the contract to ICT, while RDC's facial challenge ultimately focused upon the 2006 re-enactment of Section 1207, which was in effect at the time when the Federal Circuit heard the appeal. DOD countered that Section 1207 "satisfies the strict scrutiny standard established by the United States Supreme Court in Adarand v. Peña ." DOD did not contest whether Section 1207's presumption regarding race and disadvantage constituted a racial classification subjecting its SDB program to strict scrutiny. The Constitutional Principles at Issue in Rothe The claims and defenses of the parties to the Rothe litigation rested on the U.S. Constitution and case law interpreting it. The Fifth Amendment to the Constitution guarantees due process of law to individuals in their dealings with the federal government. Due process under the Fifth Amendment includes equal protection, or the constitutional assurance that the government will apply the law equally to all people and not improperly prefer one class of people over another. For this reason, consideration of race by the federal government, even when intended to remedy past discrimination, is constitutional only if it meets the so-called strict scrutiny test, which requires that a race-conscious government program be narrowly tailored to further a compelling government interest. An alleged government interest qualifies as a compelling one, for due process or equal protection purposes, only when the government entity creating the racial classification (1) identified public or private discrimination with some specificity before resorting to race-conscious remedies and (2) had a "strong basis in evidence" to conclude that race-conscious remedies were necessary before enacting or implementing these remedies. As regards the "strong basis in evidence" requirement, the government has the burden of producing statistical evidence sufficient to support an inference of discrimination. Once the government has done this, the plaintiffs challenging the government's action have the burden of persuasion in refuting the government's evidence and establishing race-neutral explanations for any apparent racial disparities alleged by the government. Plaintiffs can do this by, among other things, showing that the government's statistics are flawed; demonstrating that the disparities shown by the government's statistics are not significant; or presenting contrasting statistical data of their own. Prior Litigation in the Rothe Case In applying the legal tests for equal protection to the facts of the case, the federal courts issued several opinions prior to the Federal Circuit's November 2008 decision. On April 27, 1999, the district court granted summary judgment to DOD, upholding the constitutionality of Section 1207 and denying RDC relief, because it found "no illegitimate purpose, no racial preference, and no racial stereotyping" at work in Section 1207. RDC appealed to the U.S. Court of Appeals for the Fifth Circuit, which transferred the case to the Federal Circuit because RDC asserted claims under the Tucker Act as well as under the U.S. Constitution. Tucker Act claims are within the exclusive appellate jurisdiction of the Federal Circuit. It was because of this transfer of the case from the Fifth Circuit to the Federal Circuit that the Federal Circuit decided Rothe using Fifth Circuit law. The Federal Circuit's reliance on Fifth Circuit precedent does not make Rothe precedent for the Fifth Circuit, however, because federal circuits are not bound by other circuits' interpretations of their law. On November 8, 2000, the Federal Circuit vacated the district court's decision and remanded the case for further proceedings because the district court, in finding for DOD, had not applied strict scrutiny and impermissibly considered evidence of discrimination that arose after Section 1207 had been re-enacted. On July 2, 2004, the district court issued a second opinion, holding that Section 1207 was unconstitutional as applied in 1998, but constitutional on its face. In reaching this holding, the court found that while DOD failed to demonstrate that Congress had sufficient evidence of discrimination when it re-enacted Section 1207 in 1992, DOD had shown that Congress had such evidence when it re-enacted Section 1207 in 2002. RDC appealed to the Federal Circuit, which affirmed the district court on the as-applied challenge and remanded the case for consideration of the merits of the facial challenge. When the district court again granted summary judgment to DOD on RDC's facial challenge, RDC filed the appeal that that gave rise to the Federal Circuit's decision on November 4, 2008. The primary question at issue in the decision that would become " Rothe VII" was whether Section 1207 was unconstitutional on its face as re-enacted in 2006. Federal Circuit's Decision Finding Section 1207 Unconstitutional In its November 4, 2008, decision, the Federal Circuit found that Section 1207 was unconstitutional on its face because, when Congress re-enacted Section 1207 in 2006, it lacked a strong basis in evidence for concluding that race-conscious contracting was necessary to remedy discrimination in the defense industry. The district court, which had upheld the constitutionality of the challenged SDB program in " Rothe VI," had found that six state and local disparity studies, along with other statistical and anecdotal evidence, constituted a strong basis in evidence for the re-enactment of Section 1207. The Federal Circuit disagreed. It found that the six state and local disparity studies—which had been the "primary focus of the district court's compelling interest analysis and of the parties' arguments on appeal" —did not constitute a strong basis in evidence because they did not provide the "substantially probative and broad-based statistical foundation ... that must be the predicate for nationwide, race-conscious action." The Federal Circuit first found significant methodological flaws with all of the disparity studies. According to the Federal Circuit, two of the six studies failed to exclude unqualified businesses in calculating the number of minority businesses available for government contracts, while five of the six studies failed to account for the relative capacity of minority-owned small businesses in contracting with the government. These flaws, coupled with the fact that the studies' findings addressed only six of the more than 3,000 counties and equivalent regions making up the United States, prompted the Federal Circuit to find that the studies were insufficient to constitute a strong basis in evidence for the nationwide SDB program. The Federal Circuit also suggested, although it reached no final holding on the issue, that the studies were not "before Congress" when Section 1207 was reenacted because they were mentioned by name or discussed only in two floor speeches and Congress did not make any findings concerning them. The Federal Circuit similarly found that other statistical data and anecdotes discussed by the parties and the district court were insufficient to constitute a strong basis in evidence for the SDB program. The Federal Circuit discounted the remaining statistical evidence because it was mentioned only in floor speeches, without being the subject of congressional findings. In fact, the court noted that some of the purported evidence was not even "sufficiently described ... for [the Federal Circuit] to locate [it], let alone subject [it] to detailed, skeptical, non-deferential analysis." It likewise discounted the anecdotal evidence, even though this evidence had been introduced at congressional hearings, because "anecdotal evidence is insufficient by itself to support Section 1207 ." The Federal Circuit further noted that the anecdotal evidence, including that compiled by the district court, did not address "a single instance of alleged discrimination by DOD in the course of awarding a prime contract, nor a single instance of alleged discrimination by a private contractor identified as the recipient of a prime defense contract." The Federal Circuit found this lack of evidence of discrimination in DOD contracts significant because it suggested that the government could not prove "passive participation" in discrimination, as required under City of Richmond v. Croson , as a justification for DOD's SDB program. Under Croson , a government entity can resort to racial classifications in situations when it is not remedying its own prior discrimination if it can show it is a "passive participant" in a system of racial exclusion practiced by industry. District Court's Judgment Prohibiting Section 1207 Programs for Minority-Serving Institutions At the end of its decision in Rothe VII, the Federal Circuit remanded the case to the U.S. District Court for the Western District of Texas, San Antonio Division, with instructions for the district court to enter a judgment declaring Section 1207, as re-enacted in 2006, facially unconstitutional and enjoining application of the current 10 U.S.C. § 2323. The district court entered its judgment on February 27, 2009, prohibiting defense agencies not only from implementing price evaluation adjustments for offers from small disadvantaged businesses but also from implementing technical and infrastructure assistance programs for certain minority-serving institutions (MSIs) of higher education, including historically black colleges and universities (HBCUs), Hispanic-serving institutions (HSIs), Alaska Native- and Native Hawaiian-serving institutions (ANNHIs), and majority-minority institutions (MMIs). Although the government argued on remand that the judgment should be limited to subsections (a)(1)(A) and (e)(3) of Section 1207, which incorporated the price evaluation adjustment authority applicable to the offers of small disadvantaged businesses that had been the focus of the parties' arguments and the Federal Circuit's decision, the district court disagreed. It struck down the totality of Section 1207 as presently codified in 10 U.S.C. § 2323, including 1. Provisions in subsection (a)(1)(A)-(D) allowing awards to qualified HUBZone small businesses, HBCUs, HSIs, ANNHIs, and MMIs to count toward DOD's 5% goal; 2. Provisions in subsections (c)(1)-(4) authorizing DOD to provide technical assistance to entities counting toward its 5% goal, as well as infrastructure assistance to minority institutions; 3. Provisions in subsection (e)(2) allowing DOD to make advance payments to qualifying entities; and 4. Provisions in sections (f)-(k) containing definitions and addressing implementation of DOD's SDB program. In so deciding, the district court specifically rejected arguments that any preferences for HUBZone businesses are race neutral and that RDC lacks standing to challenge infrastructure assistance to colleges and universities. The court's reasoning in doing so, and in issuing its judgment, was that the Federal Circuit struck down the totality of section (a) in its decision, and sections (b) through (k) are contingent upon section (a) and must "also fall" when section (a) does. On March 10, 2009, the Under Secretary of Defense (Acquisition, Technology & Logistics) responded to the District Court's decision by directing that … any activity, which includes but is not limited to the award of contracts and orders under contracts, advance payments, and the award of grants or scholarships or the addition of funds to existing grants and scholarships, that rely exclusively on the authority of 10 U.S.C. § 2323 should cease. A subsequent memorandum from the Department of the Army clarified that, for purposes of Army programs, options under existing contracts "should be treated … as separate contract action[s] and the contracting organization should not exercise the option if the funding authority for the underlying contract stemmed solely from Title 10 U.S.C. Section 2323." The memorandum also stated that the Army's goals for assistance to HBCUs remain in effect as aspirational goals and that pre-existing agreements with HBCUs could be continued until they lapse because the district court's decision was prospective and governed only contracting and other actions initiated after February 26, 2009. The 111 th Congress responded to the district court's decision, in part, by establishing a new program to assist HBCUs, HSIs, ANNHIs, MMIs, and other MSIs in performing "defense-related research, development, testing, and evaluation activities." Among the forms of assistance that defense agencies may provide under this program are grants, scholarships, fellowships, and the acquisition of research equipment and instrumentation. Proposed Amendments to the FAR On September 9, 2011, the Obama Administration proposed amending the FAR in light of the decisions by the Federal Circuit and the district court in Rothe . The Administration proposes to delete those portions of the FAR which govern price evaluation adjustments to bids or offers submitted by small disadvantaged businesses for defense contracts, and which are rooted solely in Section 1207 of the Department of Defense Authorization Act of 1987 (i.e., Subpart 19.11 and the corresponding clause at FAR 52.219-23). It also proposes to relocate and otherwise amend those provisions of the FAR which govern monetary incentives and evaluation factors for subcontracting with small disadvantaged businesses, and which are rooted in the Small Business Act (i.e., Subpart 19.12 and corresponding clauses FAR 52.219-24, 52.219-25 and 52.219-26). According to the Administration, the latter provisions "were not at issue in the Rothe decision, and therefore retain their legal status." Implications of the Rothe Decision for Federal Small-Business Contracting Programs As numerous commentators and the SBA have recognized, the Federal Circuit's decision in Rothe could have significant implications for the percentage of federal contract dollars awarded to minority-owned small businesses and for other federal contracting programs for small businesses. The demise of DOD's price evaluation adjustment authority under Section 1207 is not, in itself, necessarily all that significant, in part because other provisions of law have precluded DOD from exercising this authority for over a decade, as is discussed below. Potentially more serious is the effect that the Rothe decision could have on other programs for small disadvantaged businesses, which minority-owned small businesses are presumed to be. The Rothe decision arguably suggests grounds upon which potential plaintiffs might be able to successfully challenge these programs. The Rothe decision could also potentially leave programs for women-owned small businesses vulnerable to constitutional challenges. While not subject to strict scrutiny like the program for minority contractors at issue in Rothe , these programs are subject to heightened scrutiny rather than rational basis review, which is the most deferential form of judicial scrutiny. Other programs for small businesses should be unaffected by the Rothe decision. Will Rothe Lead to a Decline in Federal Contracting with Minority-Owned Businesses? Many commentators concerned about the potential effects of the Rothe decision have noted that the decision could cause the percentage of federal contract dollars awarded to minority-owned small businesses to decrease because it bars DOD from making price evaluation adjustments to the offers of minority-owned small businesses. This concern has some basis, both because of DOD's prominent role in federal procurement activities and because Section 1207 was unique, among existing federal laws, in coupling contracting goals with authority to take specific steps in attempting to meet these goals. DOD accounts for a larger share of federal contract spending than all other federal agencies combined. In FY2010, DOD spent $367.1 billion on contract awards, or 68% of the $537.9 billion that the federal government spent on such awards. DOD's prominent role in federal contracting would make it difficult for the federal government to meet its contracting goals for minority-owned small businesses if DOD failed to meet its goals, and DOD's authority under Section 1207 was the sole means of ensuring that DOD could meet its minority-contracting goal. Section 1207 was, in fact, the only provision under current federal law giving agencies authority to take specific steps in meeting their contracting goals. At various times in the past, other provisions of federal law gave other agencies similar price evaluation adjustment authority, or gave DOD and other agencies other authority to take specific steps to increase the percentage of federal contract dollars awarded to minority-owned businesses. However, these authorities were gradually removed by judicial decisions, agency rule-making or congressional action, leaving only Section 1207. In short, by precluding DOD from using its authority under Section 1207, the Rothe decision effectively removes the only mechanism that the agency responsible for the vast majority of federal contracting could rely upon to ensure awards to minority-owned small businesses in certain circumstances (i.e., when the offers of such businesses were within 10% of what would otherwise be the lowest-priced offer). Despite the existence of such grounds for concern, however, the Rothe decision, in itself, does not necessarily portend an immediate decline in federal contracting with minority-owned small businesses. There are two related reasons for this. First, because of other provisions of law, DOD has not exercised its price evaluation adjustment authority under Section 1207 for over a decade. Section 801 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 barred DOD from granting price evaluation adjustments in any fiscal year directly following a fiscal year in which DOD awarded at least 5% of its contract dollars to small disadvantaged businesses. Because DOD met this goal in every fiscal year between 1997 and the present, Section 801 operated to keep DOD from granting price evaluation adjustments in every fiscal year between 1998 and 2009. Arguably, only if DOD failed to award at least 5% of its contract dollars to small disadvantaged businesses in a future fiscal year, or if Section 801 were repealed, would the full effects of Rothe on contracting with minority-owned small businesses be felt. Second, the 5% goal for contracting with small disadvantaged businesses established by Section 1207 is not DOD's only goal for contracting with such businesses. Similar goals are required under other provisions of law, most notably 15 U.S.C. § 644(g)(2), whose constitutionality was not at issue in Rothe . For example, under 15 U.S.C. § 644(g)(2), DOD's goal for contracting with minority-owned small businesses was 5.0% in FY2009, and DOD exceeded this goal. The SBA's "Procurement Scorecards," which highlight agencies' achievements in contracting with various subcategories of small businesses, may help to keep agencies and the general public attuned to contracting goals and progress toward them. What Effect Could Rothe Have on Other Minority Contracting Programs? Even if the demise of price evaluation adjustment authority under Section 1207 does not trigger an immediate decline in federal contracting with minority-owned small businesses, however, the Rothe decision could still have profound implications for such businesses by suggesting possible grounds for constitutional challenges to other programs. The loss of some of these programs, particularly the Business Development Program under Section 8(a) of the Small Business Act, could potentially have a much more significant impact on minority-owned small businesses than the loss of DOD's SDB program, especially given the limits already placed on DOD's exercise of its price evaluation adjustment authority by other legislation. Overview of Existing Programs There are currently several government-wide programs providing contracting assistance to small businesses at least 51% owned and unconditionally controlled by socially and economically disadvantaged individuals. These programs include aspirational goals for the percentage of prime contracts and subcontracts awarded to small disadvantaged businesses by the federal government, as a whole, and by individual federal agencies; subcontracting agencies' prime contracts to small businesses owned and controlled by socially and economically disadvantaged individuals through the SBA under the 8(a) Business Development Program; contract clauses and plans relating to subcontracting with small disadvantaged businesses that are incorporated into agencies' prime contracts and bind their prime contractors; use of evaluation factors and monetary incentives in awarding agencies' prime contracts so as to encourage agencies' contractors to subcontract with small disadvantaged businesses; and technical assistance and outreach programs for small disadvantaged businesses participating in the 8(a) Business Development Program. Because all of these programs include presumptions that minorities are socially and, sometimes, economically disadvantaged like the presumption underlying DOD's SDB program, they also arguably entail the same sort of "explicit racial classification" that DOD's SDB program did. Potential Vulnerability of Existing Programs Although all existing federal contracting assistance programs rely upon presumptions about disadvantage and race similar to that in Section 1207, not all of them may be equally vulnerable to constitutional challenges like that in Rothe . Some programs, such those involving aspirational goals and technical assistance and outreach, are probably immune from successful constitutional challenges because of the type of assistance provided, as well as difficulties that potential plaintiffs could have in establishing standing to challenge such programs. In comparison, other programs, such as the subcontracting programs under Sections 8(a) and (d) of the Small Business Act or the FAR, may be more vulnerable because (1) standing often exists for bid protests and contract disputes and (2) Rothe could be precedent for the court hearing such cases. Even the comparatively more vulnerable programs could, however, potentially survive a constitutional challenge like that in Rothe depending upon the evidence of discrimination that was before Congress when it enacted or re-enacted the program. Aspirational Goals Aspirational goals encouraging the federal government or individual federal agencies to award certain percentages of their contract dollars to small disadvantaged businesses are probably not vulnerable to constitutional challenges like that in Rothe . Although aspirational goals reflect classifications among small businesses based on the race or ethnicity of their owners, among other factors, the mere existence of such classifications is generally not problematic because such goals are voluntary, not mandatory, and thus do not constitute disparate treatment of small business owners by the federal government. Broadly speaking, the government can set goals for itself as it wishes. Problems arise only when the government takes actions to realize its goals that result in the disparate treatment of individuals who are similarly situated, and aspirational goals do not authorize or allow actions that would cause disparate treatment. The situation would be different if agencies also had authority to take specific steps to meet their contracting goals for small disadvantaged businesses, such as DOD had under Section 1207. However, no agencies other than DOD, NASA, and the Coast Guard had such authority immediately prior to Rothe , and Rothe precludes NASA and the Coast Guard, as well as DOD, from exercising this authority under Section 1207. Technical Assistance and Outreach Technical assistance and outreach programs for minority-owned small businesses are also unlikely to be vulnerable to constitutional challenges like that in Rothe , at least when they are not "contingent" upon other programs that are found unconstitutional. In considering such programs in 1996, in the aftermath of the Supreme Court's decision in Adarand Constructors v. Peña , the Department of Justice (DOJ) noted that, "[a]s a general proposition, these activities are not subject to strict scrutiny" even when they are targeted to minorities. DOJ did not articulate the rationale for this statement, but was probably relying on judicial precedents holding that minority outreach and recruitment efforts are not subject to strict scrutiny because they do not subject individuals to unequal treatment. Moreover, a court's opportunity to repudiate these precedents could be limited by the inability of potential plaintiffs to demonstrate standing to challenge technical assistance and outreach programs. The doctrine of standing requires that plaintiffs demonstrate (1) injury in fact, (2) causation, and (3) redressibility before a court hears the merits of their claims. Standing to challenge technical assistance or outreach programs targeted to minorities could be difficult to show, in part because plaintiffs' injuries would lie in their allegedly decreased ability to compete with minority firms that are better managed and better informed about agencies' contracting opportunities. Even if such remote injuries were recognized, it would be hard to show that plaintiffs' decreased ability to compete with minority firms was primarily due to the federal programs, or would be remedied by the programs' cessation. Courts generally do not recognize "taxpayer standing," so potential plaintiffs could not claim to be harmed by the government's spending their tax dollars on technical assistance and outreach programs for minority-owned small businesses. Subcontracting Programs: 8(a), 8(d), Evaluation Factors, & Monetary Incentives The various programs relating to subcontracting on agency prime contracts—the programs under the authority of Sections 8(a) and (d) of the Small Business Act and the FAR—are probably the most susceptible to Rothe -type challenges of all federal contracting programs for minority-owned small businesses. This heightened susceptibility arises, in part, because these programs allow agencies to take more concrete steps to assist small disadvantaged businesses than are involved in seeking to "expand [their] participation" in agency procurement contracts. Furthermore, these programs could potentially be seen as subjecting individuals to different treatment by, for example, setting aside contracts for competitions limited to small businesses participating in the 8(a) Business Development Program. This heightened susceptibility is also due to the fact that these programs would likely be challenged in bid protests or contract disputes where potential plaintiffs often have standing and Rothe could be precedent. Various provisions of federal law provide that disappointed bidders or offerors, or would-be bidders or offerors, have standing to challenge agencies' procurement activities. Challenges could thus potentially be made to agencies' decisions to subcontract certain prime contracts through the 8(a) program; require certain percentages of subcontracts under 8(d) subcontracting plans; award a contract based on evaluation factors that include subcontracting with small disadvantaged businesses; or use monetary incentives for subcontracting with small disadvantaged businesses that could prompt a prime contractor to favor a minority-contractor over a nonminority one. Other provisions of federal law likewise provide incumbent contractors with standing to challenge agency actions in contract disputes, such as could be triggered by terminating a contractor or imposing liquidated damages for failure to abide by an 8(d) subcontracting plan. In some of these cases, especially outside the 8(a) context, standing could potentially be hard to show because the injuries arguably become more remote—and less likely to be redressed by changes in government programs—when subcontractors allege that prime contractors did not select them due to aspects of federal programs that are arguably aspirational, not mandatory. Subcontracting plans under 8(d), for example, merely require agencies to "encourage subcontracting opportunities" for small disadvantaged businesses and call for such businesses to "have the maximum practicable opportunity to participate in the performance of contracts." The plans do not require or authorize agencies' prime contractors to take any specific steps to meet their goals under the plans. However, assuming standing were shown, Rothe could serve as precedent for the court deciding the challenge for several reasons. First, the U.S. Court of Federal Claims and the Federal Circuit are the only judicial forums with jurisdiction to hear federal bid protests and contract disputes, and the Court of Federal Claims is subject to the precedents of the Federal Circuit. Second, even assuming the constitutional challenge arose outside of a bid protest or contract dispute, plaintiffs can generally select their forum and would have little incentive to avoid courts where Rothe is precedent because Rothe arguably works in favor of those challenging the constitutionality of federal contracting programs for minority-owned small businesses. Even when standing exists and Rothe is precedent, however, the programs under Sections 8(a) and (d) of the Small Business Act, as well as the evaluation factors and monetary incentives under the FAR, are arguably distinguishable from the price evaluation adjustment authority at issue in Rothe in ways that could potentially enable them to survive constitutional challenges. While not a rigid quota setting aside a fixed percentage of DOD contract dollars for minority-owned businesses, the 5% goal in Section 1207 can be seen as quota-like when coupled with the price evaluation adjustment authority. None of the other federal programs combine aspirational goals with mechanisms to meet them. Neither Section 8(a) of the Small Business Act nor the FAR seeks to have any fixed percentage of subcontracts awarded to minority-owned small businesses. Section 8(a) merely gives agencies discretion to subcontract through SBA when they "determine[] such action is necessary or appropriate," while the FAR says only that agencies "may consider" prime contractors' performance in subcontracting with small disadvantaged businesses as an evaluation factor and "may encourage increased subcontracting opportunities ... by providing monetary incentives." Similarly, while the subcontracting plans required under Section 8(d) of the Small Business Act include percentage goals and potential sanctions (e.g., breach, liquidated damages) for failure to meet these goals, Section 8(d) does not require or authorize contractors to take any specific or concrete steps in meeting their contracting goals. In fact, contractors' failure to meet goals in their 8(d) subcontracting plans is excused, by law, so long as the contractors acted in good faith in attempting to abide by the plan. Furthermore, evidence of discrimination sufficient to justify race-conscious programs might have been before Congress when it enacted, or re-enacted, one or all of these programs. The "strong basis in evidence" test focuses specifically upon the evidence that was before Congress when it decided to create a race-conscious remedy in response to purported discrimination. Each program is likely to have unique evidence underlying it, and the "failure" of the evidence underlying one program does not necessarily mean that the evidence underlying other programs would also prove inadequate. It is also possible that, even if Congress lacked a strong basis in evidence when enacting the statutes that authorize the evaluation factors and monetary incentives under the FAR, a sufficient basis for these programs was nonetheless created by the Secretary of Commerce's determinations about the industries in which these authorities may be exercised. By law, agencies can use evaluation factors and monetary incentives only when contracting in industries where the Secretary has found "substantial and pervasive evidence of … persistent and significant underutilization of minority firms ... attributable to past discrimination and … demonstrated incapacity to alleviate the problem by using [other] mechanisms." What Effect Could Rothe Have on Contracting Programs for Women-Owned Small Businesses? Shortly after the Federal Circuit issued its decision in Rothe , the Small Business Administration (SBA) extended the comment period on its proposed rule for the contracting assistance program for women-owned small businesses under Section 8(m) of the Small Business Act. The SBA did so, in part, because government programs that classify people on the basis of gender also involve a suspect classification for purposes of equal protection review under the Constitution. Gender classifications are subject to intermediate scrutiny, which is less rigid than strict scrutiny but nonetheless requires the government to show that gender classifications are substantially related to important government objectives. In extending the comment period, the SBA indicated that it wanted to "review[]" the evidence underlying its determinations that women are underrepresented in certain industries. The SBA never finalized this proposed rule. However, on March 4, 2010, the SBA issued new proposed regulations for the set-aside program for women-owned small businesses. The SBA did not explicitly address Rothe in its introductory comments on these regulations. However, it noted that comments on earlier proposed rules indicated that the "disparity study analysis" conducted in identifying industries eligible for set-asides "is sufficient to satisfy the intermediate scrutiny standard that applies to the WOSB [women-owned small business] Program." It also stated that: The means chosen by Congress to implement the WOSB Program ensure that the Program is substantially related to its goals. Congress expressly limited application of the WOSB Program only to industries in which women are substantially underrepresented or underrepresented in contracting. SBA later issued a final version of these proposed regulations, although without additional commentary on any constitutional issues raised by the women-owned small business set-aside program. The SBA may or may not be correct in stating that the set-asides for women-owned small businesses would survive intermediate scrutiny if challenged. It is, however, probably correct in identifying the disparity studies underlying the determinations of eligible industries as a likely focus of any constitutional challenges. What Effect Could Rothe Have on Other Contracting Programs for Small Businesses? The Rothe decision should have no effect on other federal contracting programs for small businesses generally, or for small businesses owned by members of other demographic groups, including blind and handicapped individuals; Native Americans, including Native Alaskans; veterans; service-disabled veterans; and individuals operating businesses in Historically Underutilized Business Zones (HUBZones). Only programs that rely upon suspect classifications, such as race or gender, are subject to strict or intermediate scrutiny when their constitutionality is challenged. Programs based on non-suspect classifications—such as business size, military status, disability, geography, or poverty—are subject only to rational basis review, which is characterized by deference to legislative judgment. Under rational basis review, a challenged program will be found constitutional if it is rationally related to a legitimate government interest. As a result, programs reviewed under this standard are generally upheld. Congress's Role in Establishing Future Programs Currently, the extent to which the courts will apply the reasoning in Rothe to future legal challenges is unclear. As a result, it is difficult to provide clear guidance regarding the requirements that Congress must meet when enacting legislation that may be subject to equal protection review. However, a few points may be made. First, if enacting race-conscious measures or other legislation that will be subject to strict scrutiny, Congress will be required to establish a "strong basis in evidence" to support the articulated compelling governmental interest. This requirement for a "strong basis in evidence" was originally introduced by the Supreme Court in Wygant v. Jackson Board of Education . Over the years, subsequent court cases have provided some clarification of the meaning and nature of a "strong basis in evidence" by finding that such a basis existed, or was lacking, in particular circumstances. As these cases suggest, the Rothe court, which required the government to show the same types of evidence of racial discrimination as were required in other cases and subjected this evidence to the same scrutiny other courts had given it, arguably did not depart significantly from precedent in its approach to the "strong basis in evidence" requirement. Nevertheless, Rothe appears to be the latest in a long line of cases that place an increasingly heavy evidentiary burden on Congress. In the immediate aftermath of the Court's landmark decision in Adarand Constructors v. Peña , which, for the first time, applied strict scrutiny to racial preferences in federal contracting programs, the federal courts generally stressed deference to congressional authority to conduct fact-finding and to enact remedial legislation pursuant to Section 5 of the Fourteenth Amendment. This deference to congressional authority has eroded over the years. As a result, Congress must now support any race-conscious measures it enacts by developing a strong record, as demonstrated in hearings and legislative findings, of methodologically sound, broad statistical evidence of discrimination capable of withstanding searching judicial inquiry.

This report discusses Rothe Development Corporation v. Department of Defense, a case involving a constitutional challenge to a minority contracting program authorized under Section 1207 of the Department of Defense (DOD) Authorization Act of 1987. This program allowed DOD to take 10% off the price of offers submitted by "small disadvantaged businesses" in determining which offer had the lowest price or represented the best value for the government. Section 1207 also incorporated a presumption that minorities are socially and economically disadvantaged. On November 4, 2008, the U.S. Court of Appeals for the Federal Circuit struck down the DOD preference program, holding that Section 1207 was facially unconstitutional because Congress did not have sufficient evidence to conclude that there was racial discrimination in defense contracting when it reauthorized the program in 2006. Later, on February 27, 2009, the U.S. District Court for the Western District of Texas, San Antonio Division, to which the case had been remanded for entry of judgment, enjoined defense agencies from implementing other programs authorized by Section 1207 because these programs were "contingent" on the subsections containing the price preference and must "also fall" when they do. These programs included technical and infrastructure assistance for certain minority-serving institutions (MSIs) of higher education, including historically black colleges and universities (HBCUs), Hispanic-serving institutions (HSIs), Alaska Native- and Native Hawaiian-serving institutions (ANNHIs), and majority-minority institutions (MMIs). However, the 111th Congress enacted legislation (P.L. 111-84) that authorizes defense agencies to provide assistance similar to that authorized under Section 1207 to MSIs. On September 9, 2011, the Obama Administration proposed amending the Federal Acquisition Regulation (FAR) in light of the decisions by the Federal Circuit and district court in Rothe. Among other things, the proposed changes would delete those provisions of the FAR which govern price evaluation adjustments to bids or offers submitted by small disadvantaged businesses for defense contracts, as well as relocate and amend those provisions of the FAR regarding monetary incentives and evaluation factors for subcontracting with small disadvantaged businesses. The report examines the Rothe decision in detail; describes existing contracting programs for minority-owned and women-owned small businesses; and analyzes Rothe's potential effect on these programs, including the Business Development Program under Section 8(a) of the Small Business Act. These programs were not at issue in Rothe and would not be substantively changed by the Obama Administration's proposed amendments to the FAR. However, as numerous commentators and the Small Business Administration (SBA) have recognized, the Rothe decision could have significant implications for other federal contracting programs for small businesses.

Union Certification Without Election The EFCA would have amended the NLRA to allow an individual or labor organization to be certified as the exclusive representative of a bargaining unit without an election. The act would have required the National Labor Relations Board (the Board) to conduct an investigation whenever a petition was filed by "an employee or group of employees or any individual or labor organization acting in their behalf," that alleged that a majority of employees in a bargaining unit wished to be represented by an individual or labor organization for the purpose of collective bargaining. If the Board found that a majority of employees in the unit signed authorizations designating the individual or labor organization as their bargaining representative, it would certify such individual or labor organization as the representative. Currently, a labor organization usually becomes the exclusive representative for a bargaining unit following an election. Under existing law, the Board conducts an investigation following the filing of a petition that alleges that a substantial number of employees wish to be represented for collective bargaining and that the employer declines to recognize their representative as the exclusive representative for the bargaining unit. To constitute a "substantial number of employees," at least 30 percent of the employees must indicate support for representation. A representation hearing will be conducted if the parties cannot voluntarily resolve the details of an election. Based on the record of such a hearing, the Board will direct an election by secret ballot and certify the results. Although a labor organization that has obtained signed authorizations from a majority of employees in a bargaining unit may request to be recognized voluntarily by an employer as the exclusive representative of employees in the unit, few employers engage in such voluntary recognition. In NLRB v. Gissel Packing Co. , the U.S. Supreme Court confirmed that signed authorization cards from a majority of employees could give rise to bargaining obligations under Section 8(a)(5) of the NLRA. Section 8(a)(5) indicates that it shall be an unfair labor practice for an employer to refuse to bargain collectively with the representatives of his employees subject to the provisions of Section 9(a) of the NLRA. Section 9(a) provides that representatives "designated or selected for the purposes of collective bargaining by a majority of the employees" in an appropriate bargaining unit "shall be the exclusive representatives of all the employees in such unit for the purposes of collective bargaining." Because Section 9(a) refers to exclusive representatives "designated or selected" by a majority of employees without specifying how the representatives must be chosen, it was understood that the showing of majority support through signed authorization cards could give rise to a duty to bargain. The Gissel Court also noted, however, that an employer is not obligated to accept the authorization cards as proof of majority status, and could insist on an election. Moreover, the Court maintained that an employer is not required to justify his insistence on an election by making his own investigation of employee sentiment or by providing affirmative reasons for doubting the majority status. In a subsequent case, Linden Lumber v. NLRB , the Court further concluded that a union with authorization cards purporting to represent a majority of the employees, which is denied recognition by the employer, has the burden of invoking the Board's election procedure. Labor organizations contend that employers decline voluntary recognition based on authorization cards because they want to discourage support for representation in the period before an election is held. During this period, it is believed that employers often hire anti-union consultants, terminate pro-union employees, and conduct captive-audience meetings where employees are exposed to the employer's views against representation. Proponents of the EFCA maintained that certification based on a majority of signed authorizations would eliminate this misconduct. In FY2011, the median time to proceed to an election from the filing of a representation petition was 38 days. According to the Board, in FY2011, 91.7% of all initial representation elections were conducted within 56 days of the filing of a petition. Those who have opposed the certification process proposed by the EFCA expressed concern for a union's possible use of coercive and intimidating tactics to obtain signatures. They have also feared the increased possibility of forged signatures on authorization cards. Consistent with those concerns, another measure would have made it an unfair labor practice for an employer to recognize or bargain with a labor organization that was not selected through an election. The Secret Ballot Protection Act, introduced in the 112 th Congress as H.R. 972 , stated the following in its findings: "[T]he fundamental democratic right to choose by secret ballot is the only method that ensures a choice free of coercion, intimidation, irregularity, or illegality." Role of the Federal Mediation and Conciliation Service In addition to providing for union certification without an election, the EFCA would have amended the NLRA to allow for the involvement of the Federal Mediation and Conciliation Service (FMCS) during the negotiation of an initial agreement following certification or recognition of a labor organization. If, after 90 days of bargaining or such additional period as the parties agreed upon, the parties failed to reach an agreement, the act would have permitted either party to notify the FMCS and request mediation. If, after 30 days from the date mediation was requested or such additional period agreed upon by the parties, the FMCS was unable to bring the parties to agreement, the FMCS would have referred the dispute to an arbitration board that would render a binding decision. Under existing law, the FMCS may provide mediation and conciliation services upon its own motion or upon the request of one or more of the parties to the dispute whenever "in its judgment such dispute threatens to cause a substantial interruption of commerce." Where state or other conciliation services are available to the parties, the FMCS is directed to "avoid attempting to mediate disputes which would have only a minor effect on interstate commerce." Existing law does not distinguish between initial agreements and other agreements negotiated by the parties. Moreover, the NLRA does not provide for the use of binding arbitration to resolve disputes. Proponents of the EFCA have argued that legislation is needed to promote the prompt negotiation of initial collective bargaining agreements. In 32 percent of all cases, the employer and the union reportedly fail to reach agreement within the first two years following an election. Some have observed, however, that the availability of binding arbitration under the EFCA discouraged support for the legislation from the business community. Under the act, employers would have been faced with the possibility of having to accept what could have been viewed as unfavorable terms and conditions by the arbitration board. Under existing law, the employer does not have to accept such terms and conditions. The employer may decline unfavorable proposals with the hope that the union may change its position to avert a strike. If binding arbitration was required, the employer would lose that bargaining leverage. Penalties Under the NLRA The EFCA would have amended the NLRA to impose new penalties for specified existing unfair labor practices. For example, if the Board found that an employer discriminated against an employee with respect to his hiring, tenure, or any term or condition of employment to encourage or discourage membership in a labor organization either while employees of the employer were seeking representation by a labor organization or during the period after a labor organization was recognized as a unit's exclusive representative, but before the first collective bargaining agreement was executed, the Board would have been permitted to award employee back pay and 2 times that amount as liquidated damages. The EFCA would have also imposed a civil penalty for certain willful and repeated unfair labor practices. Any employer who willfully and repeatedly (a) interferes with, restrains, or coerces an employee in the exercise of his right to organize, or (b) discriminates against an employee with respect to his hiring, tenure, or any term or condition of employment to encourage or discourage membership in a labor organization either while employees of the employer were seeking representation by a labor organization or during the period after a labor organization had been recognized as a unit's exclusive representative, but before the first collective bargaining agreement has been executed, would have been subject to a civil penalty not to exceed $20,000 for each violation. The exact amount of the penalty would have been determined by the Board based on the gravity of the unfair labor practice and its impact on the charging party, on others seeking to exercise rights guaranteed by the NLRA, or on the public interest. Under existing law, the Board may order any person committing an unfair labor practice to cease and desist from such misconduct. The Board may also take such affirmative action, including reinstatement with back pay, as will effectuate the policies of the NLRA. Section 12 of the NLRA provides that any person who willfully resists, prevents, impedes, or interferes with any member of the Board or any of its agents or agencies in the performance of their duties under the act shall be punished by a fine of not more than $5,000 or by imprisonment for not more than one year, or both. However, no specific penalty currently exists for the kind of willful and repeated misconduct described in the EFCA. Small Businesses and the EFCA In 1959, Congress amended the NLRA to provide relief for small employers and their employees who occupied a so-called "no man's land" in labor-management relations. The Board, confronted with a rising backlog of cases, maintained a practice of declining jurisdiction in industries with revenue less than a certain dollar volume of business. This practice effectively excluded a significant number of smaller enterprises from coverage under the NLRA. At the same time, in a series of cases, the Court concluded that parties denied coverage under the NLRA could not have their disputes settled by a state labor agency or in state court. The House, in considering changes to the NLRA, noted, "Since, therefore, the excluded parties have neither Federal nor State remedies available to them, they are said to be in the 'no man's land.'" Congress responded to concerns over the "no man's land" for small employers and their employees by amending Section 14 of the NLRA to add a new subsection (c). Section 14(c) states: (1) The Board, in its discretion, may, by rule of decision or by published rules adopted pursuant to the Administrative Procedure Act, decline to assert jurisdiction over any labor dispute involving any class or category of employers, where, in the opinion of the Board, the effect of such labor dispute on commerce is not sufficiently substantial to warrant the exercise of its jurisdiction: Provided , That the Board shall not decline to assert jurisdiction over any labor dispute over which it would assert jurisdiction under the standards prevailing upon August 1, 1959. (2) Nothing in this Act shall be deemed to prevent or bar any agency or the courts of any State or Territory (including the Commonwealth of Puerto Rico, Guam, and the Virgin Islands), from assuming and asserting jurisdiction over labor disputes over which the Board declines, pursuant to paragraph (1) of this subsection, to assert jurisdiction. By enacting Section 14(c)(1), Congress appeared to endorse the Board's practice of declining jurisdiction over smaller employers. At the same time, however, Congress prevented the Board from refusing to assert jurisdiction over employers that met the jurisdictional standards in effect on August 1, 1959. These standards were established for 10 types of enterprises and, in general, continue to apply. If the Board declines jurisdiction over a labor dispute in accordance with one of the standards, Section 14(c)(2) authorizes a state or territorial agency or court to assert jurisdiction. The jurisdictional standards that arguably have the broadest application are those for retail and non-retail enterprises. Pursuant to its standards for retail enterprises, the Board will assert jurisdiction if such an enterprise has an annual gross volume of business of at least $500,000 and has some business, greater than de minimis, across state lines. Under its standards for non-retail enterprises, the Board will assert jurisdiction if such an enterprise has a direct or indirect inflow or outflow of goods or services across state lines of at least $50,000. The EFCA would not have amended Section 14(c) of the NLRA and did not specifically address the treatment of small employers. Opponents of the EFCA argued that the impact of the measure on small businesses could be significant given the financial thresholds in the jurisdictional standards for retail and non-retail enterprises. Some maintained that the thresholds are so low that many businesses that are likely perceived as "small businesses" would have become subject to the EFCA. Others argued, however, that the vast majority of small businesses are too small to have to worry about unionizing. Past Legislative Alternatives While the EFCA received significant attention for the changes it would have made to the NLRA, some observed that other past measures proposed similar, but arguably less dramatic, amendments to the labor statute. Some of these measures, for example, would have required an expedited election, but not automatic certification, if a specified percentage of employees signed authorization cards. Other measures would have permitted automatic certification only if 75% of employees in an appropriate bargaining unit signed authorization cards. The Labor Relations Representative Amendment Act, introduced by Senator Paul Simon in the 103 rd and 104 th Congresses, would have required the Board to direct an expedited election to be held within 30 days after the receipt of signed authorization cards from 60% of employees in an appropriate unit. Under the measure, an expedited election could not be delayed for any reason or purpose. Similarly, the Right to Organize Act of 2001, introduced by Senator Paul D. Wellstone in the 107 th Congress, contemplated an expedited election, but would have required the Board to direct such an election to be held within 14 days after the receipt of signed authorization cards from 60% of the employees in an appropriate unit. The National Labor Relations Fair Elections Act, introduced by Representative Major R. Owens in the 101 st , 102 nd , and 103 rd Congresses, would have permitted the certification of an individual or labor organization as the exclusive representative of a bargaining unit without an election if 75% of the employees in an appropriate unit signed authorization cards. If authorization cards were signed only by a majority of employees, the measure provided for an expedited election. Within 7 days after the filing of the representation petition and the receipt of the authorization cards, the Board would have been required to direct an election to be held no later than 15 days after the petition was filed. The National Labor Relations Fair Elections Act would have also established a schedule for all other representation elections. Under the measure, such elections would have been required to occur no later than 45 days after the filing of a petition, unless the Board determined that the proceeding "present[ed] issues of exceptional novelty or complexity. When such issues were involved, the election could occur no later than 75 days after the filing of the petition. Past efforts to amend the NLRA to allow for expedited elections may prove instructive if the EFCA is reintroduced in the 113 th Congress. Opponents of the measure who maintained that it undermines the sanctity of the secret ballot election may support efforts to expedite elections under the NLRA rather than allow for the automatic certification of a union.

This report discusses legislative attempts to amend the National Labor Relations Act (NLRA) to allow for union certification without an election, based on signed employee authorizations. The Employee Free Choice Act (EFCA), introduced most recently as H.R. 1409 and S. 560 in the 111th Congress, would have allowed union certification based on signed authorizations, provided a process for the bargaining of an initial agreement, and prescribed new penalties for certain unfair labor practices. This report reviews the current process for selecting a bargaining representative under the NLRA and discusses the role of the Federal Mediation and Conciliation Service in resolving bargaining disputes under that act. The EFCA was introduced in four consecutive Congresses, beginning with the 108th Congress. Despite expectations, the measure was not reintroduced in the 112th Congress. During the 110th Congress, however, the House passed the measure by a vote of 241-185. In the Senate, proponents of the EFCA fell 9 votes short of the 60 votes needed to limit debate and proceed to final consideration of the bill.

Background Radio frequency spectrum is managed primarily by regulations that set rules, for example, for permissible uses, certification of devices, requirements for public safety, and the acquisition of licenses. Spectrum is assigned primarily through licenses while some spectrum remains unlicensed and accessible to any user who meets specific requirements. The Federal Communications Commission (FCC) is responsible for overseeing licensed and unlicensed spectrum used for commercial purposes and by state and local agencies, including first responders, as well as most other radio frequencies not assigned for federal use. Although Congress has a legislative role in spectrum management, the FCC routinely takes on the responsibility of making decisions about the assignment of spectrum for different uses and sets the rules for auctions of spectrum licenses. Two recent important auctions of spectrum licenses were for the 700 MHz band, Auction 73, and the Advanced Wireless Services (AWS), designated Auction 66 or AWS-1. The auction for licenses at 700 MHz—airwaves that are or will be available because of the planned switch from analog to digital television broadcasting—ended March 18, 2008. The bids in this auction totaled over $19.5 billion. AWS-1 was completed on September 18, 2006, with nearly $13.9 billion in completed bids. Spectrum is considered to be a natural resource with a combination of characteristics that differentiate it from other resources. For example, spectrum is: Finite . Today's technology can only operate on certain frequencies; commercially viable frequencies are a valuable commodity. Renewable . Airwaves used to broadcast any transmission can be reused after the broadcast is completed. Technology dependent . Most natural resources can be harvested manually, albeit inefficiently. Spectrum is in the atmosphere and is usable because technology has been developed to exploit the properties of electromagnetic waves for sound, data and video transmission. A national asset with international rules and regulations . For example, most domestic uses of spectrum are assigned bands of operation through the International Telecommunications Union, an agency of the United Nations; satellites for broadcasting are governed by international treaty. Administered . To avoid interference from competing broadcast transmissions, frequency assignments are managed by recognized authorities. Administrative decisions as to how to allocate spectrum (for example, the number of channels to assign with a license) influence its commercial potential and the supply of spectrum for commercial and public use. The development and implementation of better wireless communications technologies are critical to maximizing the efficiency of spectrum resources. Spectrum management policies ideally should take into account the impact of new technology, or—since it is difficult to predict the development paths of new technologies—allow for flexibility and accommodation in spectrum allocation. Although flexibility may be desirable in policy-making, most existing wireless technologies are inflexibly constructed to work on a limited range of specific frequencies. Relocation from one part of the spectrum to another can require costly equipment changes. Therefore, reallocation of spectrum to new uses is often expensive as well as technically and administratively difficult. Additionally, some uses of spectrum are governed by international regulations. Spectrum Auctions Because two or more signal transmissions over the same frequency in the same location at the same time could cause interference (a distortion of the signals), the FCC, over many years, has developed and refined a system of exclusive licenses for users of specific frequencies. In the recent past, the FCC has granted licenses using a process known as "comparative hearings"(also known as "beauty contests"), and has used lotteries to distribute spectrum licenses. After years of debate over the idea of using competitive bidding (i.e., auctions) to assign spectrum licenses, the Omnibus Budget Reconciliation Act of 1993 ( P.L. 103-66 ) added Section 309(j) to the Communications Act, authorizing the FCC to organize auctions to award spectrum licenses for certain wireless communications services. Additional provisions concerning auctions were included in the Balanced Budget Act of 1997, the Auction Reform Act of 2002, the Commercial Spectrum Enhancement Act, and the Deficit Reduction Act of 2005—all discussed below. The main category of services for which licenses may be auctioned are called Commercial Mobile Radio Services (CMRS), which include Advanced Wireless Services (AWS), Personal Communications Service (PCS), cellular, and most Specialized Mobile Radio Services (SMR) With some exceptions, CMRS providers are regulated as common carriers to ensure regulatory parity among similar services that will compete against one another for subscribers. Spectrum policy to manage frequency allocation and license assignments has evolved over the years in response to changes in technology and market demand, among other factors. Auctions are a market-driven solution to assigning licenses to use specific frequencies and are a recent innovation in spectrum management and policy. Spectrum for what is widely described as "prime" frequencies (300 MHz -3000 MHz) is judged by many to be the most commercially desirable and is widely sought after at auction by competing interests. Several lucrative auctions have added billions to the federal treasury, applied to general revenue. The FCC has the authority to conduct auctions only when applications are mutually exclusive (i.e., two licensees in the same frequency band would be unable to operate without causing interference with each other), and when services are primarily subscription-based. The FCC does not have authority to reclaim licenses awarded prior to the decision to permit auctions. In accordance with the Budget Enforcement Act of 1990, and provisions in the Communications Act of 1934, as amended, auction proceeds cannot be used for funding other programs. Creation of two important trust funds—the Spectrum Relocation Fund and the Digital Television and Public Safety Fund—required new language and amendments to existing law to permit some auction revenues to be applied directly to specific programs through trusts. Auction Rules The Communications Act of 1934, as amended, directs the FCC to develop a competitive bidding methodology. The FCC initially developed rules for each auction separately (with some common elements), but after several years of trial and error it has developed a set of general auction rules and procedures. While there may be special requirements for specific auctions, the following rules generally apply. As a screening mechanism, all auctions require bidders to submit applications and up-front payments prior to the auction. Most auctions are conducted in simultaneous multiple-round bidding in which the FCC accepts bids on a large set of related licenses simultaneously, using electronic communications. Bidders can bid in consecutive rounds until all bidding has stopped on all licenses. The rules the FCC sets for each auction cover many activities, such as evaluating and qualifying bidders, the bidding process, and final payment. Recent FCC decisions about auction rules that are currently controversial include setting new requirements for designated entities and using blind bidding. Designated Entities and Entrepreneur Bidders In some auctions, the FCC has given concessions to small businesses that include bidding credits and set-asides of licenses. These small companies are typically classed as entrepreneurs or small businesses. Entrepreneurs are defined as having annual gross revenues of less than $125 million and total assets of less than $500 million. Qualification as a small business includes annual revenues of no more than $40 million, averaged over three years. The FCC originally also gave special provisions to women-owned, minority-owned, and rural telephone companies, referred to as designated entities. After a 1995 Supreme Court decision determined that government affirmative action policies must pass a "strict scrutiny" test to demonstrate past discrimination, the FCC removed minority-owned and women-owned groups from its list of businesses qualifying for bidding credits as designated entities. Many industry observers have expressed concern that some of the small businesses participating in auctions actually represent larger companies. By contracting with a larger company, some companies that bid as a designated entity or entrepreneur are alleged to have benefitted from bidding credits and other considerations granted to smaller companies while tapping the financial resources of a major wireless telecommunications company. Furthermore, a study by the Congressional Budget Office (CBO) found that a significant number of small companies that acquired spectrum licenses through preferential programs later transferred the licenses to larger companies. To avoid providing an undue advantage to designated entities, the FCC modified auction rules for the first Advanced Wireless Services auction, held in 2006. Notably, the FCC adopted rules to limit the transfer of designated entity benefits to any applicant or licensee with an "impermissible material relationship." The FCC also sought to curtail "unjust enrichment payments," by requiring that designated entities hold spectrum acquired in the AWS-1 auction for at least ten years; the rule previously set a time period of five years. The FCC found that rule modifications such as these were "necessary to ensure that every recipient of the FCC's designated entity benefits is an entity that uses its licenses to directly provide facilities-based telecommunications services for the benefit of the public." Blind Bidding Prospective bidders must meet eligibility requirements that include identifying the licenses they seek to acquire through the auction. These bidders are identified by name throughout the bidding process. Some experts in structuring spectrum auctions have proposed blind bidding so that opponents for contested licenses will not be able to identify the competitor. They argue that blind bidding would prevent collusion, for example between incumbents to keep out a new entrant, retaliatory bidding, and other practices that may skew auction results. Blind bidding was proposed during the comments period leading up to the AWS-1 auction but met resistance from the wireless industry, on the grounds that there were sufficient prospective bidders to assure competition. Media Access Project published two studies on the AWS-1 auction alleging evidence of collusive bidding and other practices that enabled incumbent wireless companies to exclude new entrants and possibly manipulate the process so that final bids were lower than might have been the case if the auction had been truly competitive. In a news report, the author of the Media Access Project papers, Dr. Gregory Rose, was quoted as saying that, under current auction rules, "I do not think it is illegal for bidders to discuss who they may want to keep out of an auction and to make arrangements to intervene.... If they did it while an auction was going on, that would be an explicit violation of the rules." The same news article included a strong denial from one of the successful auction bidders cited in the report, T-Mobile, which was widely reported in the industry press as anxious to acquire the spectrum as part of its international strategy for 3G. From a policy perspective, the allegations, whether or not they are supported by documentation, raise some new questions about the role of auction rules in shaping the final outcome of an auction, and whether the FCC has a tendency to give more weight to the comments of the incumbents it regulates than to potential new entrants. For the auction of spectrum licenses in the 700 MHz band, the FCC established rules for blind bidding. Service Rules The FCC also develops service rules for each new service for which a license will be used. Licenses are granted according to the amount of spectrum and the geographic area of coverage, known as the "band plan." The FCC's plan for the amount of spectrum per license, the number of licenses, and the conditions for use of the designated spectrum is developed for each new wireless service. Licenses can cover small areas, large regions, or the entire nation. Terms used for coverage areas include basic trading areas (BTAs) which correspond roughly to metropolitan areas; major trading areas (MTAs), which are combinations of BTAs dividing the United States into 51 geographic regions of similar levels of commercial activity; and regions, which are combinations of MTAs. Metropolitan statistical areas (MSAs), Cellular Market Areas (CMAs), rural service areas (RSAs), economic areas (EAs), and major economic areas (MEAs)—defined by the Department of Commerce for economic forecasts—are also used by the FCC to describe areas of coverage for some spectrum auctions. Even though licenses must be renewed periodically, it is generally understood that license winners will be able to keep the license perpetually, as long as they comply with FCC service rules. Eligibility and Payment Rules: The Impact of NextWave In 1995, rules intended to favor entrepreneurs were set for Auction 5, called the PCS C-block auction, for one of the blocks of spectrum allocated for Personal Communications Service (PCS). The FCC gave bidding credits to small businesses to help them compete. Winning bidders only had to pay 10% down and the remainder could be paid over ten years at below-market interest rates. At auction in 1996, broadband C block licenses were sold for bids totaling $13 billion. By mid-1997, however, many of the license winners (most notably NextWave Telecom Inc.) had defaulted and declared bankruptcy. The licenses were then seized by a court in bankruptcy litigation. In September 1997, the FCC offered a set of options for C-block licensees to restructure their debt (that offer was modified in March 1998). The licensees opted to maintain their bankrupt status, however, preventing the C-block spectrum from being re-auctioned. Based on its interpretation of a series of decisions in 1999 and 2000 by a U.S. Court of Appeals, the FCC cancelled the licenses that had not been paid for and re-auctioned that spectrum. The auction (Auction 35) for the defaulted licenses was completed January 26, 2001, and booked $16.86 billion in projected revenue for the general treasury. On June 22, 2001, the United States Court of Appeals for the District of Columbia found that the FCC did not have the legal right to take back NextWave's licenses for re-auction, and that 216 of the licenses (worth $15.85 billion) still belonged to NextWave rather than re-auction winners such as Verizon Wireless. The U.S. Supreme Court agreed to hear the case, essentially weighing NextWave's right to protection under bankruptcy laws against the FCC's right to allocate spectrum. On January 27, 2003 the Supreme Court ruled in favor of NextWave, agreeing with the earlier Court of Appeals decision that the FCC did not have the authority to recover the licenses. Subsequently, NextWave agreed to return some of the disputed spectrum to the FCC for re-auction. Changes in Auction Rules To avoid future problems similar to those experienced in the auction where NextWave successfully bid on large amounts of spectrum and then defaulted, the FCC adopted streamlined auction rules for all services to be auctioned in the future. The rule changes were intended to ensure uniform procedures involving the application, payment, and certain concerns regarding designated entities (i.e., small businesses and rural telephone companies). Spectrum License Value Spectrum value depends on many factors, such as bandwidth, its frequencies (since signal transmission characteristics vary along different parts of the spectrum), the geographic area covered, the services permitted by FCC rules, the availability of equipment that can operate at those frequencies, the demand for services that do not interfere with other bands, the amount of alternative spectrum already available for similar services, the number of incumbents presently occupying the spectrum, and whether incumbents will remain in that spectrum or be relocated to other spectrum. Spectrum license value may be greater if adjacent bands can be aggregated to form larger blocks and if the given spectrum is not encumbered by other licensees using the same frequencies. CBO annually scores the anticipated receipts from planned auctions of spectrum licenses and includes the revenue estimate in its annual report, The Budget and Economic Outlook . For fiscal years 2008-2018, CBO projected auction receipts of $11 billion in 2008 from the sale of TV airwaves and an additional $2.9 billion in the period 2009-2012. Unlicensed Spectrum Unlicensed spectrum is not sold to the highest bidder and used for the services chosen by the license-holder but is instead accessible to anyone using wireless equipment certified by the FCC for those frequencies. Among the advantages of unlicensed spectrum is the opportunity to test new technology directly with consumers instead of going through spectrum license-holders. One of the disadvantages of unlicensed spectrum is the possibility of interference among the transmissions of the various users, both within the assigned bandwidth and with other bandwidths. Rules regarding interference differ between licensed and unlicensed spectrum. Recent Congressional Actions Regarding Spectrum Auctions The Omnibus Budget Reconciliation Act amended the Communications Act of 1934 with a number of important provisions affecting the availability of spectrum licenses and authorized the FCC to organize auctions to award spectrum licenses for certain wireless communications services. Among the subsequent laws that deal with spectrum policy and auctions are the Balanced Budget Act of 1997, the Auction Reform Act of 2002, the Commercial Spectrum Enhancement Act of 2004, and the Deficit Reduction Act of 2005. The Balanced Budget Act also directed FCC actions concerning the transition to digital television, an event with significant impact on spectrum management. The Balanced Budget Act of 1997 The Balanced Budget Act of 1997 ( P.L. 105-33 ) contained several spectrum management provisions. It amended Section 309(j) of the Communications Act to expand and broaden the FCC's auction authority and to modify other aspects of spectrum management. Whereas previous statutes gave the FCC the authority to conduct auctions, the Balanced Budget Act required the FCC to use auctions to award ownership in mutually exclusive applications for most types of spectrum licenses. It directed the FCC to experiment with combinatorial bidding (i.e., allowing bidders to place single bids on groups of licenses simultaneously), and to establish minimum opening bids and reasonable reserve prices in future auctions unless the FCC determined that it was not in the public interest. This amendment also gave the FCC auction authority until September 30, 2007. (Extended to September 30, 2011 by Deficit Reduction Act. ) Furthermore, the act directed the FCC to allocate spectrum for "flexible use," which means defining new services broadly so that services can change as telecommunications technology evolves. Exempted from auctions are licenses or construction permits for (A) public safety radio services, including private internal radio services used by state and local governments and non-government entities and including emergency road services provided by not-for-profit organizations, that— (i) are used to protect the safety of life, health , or property; and (ii) are not made commercially available to the public; (B) digital television service given to existing terrestrial broadcast licensees to replace their analog television service licenses; or (C) noncommercial educational broadcast stations and public broadcast stations. Examples of services exempted from auctions include utilities, railroads, metropolitan transit systems, pipelines, private ambulances, volunteer fire departments, and not-for-profit emergency road services. The act directed the FCC to auction 120 MHz of spectrum, most of which had already been transferred by NTIA from federal to non-federal assignment and to allocate another 55 MHz located below 3 GHz for auction not later than September 2002. These deadlines were subsequently eliminated by the Auction Reform Act. Auctions of Spectrum Used for Television Broadcasting The Balanced Budget Act of 1997 required the FCC to conduct auctions for 78 MHz of the analog television spectrum planned to be reclaimed from television broadcasters at the completion of the transition to digital television and to allocate 24 MHz for public safety services. For administrative purpose, the FCC divided the spectrum into "Upper 700 MHz" and "Lower 700 MHz" bands. Congress instructed the FCC to hold auctions for the 700 MHz frequencies not later than 2002. The spectrum was to have been auctioned in 2002 but not reclaimed from broadcasters until 2006 or later. The act directed the FCC to grant extensions to stations with broad conditions that effectively nullified the 2006 deadline. Auction Reform Act of 2002 Concerns about spectrum management, including spectrum used for public safety, prompted the introduction of the Auction Reform Act of 2002 ( P.L. 107-195 ). Among the purposes of the act is the elimination of deadlines for auctions of Upper and Lower 700 MHz frequencies originally scheduled by the FCC for 2002. Specifically, the law stopped auctions in the Upper 700 MHz band that might have impacted efforts to increase the amount of spectrum available for public safety use, while requiring that some auctions in the Lower 700 MHz band take place. The law gave the FCC discretion in setting auction dates for all auctionable spectrum by eliminating deadlines established by the Balanced Budget Act of 1997. Commercial Spectrum Enhancement Act This act created the Spectrum Relocation Fund to provide a mechanism whereby federal agencies can recover the costs of moving from one spectrum band to another. The interest in relocating federal users—and accelerating the process by assuring reimbursement for the costs of moving—centers on valuable spectrum (relative to auction prices for comparable spectrum in the United States and other countries) now used by federal agencies, especially the Department of Defense. In particular, spectrum in bands within the 1710-1850 MHz range is sought by wireless telecommunications companies to facilitate the implementation of next-generation wireless technologies, including high-speed mobile services (3G). After much study, the NTIA and the FCC, aided by an Intra-Government 3G Planning Group, announced plans to provide for the transfer of spectrum in the 1710-1755 MHz range from federal agencies. Frequencies in this band would be made available to the private sector through spectrum auctions conducted by the FCC. As part of the effort, the need was identified for new legislation that would permit affected federal agencies to recover costs directly from these auction proceeds. In mid-2002, the Department of Commerce proposed the creation of a Spectrum Relocation Fund. This fund could provide a means to make it possible for federal agencies to recover relocation costs directly from auction proceeds when they are required to vacate spectrum slated for commercial auction. In effect, successful commercial bidders would be covering the costs of relocation. To accomplish the NTIA and FCC goals, the Communications Act of 1934 would need to be modified to permit the agencies direct access to auction funds. This was accomplished with the passage of the Commercial Spectrum Enhancement Act, Title II of P.L. 108-494 . Following the requirements of the act, the FCC scheduled auctions for 1122 licenses at 1710 -1755 MHz and 2110 -2155 MHz. The auction (Auction 66) was concluded on September 18, 2006, with a gross total value of winning bids of nearly $13.9 billion. Congress also required the Comptroller General of the Government Accountability Office (GAO) to examine "national commercial spectrum policy as implemented by the Federal Communications Commission" and to report to Congress on its finding. The study concluded that auctions were generally perceived as a desirable way to allocate spectrum and recommended the extension of the FCC's auction authority past the current expiration date of September 30, 2007. The GAO could not find evidence that market participants that had bought spectrum were at a disadvantage in competing with service providers who had been assigned spectrum. It found that the high cost of developing infrastructure was a barrier to market entry and that this cost was more significant in shaping competition and pricing decisions than the cost of spectrum. Many findings were inconclusive and the GAO recalled that in an earlier study it had recommended the creation of an independent commission to examine spectrum management. Deficit Reduction Act The Deficit Reduction Act of 2005 ( P.L. 109-171 ) covered aspects of spectrum auctions for 700 MHz. The act set a definite date of February 17, 2009 for the release of spectrum at 700 MHz currently held by broadcasters. Auctions by the FCC of the freed spectrum were required to begin not later than January 28, 2008 with funds deposited not later than June 30, 2008. The FCC's authority to hold auctions, which would have expired in 2007, was extended until September 30, 2011. A fund, the Digital Television Transition and Public Safety Fund, was created to receive spectrum auction proceeds and disburse designated sums to the Treasury and for other purposes. The fund and disbursements are administered by the National Telecommunications and Information Administration (NTIA). The NTIA has selectively been given the power to borrow some of the authorized funds from the Treasury, secured by the expected proceeds of the auction required by the bill. These funds can be used to implement transition programs for digital television and for some public safety projects. Intelligence Reform and Terrorism Prevention Act Several passages of the act ( P.L. 108-458 ) dealt with spectrum policy. For example, Title VII, Subtitle E—Public Safety Spectrum recognized the merits of arguments for increasing the amount of spectrum at 700 MHz available for public safety and homeland security. It required the FCC, in consultation with the Secretary of Homeland Security and the NTIA, to conduct a study on the spectrum needs for public safety, including the possibility of increasing the amount of spectrum at 700 MHz. The study was submitted to Congress in late 2005. In it, the FCC did not make a specific recommendation for additional spectrum allocations in the short-term although it stated that it agreed that public safety "could make use of such an allocation in the long-term to provide broadband services." The FCC then initiated a rule making soliciting comments on how to take best advantage of the 24 MHz of spectrum already designated for public safety. Auction of Frequencies at 700 MHz The process of preparing rules for the 700 MHz Band auction attracted more debate than usual for a number of reasons. One reason for interest in the spectrum is that the airwaves used for TV have good propagation qualities, able to travel far and to penetrate building walls easily. The proposals for service rules that provided the framework for licensee business models dominated the controversy over the preparations for the auction of the 700 MHz airwaves. Service Rules: Public Safety 35 Public safety groups have been assigned 24 MHz of spectrum in the 700 MHz band that will become fully available once broadcasters have vacated the band. The licenses for this spectrum were assigned for public safety use by Congressional mandate, in 1997, and are not slated for auction. Provisions in the auction rules, however, provided for a new, interoperable communications network for public safety users to be shared with commercial users. A national license for 10 MHz, designated as Upper Block D, was put up for auction under service rules that required working with a Public Safety Licensee to build and manage a shared network. The Public Safety Licensee was assigned a single, national license for part of the 24MHz originally assigned for public safety use at the behest of Congress. The two licensees were to negotiate a Network Sharing Agreement, subject to FCC approval. The Public Safety Spectrum Trust, formed by a group of associations, was awarded the Public Safety License by the FCC. A partnership would give some public safety agencies access to private-sector capital and expertise to build the network; there is currently no federal plan to assist in building a nationwide, interoperable network. Although public safety users would be charged for access to the network, proponents of the plan argue that overall costs in such an arrangement would be less than if the network were purely for public safety, because of greater economies of scale. Service Rules: Open Access Several companies associated with Silicon Valley and Internet ventures petitioned the FCC to set aside a block of spectrum as a national license that would be used for open access, which was defined as open devices, open applications, open services, and open networks. The FCC ruled that it would auction licenses for 22 MHz of spectrum with service rules requiring the first two criteria: open devices and open applications. These licenses are referred to as the C Block. These licenses are being issued to winning bidders on the condition that the licensees adhere to the open access rules, as spelled out in the Code of Federal Regulations (47 C.F.R. 27.16). With limited exceptions, licensees "shall not deny, limit, or restrict the ability of their customers to use the devices and applications of their choice on the licensee's C Block network...." Network operators that violate this rule face enforcement action from the FCC, "including but not limited to a forfeiture penalty...." Band Plan, Licenses and Build-Out Requirements The band plan for the auction reflected several changes to the plan originally proposed by the FCC. The changes make it possible to create licenses for 62 MHz of spectrum at 700 MHz instead of 60 MHz. In the Lower 700 MHz band, the FCC allocated 12 MHz for local area licenses, known as Cellular Market Areas, or CMAs, creating 734 CMA licenses for auction. There were also 176 licenses offered for broader Economic Areas, or EAs, also using 12 MHz of the Lower 700 MHz band. All of the commercial licenses have what the FCC describes as "stringent" performance requirements, in particular for what are referred to as build-out rules. Winning bidders will have a short time to provide service, based on geographical or population parameters, or risk forfeiting licenses. For example, the CMA and EA licensees in the Lower 700 MHz band must cover at least 35% of the geographic area within four years and 70% of the area by the end of ten years, the term of the license. The regional license-holders in the Upper 700 MHz band must have built a network that will reach 40% of the population in their license area within four years, and 75% by the end of the license term. Failure to meet these interim guidelines will result in a reduction of the license term, from ten to eight years, accelerating the build-out schedule. Licensees that fail to meet the final deadline will forfeit that part of the license that has not met build-out requirements. The FCC will reclaim the spectrum and make it available to others. Auction Rules Rules for the auction were released on October 5, 2007. One decision in the rules was to use "blind bidding." Recent auctions have had open bidding, where all participants knew not only the amounts of competing bids but also the names of their competitors. With anonymity, bidders will not be able to cooperate to exclude a third-party, which allegedly occurred during the AWS-1 auction. The FCC rules also permitted package bidding, also known as combinatorial bidding. In a package auction, bidders may make a single bid for a group of licenses, instead of competing for each license individually. Package bidding is believed to favor new entrants and larger companies by allowing them to acquire licenses for the coverage that meets their business needs in a manner that is more efficient and less risky. In attempting to acquire, for example, national coverage, by winning many auction licenses, a bidder risks winning some of the licenses, but not enough of the licenses to support its business plan. A successful package bid eliminates a number of licenses from the general bidding process, reducing the supply of licenses open for bids from small players that are seeking only one or two licenses. Auction Results The auction grossed $19,592,420,000. All of the licenses except for the D Block, intended for shared use with public safety, were successfully auctioned. The D Block received a single bid of $472,042,000, well below the minimum price of $1.3 billion the FCC established for that license. In the rules established for the auction, the FCC allowed for the possibility of re-auctioning the D Block with different requirements, but reserved the right to make a decision based on its determination of public interest. In an Order adopted and released on March 20, 2008, the FCC directed the Wireless Telecommunications Bureau not to proceed with the re-auction of the D Block because it is "in the public interest to provide additional time to consider all options...." The FCC therefore has begun a review of its rules regarding licensing, structuring a partnership, setting service requirements, and other rules and obligations established prior to the commencement of Auction 73. It has prepared a further notice of proposed rule-making that seeks comments on identified options that might be pursued in disposing of the D Block. Some commentators believe that the conditions placed on the licenses in the Upper 700 MHz Band diverted bidding activity to the lower part of the band, driving up the prices of these licenses. Some of the smaller companies may have been outbid in their efforts to obtain CMA licenses because of increased competition and the effect of package bidding. Conclusion Spectrum, a valuable resource governed by available technology, is regulated by the federal government with the primary objectives of maximizing its usefulness and efficiency, and to prevent interference among spectrum users. A key component of spectrum policy is the allocation of bands for specific uses and the assignment of frequencies within those bands. Auctions, a fairly recent innovation in frequency assignment, are regarded as a market-based mechanism for allocating spectrum. Other market-driven policies include licensing fees based on fair-market valuations of spectrum and flexibility in spectrum usage within assigned bandwidths. Today, spectrum for commercial applications is typically auctioned to the highest bidder, but many commercial users have spectrum acquired before the present-day auction process was implemented. Auctions as a means of allocating spectrum are considered a success by many observers because of the federal revenue generated, as well as for the speed with which licenses auctioned have gone to the companies that value them the most and are most likely to put them to use. Moreover, many prefer letting businesses determine whether to invest in a new service rather than relying on the government to decide who receives a spectrum license. The FCC has concluded that auctioning of spectrum licenses has contributed to the rapid deployment of new wireless technologies, increased competition in the marketplace, and encouraged participation by small businesses. However, many have questioned whether auction policy should be supplemented more aggressively with other market-driven solutions, and whether the existing auction process and administration can be improved. Spectrum management is an exercise in reconciling divergent interests. Over time, developments in technology may significantly increase the amount of useable spectrum and consequently the ease with which a policy of equitable allocation and use can be crafted. For the immediate future, Congress may choose to debate and act on questions such as reforming spectrum management and allocation mechanisms. Some observers argue that a fully-developed policy should take into account issues such as international competitiveness, the communications needs of public safety agencies and the military, the role of wireless technology in economic growth, and the encouragement of new technologies that make spectrum use more efficient and more beneficial to society as a whole. The stated objective of many policy reformers is a coherent national policy that provides the proper balance for existing applications while at the same time providing opportunities for future growth and development. Given the number of objectives in the allocation and use of spectrum, and the differing solutions for achieving them, choices made for 700 MHz could be far-reaching in setting the direction for future policy decisions.

Radio frequency spectrum policy issues before Congress are characterized by economic, technological and regulatory complexity. Of particular interest to policy makers are the allocation of spectrum for specific types of use (such as TV broadcasting, radio, advanced wireless services, or unlicensed) and the assignment of licenses for exclusive or shared use of specific frequencies. Today, most frequencies allocated for commercial uses are assigned through auctions, with licenses going to the highest bidder. Another important allocation of spectrum is for unlicensed use. Both commercial and non-commercial entities use unlicensed spectrum to meet a wide variety of monitoring and communications needs. Suppliers of wireless devices must meet requirements for certification to operate on frequency bands designated for unlicensed use. Examples of unlicensed use include garage door openers and Wi-Fi communications. The Federal Communications Commission (FCC) regulates licensed and unlicensed spectrum not allocated for federal use, is responsible for auctioning spectrum licenses, and can also use its authority to redistribute licenses. Proceeds from spectrum license sales are presently attributed to general revenue in the U.S. Budget. In the 108 th Congress, however, a precedent was established with the creation of a Spectrum Relocation Fund to hold proceeds from the auction of specified radio frequencies allocated to federal use; federal agencies vacating spectrum to be auctioned for commercial use are being compensated from the fund for costs of relocation. In the 109 th Congress, the Deficit Reduction Act ( P.L. 109-171 ) included provisions that placed certain auction proceeds in a Digital Television Transition and Public Safety Fund. The fund is being mainly used to assist the transition from analog television broadcasting to digital broadcasting, and for contributions to programs for public safety. Over $7 billion of the auction proceeds were applied to deficit reduction. The funding came from the auction of spectrum (at 700 MHz) currently used for analog television broadcasting, to be vacated by February 17, 2009. The auction, Auction 73, concluded on March 18,2008; it grossed $19,592,420,000. The rules for Auction 73 introduced two new business models for spectrum management and assignment that represented departures from past policy. One model designated a block of spectrum licenses for a network that could be managed to accept any suitable wireless device or software application, referred to as open access. The other model would require a shared network to accommodate both public safety and commercial users in a partnership. A national license, referred to as the D Block, was put up for auction, as part of Auction 73, with a reserve price of $1.3 billion. The winning bidder would have been required to assume the cost and responsibility of building the network using D Block spectrum and adjacent spectrum assigned to public safety. The sole bid for the D Block was below the reserve price and consequently the D Block will be re-auctioned. The prospects for this new auction have triggered a debate about the nature of competition in the wireless industry and the need for a nationwide public safety network that may be resolved by Congress through legislation.

Introduction The Constitution's Speedy Trial Clause protects the criminally accused against unreasonable delays between his indictment and trial. Before indictment, the statutes of limitation, and in extreme circumstances, the Due Process Clauses protect the accused from unreasonable delays. This is an overview of federal law relating to the statutes of limitation in criminal cases, including those changes produced by the act. The phrase "statute of limitations" refers to the time period within which formal criminal charges must be brought after a crime has been committed. "The purpose of a statute of limitations is to limit exposure to criminal prosecution to a certain fixed period of time following the occurrence of those acts the legislature has decided to punish by criminal sanctions. Such a limitation is designed to protect individuals from having to defend themselves against charges when the basic facts may have become obscured by the passage of time and to minimize the danger of official punishment because of acts in the far-distant past. Such a time limit may also have the salutary effect of encouraging law enforcement officials promptly to investigate suspected criminal activity." Therefore, in most instances, prosecutions are barred if the defendant can show that there was no indictment or other formal charge filed within the time period dictated by the statute of limitations. Statutes of limitation are creatures of statute. The common law recognized no period of limitation. An indictment could be brought at any time. Limitations are recognized today only to the extent that a statute or due process dictates their recognition. Congress and most state legislatures have enacted statutes of limitation, but declare that prosecution for some crimes may be brought at any time. Federal statutes of limitation are as old as federal crimes. When the Founders assembled in the First Congress, they passed not only the first federal criminal laws but made prosecution under those laws subject to specific statutes of limitation. Similar provisions continue to this day. Federal capital offenses may be prosecuted at any time, but unless some more specific arrangement has been made a general five-year statute of limitations covers all other federal crimes. Some of the exceptions to the general rule identify longer periods for particular crimes. Others suspend or extend the applicable period under certain circumstances such as the flight of the accused, or during time of war. Prosecution at Any Time Aside from capital offenses, crimes which Congress associated with terrorism may be prosecuted at any time if they result in a death or serious injury or create a foreseeable risk of death or serious injury. Although the crimes were selected because they are often implicated in acts of terrorism, a terrorist defendant is not a prerequisite to an unlimited period for prosecution. A third category of crimes that may be prosecuted at any time consists of various designated federal child abduction and sex offenses. Limits by Crime Although the majority of federal crimes are governed by the general five-year statute of limitations, Congress has chosen longer periods for specific types of crimes—20 years for the theft of art work; 10 years for arson, for certain crimes against financial institutions, and for immigration offenses; and 8 years for the nonviolent terrorist offenses that may be prosecuted at any time if committed under violent circumstances. Investigative difficulties or the seriousness of the crime seem to have provided the rationale for enlargement of the time limit for prosecuting these offenses beyond the five-year standard. Suspension and Extension The five-year rule may yield to circumstances other than the type of crime to be prosecuted. For example, an otherwise applicable limitation period may be suspended or extended in cases involving child abuse, the concealment of the assets of an estate in bankruptcy, wartime fraud against the government, dismissal of original charges, fugitives, foreign evidence, or DNA evidence. Child Protection The child protection section, 18 U.S.C. § 3283, permits an indictment or information charging kidnaping, or sexual abuse, or physical abuse, of a child under the age of 18 to be filed within the longer of 10 years or the life of the victim. Section 3283 extends the statute of limitations in sexual abuse cases generally and is not confined to the offenses found in sexual abuse chapter of the federal criminal code. In contrast, 18 U.S.C. § 3299 eliminates the statute of limitations in child sexual abuse cases arising under the specific statutory provisions it cites. DNA There are two DNA provisions. One, 18 U.S.C. § 3297, suspends any applicable statute of limitations for the time required to identify an individual when DNA evidence implicates his involvement in a felony offense. The other, 18 U.S.C. § 3282(b), suspends the statute of limitations for federal sexual abuse violations by means of an indictment using a DNA profile alone to identify the person charged. Neither provision comes into play when the offense involves sexual abuse of a child or child abduction. As noted earlier, prosecution for such crimes may be brought at any time under 18 U.S.C. § 3299. Section 3282(b) is the narrower of the two DNA provisions. It only applies to offenses proscribed in 18 U.S.C. ch. 109A. Chapter 109A outlaws abusive sexual contact, sexual abuse, and aggravated sexual abuse when any of these offenses is committed in a federal prison, or within the special maritime or territorial jurisdiction of the United States. Section 3282(b) also suspends the provisions of the Speedy Trial Act that would otherwise come to life with the filing of an indictment in such cases. Section 3282(b), however, reaches only those cases in which the statute of limitations has not already expired. Section 3297 applies to any federal felony. Rather than suspend the statute of limitations, it marks the beginning of the period of limitation, not from the commission of the crime, but from the time when DNA testing implicates an individual. Concealing Bankruptcy Assets The statute of limitations on offenses which involve concealing bankruptcy assets does not begin to run until a final decision discharging or refusing to discharge the debtor: "The concealment of assets of a debtor in a case under Title 11 shall be deemed to be a continuing offense until the debtor shall have been finally discharged or a discharge denied, and the period of limitations shall not begin to run until such final discharge or denial of discharge." When a discharge determination is impossible, the statute of limitations runs from the date of the event when discharge becomes impossible for whatever reason. Wartime Statute of Limitations Section 3287 establishes a suspension of the statute of limitations covering wartime frauds committed against the United States that allows for prosecution at any time up to five years after the end of the war. At one time, it could be said with some conviction that Section 3287 "appears to have only been used in cases that involved conduct during or shortly after World War II" and none since. That is no longer the case. In 2008, Congress amended the section to make it clear that the provision covers misconduct during both declared wars and periods of armed conflict for which Congress has explicitly authorized use of the Armed Forces. The same amendment extended the period of suspension from three to five years. The provision applies to crimes related to conduct of the conflict as well as those that are not. The offense, however, must "involve the defrauding of the United States in [some] pecuniary manner or in a manner concerning property." The provision's five-year clock begins to run with the end of the war or conflict, but there is some difference of opinion over whether a formal termination must come first. Indictment or Information The statute of limitations runs until an indictment or information is found and returned to the court. There is, however, some question about the impact of sealing the indictment upon its return. The Federal Rules of Criminal Procedure allow the magistrate to whom the indictment is returned to seal it until the defendant is apprehended or released on bail. Some courts seem troubled when they believe that the seal has been applied for purposes of tactical advantage rather than to prevent the escape of the accused. The statute of limitations remains tolled if the original indictment is replaced by a superseding indictment, as long as the superseding indictment does not substantially alter the original charge. If the indictment or information is subsequently dismissed, federal law extends the statute of limitations an additional six months (30 days if the indictment or information is dismissed on appeal and there is a grand jury with jurisdiction in place). Beyond the extension here, when a timely indictment is dismissed pursuant to a plea agreement under which the defendant pleads to other charges, the statute of limitations ordinarily begins again for the dismissed charges unless the defendant has waived as part of the plea agreement. Foreign Evidence Section 3292 was enacted to compensate for the delays the Justice Department experienced when it sought to secure bank records and other evidence located overseas. It provides the following: (a)(1) Upon application of the United States, filed before return of an indictment, indicating that evidence of an offense is in a foreign country, the district court before which a grand jury is impaneled to investigate the offense shall suspend the running of the statute of limitations for the offense if the court finds by a preponderance of the evidence that an official request has been made for such evidence and that it reasonably appears, or reasonably appeared at the time the request was made, that such evidence is, or was, in such foreign country. (2) The court shall rule upon such application not later than thirty days after the filing of the application. (b) Except as provided in subsection (c) of this section, a period of suspension under this section shall begin on the date on which the official request is made and end on the date on which the foreign court or authority takes final action on the request. (c) The total of all periods of suspension under this section with respect to an offense – (1) shall not exceed three years; and (2) shall not extend a period within which a criminal case must be initiated for more than six months if all foreign authorities take final action before such period would expire without regard to this section. (d) As used in this section, the term "official request" means a letter rogatory, a request under a treaty or convention, or any other request for evidence made by a court of the United States or an authority of the United States having criminal law enforcement responsibility, to a court or other authority of a foreign country. Construction of Section 3292 has been something less than uniform, thus far. The courts are divided over whether the target of the grand jury or the subject of the foreign evidence sought may contest the government's application when it is filed or whether the application may be filed ex parte with an opportunity for the accused to contest suspension following indictment. By the same token, it is less certain whether the phrase indicating that the application must be filed with "the district court before which a grand jury is impaneled to investigate the offense," means that the application must relate to a specific grand jury investigation or may be filed in anticipation of such an investigation. On the related issue of when an application may be filed, one court has ruled that the government may seek the suspension either to allow it to obtain foreign evidence or to compensate it for time expended to acquire the evidence prior to the application. Another has held that the extension cannot be had when the evidence sought by the government is in its possession at the time of the application. Still others cannot agree on whether the request may revive an expired statute of limitations. The statute demands that the government bear the burden of establishing to the court its right to a suspension by a preponderance of the evidence. The Second Circuit has pointed out, however, that the statute sets out two slightly different preponderance standards, a simple preponderance standard for the fact a request has been made, and slightly less demanding one (preponderance that it "reasonably appears") for the fact that the evidence sought exists overseas. The government must do more than present unsworn, conclusory statements to meet its burden, but "something of evidentiary value" on point will ordinarily do. As for the nature of the overseas evidence, it is no bar to suspension that the evidence might be obtained in this country or that without it the grand jury has enough evidence to indict. On the other hand, the court may not suspend, if the government has already received the foreign evidence at the time when it submits its application for suspension. The suspension begins when the government submits its official request to a foreign source. It ends when the foreign entity takes "final action" on the request. When that occurs may be a matter of some dispute. Some courts suggest that final action occurs with a dispositive response, i.e ., when the United States is satisfied its request has been answered; yet at least one believes that final action occurs when the foreign government believes it has provided a final response. Fugitives A provision exempting fugitives accompanied passage of the first federal statute of limitations. The language has changed little since, but its meaning remains a topic of debate. Most circuits, taking their lead from Streep v. United States , hold that the government must establish that the accused acted with an intent to avoid prosecution. Yet two have held that mere absence from the jurisdiction is sufficient. Even in the more demanding circuits, however, flight is thought to have occurred when the accused conceals himself within the jurisdiction; remains outside the jurisdiction after becoming aware of the possibility of prosecution; flees before an investigation begins; departs after an investigation has begun but before charges are filed; absconds to avoid prosecution on another matter; or flees to avoid civil or administrative justice rather than criminal justice. Conspiracies and Continuing Offenses Statutes of limitation "normally begin to run when the crime is complete," which occurs when the last element of the crime has been satisfied. The rule for conspiracy is a bit different. The general conspiracy statute consists of two elements: (1) an agreement to commit a federal crime or to defraud the United States and (2) an overt act committed in furtherance of the agreement. Conspirators left uninterrupted will frequently continue on through several overt acts to the ultimate commission of the underlying substantive offenses which are the objectives of their plots. Thus, the statute of limitations for such conspiracies begins to run not with the first overt act committed in furtherance of the conspiracy but with the last. The statute of limitations under conspiracy statutes that have no overt act requirement begins to run with the accomplishment of the conspiracy's objectives, with its abandonment, or with the defendant's effective withdrawal from the conspiracy. Concealment of the criminal plot after its completion is considered a natural component of all conspiracies. Consequently, overt acts of concealment after the objectives of the conspiracy have been accomplished may not be used to delay the running of the statute of limitations. Overt acts of concealment which are among the original objectives of the conspiracy as charged in the indictment, however, may serve as the point at which the statute of limitations begins to run. Distinguishing between the two is sometimes difficult. There are other crimes, which, like conspiracy, continue on long after all the elements necessary for their prosecution fall into place. The applicable statute of limitations for these continuing crimes is delayed if either "the explicit language of the substantive criminal statute compels such a conclusion, or the nature of the crime involved is such that Congress must assuredly have intended that it be treated as a continuing one." Continuing federal offenses for purposes of the statutes of limitation include the following: escape from federal custody; flight to avoid prosecution; failure to report for sentencing; possession of the skin and skull of an endangered species; possession of counterfeit currency; kidnaping; failure to register under the Foreign Agents Registration Act; failure to register under the Selective Service Act; being found in the United States having reentered this country after deportation; embezzlement under some circumstances; possession of unregistered pipe bombs; failure to pay child support; possession of an immigration document obtained fraudulently; bank fraud; and health care fraud. Constitutional Considerations Ex post Facto Historically, constitutional challenges to the application of various statutes of limitation have arisen most often under the ex post facto or due process clauses. The Constitution prohibits both Congress and the states from enacting ex post facto laws. More precisely, the words of the Supreme Court in Calder v. Bull , it prohibits the following: 1 st . Every law that makes an action done before the passing of the law, and which was innocent when done, criminal; and punishes such action. 2d. Every law that aggravates a crime, or makes it greater than it was, when committed. 3d. Every law that changes the punishment, and inflicts a greater punishment, than the law annexed to the crime, when committed. 4 th . Every law that alters the legal rules of evidence, and receives less, or different, testimony, than the law required at the time of the commission of the offense, in order to convict the offender. The lower federal appellate courts had long felt that a statute that extended a period of limitation before its expiration did not offend the ex post facto clauses, but that the clauses do ban laws that attempt to revive and extend an expired statute of limitations. Until the United States Supreme Court confirmed that view in Stogner v. California , however, there were well regarded contrary opinions. The California Supreme Court in Frazer , for example, at one point concluded that the ex post facto clauses in fact pose no impediment to the revival of an expired statute of limitations. In so holding, the California court relied heavily on the United States Supreme Court's Collins v. Youngblood decision where the Court seemed to repudiate at least the evidentiary component of the traditional Calder understanding. As the California court read Collins , the Supreme Court had not only indicated that evidentiary changes were beyond the realm of ex post facto protection but that ex post facto protection reached no further than retroactive changes in a crime's elements or punishment. The Supreme Court subsequently warned that Collins should not be read as a repudiation of Calder's four prohibited classes, but instead that " Collins held that it was a mistake to stray beyond Calder's four categories." In another case, the Court seemed to further signal its reluctance to reach beyond the limits of Calder when it declined to extend the ex post facto proscription to cover a retroactive application of a judicial (rather than a legislative) change in the law. These developments did not necessarily undermine the California decision in Frazer , however, because its revival of a statute of limitations that had run did not appear to fit easily within any of the Calder categories. The Frazer analysis was in error nonetheless. The United States Supreme Court in Stogner characterized the California legislative revival of an expired period of limitation as not only "manifestly unjust and oppressive," but among those laws that run afoul of Calder's second standard, i.e., "[e]very law that aggravates a crime, or makes it greater than it was, when committed." As properly understood and alternatively characterized in Calder , this second category embraces statutes like the California statute that "inflicted punishments, where the party was not by law, liable to any punishment," at the time. Due Process Retroactivity aside, the due process clauses may be implicated when a crime has no statute of limitations or when the period of limitation has not run. Although statutes of limitation alone generally govern the extent of permissible pre-indictment delay, extraordinary circumstances may trigger due process implications. The Supreme Court in Marion observed that even "the Government concedes that the Due Process Clause of the Fifth Amendment would require dismissal of [an] indictment if it were shown at trial that the pre-indictment delay ... caused substantial prejudice to [a defendant's] rights to a fair trial and that the delay was an intentional device to gain tactical advantage over the accused." The Court declined to dismiss the indictment there, however, because the defendants failed to show they had suffered any actual prejudice from the delay or to show "that the Government intentionally delayed to gain some tactical advantage over [them] or to harass them." The Court later made clear that due process contemplates more than a claimant's showing of adverse impact caused by pre-indictment delay: "Thus Marion makes clear that proof of prejudice is generally a necessary but not sufficient element of a due process claim, and that the due process inquiry must consider the reasons for the delay as well as the prejudice to the accused." Perhaps because so few defendants have been able to show sufficient prejudice to necessitate further close inquiry, the lower federal appellate courts seem at odds over exactly what else due process demands before it will require dismissal. Most have held that the defendant bears the burden of establishing both prejudice and government deficiency; others, that once the defendant establishes prejudice the burden shifts to the government to negate the second prong; and still others, that once the defendant shows prejudice the court must balance the harm against the justifications for delay. Attachment 1. Periods of Limitation for Specific Federal Crimes (Citations) No Limitation Death Penalty Offenses 8 U.S.C. § 1324(a)(1) (bringing in or harboring aliens where death results) 15 U.S.C. § 1825(a)(2)(C) (killing those enforcing the Horse Protection Act) 18 U.S.C. §§ 32, 33, 34 (destruction of aircraft, commercial motor vehicles or their facilities where death results) 18 U.S.C. § 36 (drive-by shooting resulting in 1 st degree murder) 18 U.S.C. § 37 (violence at international airports where death results) 18 U.S.C. §§ 43, 3559(f) (animal enterprise terrorism constituting murder of a child) 18 U.S.C. § 115 (kidnaping with death resulting of the member of the family of a federal official or employee to obstruct or retaliate) 18 U.S.C. § 115 (murder of the member of the family of a federal official or employee to obstruct or retaliate) 18 U.S.C. § 175 (development or possession of biological weapons) 18 U.S.C. §§ 175c, 3559(f) (variola virus offense constituting murder of a child) 18 U.S.C. §§ 229, 229A (use of chemical weapons where death results) 18 U.S.C. § 241 (conspiracy against civil rights where death results) 18 U.S.C. § 242 (deprivation civil rights under color of law where death results) 18 U.S.C. § 245 (discriminatory obstruction of enjoyment of federal protected activities where death results) 18 U.S.C. § 247 (obstruction of the exercise of religious beliefs where death results) 18 U.S.C. § 249 (hate crime resulting in death) 18 U.S.C. § 351 (murder of a Member of Congress) 18 U.S.C. § 351 (conspiracy to kill or kidnap a Member of Congress if death results) 18 U.S.C. § 351 (kidnaping a Member of Congress if death results) 18 U.S.C. § 794 (espionage) 18 U.S.C. §§ 831, 3559(f) (nuclear material offense constituting murder of a child) 18 U.S.C. § 844(d) (use of fire or explosives unlawfully where death results) 18 U.S.C. § 844(f)(burning or bombing federal property where death results) 18 U.S.C. § 844(i)(burning or bombing property affecting interstate commerce where death results) 18 U.S.C. § 924(j)(1) (murder while in possession of a firearm during the commission of a crime of violence or drug trafficking) 18 U.S.C. § 930(c) (murder while in possession of a firearm in a federal building) 18 U.S.C. § 1091 (genocide) 18 U.S.C. § 1111 (murder within the special maritime or territorial jurisdiction of the U.S.) 18 U.S.C. § 1121(b) (killing a state law enforcement officer by a federal prisoner or while transferring a prisoner interstate) 18 U.S.C. § 1114 (murder of a federal officer or employee) 18 U.S.C. § 1116 (murder of a foreign dignitary) 18 U.S.C. § 1118 (murder by a federal prisoner) 18 U.S.C. § 1119 (murder of an American by an American overseas) 18 U.S.C. § 1120 (murder by an escaped federal prisoner) 18 U.S.C. § 1121 (murder of one assisting in a federal criminal investigation) 18 U.S.C. § 1201 (kidnaping where death results) 18 U.S.C. § 1203 (hostage taking where death results) 18 U.S.C. §§ 1365, 3559(f) (tampering with consumer products constituting murder of a child) 18 U.S.C. § 1503 (murder committed to obstruction of federal judicial proceedings) 18 U.S.C. § 1512 (tampering with a federal witness or informant involving murder) 18 U.S.C. § 1513 (retaliating against a federal witness or informant involving murder) 18 U.S.C. §§ 1591, 2245 (murder committed during the course of sex trafficking by force, fraud or of a child) 18 U.S.C. §§ 1651, 1652, 3559(f) (piracy involving murder of a child) 18 U.S.C. § 1716 (mailing injurious articles with intent to injure or damage property where death results) 18 U.S.C. § 1751 (kidnaping the President where death results) 18 U.S.C. § 1751 (conspiracy to kill or kidnap the President where death results) 18 U.S.C. § 1751 (murder of the President) 18 U.S.C. §§ 1952, 3559(f) (travel in aid of racketeering involve the murder of child) 18 U.S.C. § 1958 (use of interstate facilities in furtherance of a murder-for-hire where death results) 18 U.S.C. § 1959 (murder in aid of racketeering activity) 18 U.S.C. § 1992 (terrorist attacks on trains and mass transit) 18 U.S.C. § 2113(e) (robbing a federally insured bank if death results) 18 U.S.C. §§ 2118, 3559(f) (robbery or burglary involving controlled substances constituting murder of a child) 18 U.S.C. § 2119 (carjacking where death results) 18 U.S.C. §§ 2199, 3559(f) (murder of a child by a stowaway) 18 U.S.C. §§ 2241, 2245 (aggravated sexual assault of a child under 12 years of age in the special maritime or territorial jurisdiction of the U.S. where death results) 18 U.S.C. §§ 2242, 2245 (coercing or enticing interstate travel for sexual purposes where death results) 18 U.S.C. §§ 2243, 2245 (transporting minors for sexual purposes resulting in the death of a child under 14 years of age) 18 U.S.C. §§ 2244, 2245 (abusive sexual contact where death results) 18 U.S.C. § 2251 (sexual exploitation of children where death results) 18 U.S.C. §§ 2251A, 2245 (selling or buying children where death results) 18 U.S.C. §§ 2260, 2245 (production of material depicting sexually explicit activities of a child where death results) 18 U.S.C. §§ 2261, 2261A, 2262, 3559(f) (murder of a child involved in interstate domestic violence, stalking, or interstate violation of a protective order) 18 U.S.C. § 2280 (violence against maritime navigation where death results) 18 U.S.C. § 2281 (violence against maritime fixed platform where death results) 18 U.S.C. § 2282A (interference with maritime commerce where death results) 18 U.S.C. § 2283 (transportation of explosive, nuclear, chemical, biological or radioactive material resulting in death) 18 U.S.C. § 2291 (destruction of a vessel or maritime facility) 18 U.S.C. § 2332 (terrorist murder of an American outside the U.S.) 18 U.S.C. § 2332a (use of weapons of mass destruction where death results) 18 U.S.C. § 2332b (acts of terrorism transcending national boundaries where death results) 18 U.S.C. § 2332f (bombing public places) 18 U.S.C. §§ 2332g, 3559(f) (anti-aircraft missile offense constituting murder of a child) 18 U.S.C. §§ 2332h, 3559(f) (radiological dispersal device offense constituting murder of a child) 18 U.S.C. § 2340A (torture where death results) 18 U.S.C. § 2381 (treason) 18 U.S.C. § 2441 (war crimes where death results) 18 U.S.C. §§ 2421, 2245 (transportation of illicit sexual purposes where death results) 18 U.S.C. §§ 2422, 2245 (coercion or inducement to travel for illicit sexual purposes where death results) 18 U.S.C. §§ 2423, 2245 (transportation of minors for illicit sexual purposes where death results) 18 U.S.C. §§ 2425, 2245 (interstate transportation of information concerning a minor where death results) 21 U.S.C. § 461 (killing a poultry inspector) 21 U.S.C. § 675 (killing a meat inspector) 21 U.S.C. §§ 848(c), 3591(b) (major drug kingpin violations) 21 U.S.C. § 848(e)(1) (killing in furtherance of a serious drug trafficking violation or killing a law enforcement official in furtherance of a controlled substance violation) 21 U.S.C. § 1041(c) (murder of an egg inspector) 42 U.S.C. § 2000e-13 (murder of EEOC personnel) 42 U.S.C. § 2283 (murder of federal nuclear inspectors) 49 U.S.C. § 46502 (air piracy where death results) 49 U.S.C. § 46506 (murder in the special aircraft jurisdiction of the United States) Terrorism-Related Offenses Resulting in or Involving the Risk of Death or Serious Injury 18 U.S.C. § 32 (destruction of aircraft or aircraft facilities) 18 U.S.C. § 37 (violence at international airports) 18 U.S.C. § 81 (arson within special maritime and territorial jurisdiction) 18 U.S.C. §§ 175, 175b (biological weapons offenses) 18 U.S.C. § 175c (variola virus) 18 U.S.C. § 229 (chemical weapons offenses) 18 U.S.C. § 351(a),(b),(c), or (d) (congressional, cabinet, and Supreme Court assassination and kidnaping) 18 U.S.C. § 831 (nuclear materials offenses) 18 U.S.C. § 832 (participation in a foreign atomic weapons program) 18 U.S.C. § 842(m) or (n) (plastic explosives offenses) 18 U.S.C. § 844(f)(2) or (3)(arson and bombing of federal property risking or causing death) 18 U.S.C. § 844(i) (burning or bombing of property used in, or used in activities affecting, commerce) 18 U.S.C. § 930(c) (killing or attempted killing during an attack on a federal facility with a dangerous weapon) 18 U.S.C. § 956(a)(1) (conspiracy to murder, kidnap, or maim persons abroad) 18 U.S.C. § 1030(a)(1) (protection of computer systems containing classified information) 18 U.S.C. § 1030(a)(5)(A)(i) (resulting in damage defined in 1030(a)(5)(B)(ii) through (v) (protection of computers) 18 U.S.C. § 1114 (protection of officers and employees of the United States), 18 U.S.C. § 1116 (murder or manslaughter of foreign officials, official guests, or internationally protected persons) 18 U.S.C. § 1203 (hostage taking) 18 U.S.C. § 1361 (destruction of federal property) 18 U.S.C. § 1362 (destruction of communication lines, stations, or systems) 18 U.S.C. § 1363 (injury to buildings or property within special maritime and territorial jurisdiction of the United States) 18 U.S.C. § 1366(a) (destruction of energy facilities) 18 U.S.C. § 1751(a),(b),(c), or (d) (Presidential and Presidential staff assassination and kidnaping) 18 U.S.C. § 1992 (terrorist attacks on trains and mass transit) 18 U.S.C. § 2155 (destruction of national defense materials, premises, or utilities), 18 U.S.C. § 2156 (production of defective national defense material) 18 U.S.C. § 2280 (violence against maritime navigation) 18 U.S.C. § 2280a (violence against maritime navigation involving weapons of mass destruction) 18 U.S.C. § 2281 (violence against maritime fixed platforms) 18 U.S.C. § 2281a (addition offenses involving violence against maritime fixed platforms) 18 U.S.C. § 2332 (certain homicides and other violence against United States nationals occurring outside of the United States) 18 U.S.C. § 2332a (use of weapons of mass destruction) 18 U.S.C. § 2332b (acts of terrorism transcending national boundaries) 18 U.S.C. § 2332f (bombing public places) 18 U.S.C. § 2332g (anti-aircraft missiles) 18 U.S.C. § 2332h (radiological dispersal devices) 18 U.S.C. § 2332i (acts of nuclear terrorism) 18 U.S.C. § 2339 (harboring terrorists) 18 U.S.C. § 2339A (providing material support to terrorists) 18 U.S.C. § 2339B (providing material support to terrorist organizations) 18 U.S.C. § 2339C (financing terrorism) 18 U.S.C. § 2339D (receipt of military training from a foreign terrorist organization) 18 U.S.C. § 2340A (torture committed under color of law) 21 U.S.C. § 960A (narcoterrorism) 42 U.S.C. § 2122 (atomic weapons) 42 U.S.C. § 2284 (sabotage of nuclear facilities or fuel) 49 U.S.C. § 46502 (aircraft piracy) 49 U.S.C. § 46504 (second sentence)(assault on a flight crew with a dangerous weapon) 49 U.S.C. § 46505(b)(3) or (c) (explosive or incendiary devices, or endangerment of human life by means of weapons, or aircraft) 49 U.S.C. § 46506 (if homicide or attempted homicide involved, application of certain criminal laws to acts on aircraft) 49 U.S.C. § 60123(b) (destruction of interstate gas or hazardous liquid pipeline facility) Child Abduction and Sex Offenses 18 U.S.C. § 1201 (kidnaping a child) 18 U.S.C. § 1591 (sex trafficking by force, fraud or of a child) 18 U.S.C. ch.109A 18 U.S.C. § 2241 (aggravated sexual abuse) 18 U.S.C. § 2242 (sexual abuse) 18 U.S.C. § 2243 (sexual abuse of a ward or child) 18 U.S.C. § 2244 (abusive sexual contact) 18 U.S.C. § 2245 (sexual abuse resulting in death) 18 U.S.C. § 2250 (failure to register as a sex offender) 18 U.S.C. ch. 110 18 U.S.C. § 2251 (sexual exploitation of children) 18 U.S.C. § 2251A (selling or buying children) 18 U.S.C. § 2252 (transporting, distributing or selling child sexually exploitive material) 18 U.S.C. § 2252A (transporting or distributing child pornography) 18 U.S.C. § 2252B (misleading names on the Internet) 18 U.S.C. § 2260 (making child sexually exploitative material overseas for export to the U.S.) 18 U.S.C. ch. 117 18 U.S.C. § 2421 (transportation of illicit sexual purposes) 18 U.S.C. § 2422 (coercing or enticing travel for illicit sexual purposes) 18 U.S.C. § 2423 (travel involving illicit sexual activity with a child) 18 U.S.C. § 2424 (filing false immigration statement) 18 U.S.C. § 2425 (interstate transmission of information about a child relating to illicit sexual activity) 20 years 18 U.S.C. 668 (major art theft) 10 years 18 U.S.C. § 81 (arson in the special maritime or territorial jurisdiction of the United States not involving a risk of death or serious injury)* 18 U.S.C. § 215 (receipt by financial institution officials of commissions or gifts for procuring loans)** 18 U.S.C. § 656 (theft, embezzlement, or misapplication by bank officer or employee)** 18 U.S.C. § 657 (embezzlement by lending, credit and insurance institution officers or employees)** 18 U.S.C. § 844(f) (burning or bombing federal property not involving a risk of death or serious injury)* 18 U.S.C. § 844(h) (carrying explosives during the commission of a federal offense or using fire or explosives to commit a federal offense)* 18 U.S.C. § 844 (i) (burning or bombing property used in or used in activities affecting commerce not involving a risk of death or serious injury)* 18 U.S.C. § 1005 (fraud concerning bank entries, reports and transactions)** 18 U.S.C. § 1006 (fraud concerning federal credit institution entries, reports and transactions)** 18 U.S.C. § 1007 (fraud concerning Federal Deposit Insurance Corporation transactions)** 18 U.S.C. § 1014 (fraud concerning loan and credit applications generally; renewals and discounts; crop insurance)** 18 U.S.C. § 1033 (crimes by or affecting persons engaged in the business of insurance)** 18 U.S.C. § 1344 (bank fraud)** 18 U.S.C. § 1341 (mail fraud affecting a financial institution)** 18 U.S.C. § 1343 (wire fraud affecting a financial institution)** 18 U.S.C. § 1423 (misuse of evidence of citizenship or naturalization) (or conspiracy to commit)+ 18 U.S.C. § 1424 (personation or misuse of papers in naturalization proceedings) (or conspiracy to commit)+ 18 U.S.C. § 1425 (procurement of citizenship or naturalization unlawfully) (or conspiracy to commit)+ 18 U.S.C. § 1426 (reproduction of naturalization or citizenship papers) (or conspiracy to commit)+ 18 U.S.C. § 1427 (sale of naturalization or citizenship papers) (or conspiracy to commit)+ 18 U.S.C. § 1428 (surrender of canceled naturalization certificate) (or conspiracy to commit)+ 18 U.S.C. § 1541 (passport or visa issuance without authority) (or conspiracy to commit)+ 18 U.S.C. § 1542 (false statement in application and use of passport) (or conspiracy to commit)+ 18 U.S.C. § 1543 (forgery or false use of passport) (or conspiracy to commit)+ 18 U.S.C. § 1544 (misuse of passport) (or conspiracy to commit)+ 18 U.S.C. § 1581 (peonage; obstruction of justice)++ 18 U.S.C. § 1583 (enticement into slavery)++ 18 U.S.C. § 1584 (sale into involuntary servitude)++ 18 U.S.C. § 1589 (forced labor)++ 18 U.S.C. § 1590 (slave trafficking)++ 18 U.S.C. § 1592 (document offenses involving slave trafficking)++ 18 U.S.C. § 1963 (RICO violation involving bank fraud)** 18 U.S.C. § 2442 (recruiting or using child soldiers) 42 U.S.C. § 2274 (communication of restricted data)† 42 U.S.C. § 2275 (receipt of restricted data)† 42 U.S.C. § 2276 (tampering with restricted data)† 50 U.S.C. § 783 (disclosure of classified information (with suspension until the end of any federal employment of the accused)) 8 years Generally 18 U.S.C. § 112 (assaults upon diplomats) 18 U.S.C. § 351(e) (assaulting a Member of Congress) 18 U.S.C. § 1751(e) (assaulting the President or presidential staff) 49 U.S.C. § 46506 (certain criminal laws to acts on aircraft) Federal Crimes of Terrorism That Do Not Result in or Involve the Risk of Death or Serious Injury 18 U.S.C. § 32 (destruction of aircraft or aircraft facilities) 18 U.S.C. § 37 (violence at international airports) 18 U.S.C. § 81 (arson within special maritime and territorial jurisdiction) 18 U.S.C. § 175, 175b (biological weapons offenses) 18 U.S.C. § 175c (variola virus) 18 U.S.C. § 229 (chemical weapons offenses) 18 U.S.C. § 351(a),(b),(c), or (d) (congressional, cabinet, and Supreme Court assassination and kidnaping) 18 U.S.C. § 831 (nuclear materials offenses) 18 U.S.C. § 832 (participation in a foreign atomic weapons program) 18 U.S.C. § 842(m) or (n) (plastic explosives offenses) 18 U.S.C. § 844(f)(2) or (3) (arson and bombing of federal property) 18 U.S.C. § 844(i) (burning or bombing of property used in, or used in activities affecting, commerce) 18 U.S.C. § 956(a)(1) (conspiracy to murder, kidnap, or maim persons abroad) 18 U.S.C. § 1203 (hostage taking) 18 U.S.C. § 1361 (destruction of federal property) 18 U.S.C. § 1362 (destruction of communication lines, stations, or systems) 18 U.S.C. § 1363 (injury to buildings or property within special maritime and territorial jurisdiction of the United States) 18 U.S.C. § 1366(a) (destruction of energy facilities) 18 U.S.C. § 1751(a),(b),(c), or (d) (Presidential and Presidential staff assassination and kidnaping) 18 U.S.C. § 1992 (terrorist attacks on trains and mass transit) 18 U.S.C. § 2155 (destruction of national defense materials, premises, or utilities), 18 U.S.C. § 2156 (production of defective national defense material) 18 U.S.C. § 2280 (violence against maritime navigation) 18 U.S.C. § 2280a (violence against maritime navigation involving weapons of mass destruction) 18 U.S.C. § 2281 (violence against maritime fixed platforms) 18 U.S.C. § 2281a (addition offenses involving violence against maritime fixed platforms) 18 U.S.C. § 2332 (certain homicides and other violence against United States nationals occurring outside of the United States) 18 U.S.C. § 2332a (use of weapons of mass destruction) 18 U.S.C. § 2332b (acts of terrorism transcending national boundaries) 18 U.S.C. § 2332f (bombing public places) 18 U.S.C. § 2332g (anti-aircraft missiles) 18 U.S.C. § 2332h (radiological dispersal devices) 18 U.S.C. § 2232i (acts of nuclear terrorism) 18 U.S.C. § 2339 (harboring terrorists) 18 U.S.C. § 2339A (providing material support to terrorists) 18 U.S.C. § 2339B (providing material support to terrorist organizations) 18 U.S.C. § 2339C (financing terrorism) 18 U.S.C. § 2339D (receipt of military training from a foreign terrorist organization) 18 U.S.C. § 2340A (torture committed under color of law) 21 U.S.C. § 960A (narcoterrorism) 42 U.S.C. § 2122 (atomic weapons) 42 U.S.C. § 2284 (sabotage of nuclear facilities or fuel) 49 U.S.C. § 46502 (aircraft piracy) 49 U.S.C. § 46504 (second sentence) (assault on a flight crew with a dangerous weapon) 49 U.S.C. § 46505(b)(3) or (c) (explosive or incendiary devices, or endangerment of human life by means of weapons, or aircraft) 49 U.S.C. § 46506 (if homicide or attempted homicide involved, application of certain criminal laws to acts on aircraft) 49 U.S.C. § 60123(b) (destruction of interstate gas or hazardous liquid pipeline facility) 7 years 18 U.S.C. § 247 (damage to religious property) 18 U.S.C. § 249 (hate crime not resulting in death) 18 U.S.C. § 1031 (major fraud against the United States) 6 years 15 U.S.C. § 77x (Securities Act violations)¤ 15 U.S.C. § 77yyy (Trust Indenture Act violations)¤ 15 U.S.C. § 78ff(a) (Securities Exchange Act violations)¤ 15 U.S.C. § 80a-48 (Investment Company Act violations¤ 15 U.S.C. § 80b-17 (Investment Advisers Act violations)¤ 18 U.S.C. § 1348 (securities and commodities fraud)¤ 26 U.S.C. § 6531 (tax crimes) 5 years All crimes not otherwise provided for 3 years 31 U.S.C. § 333 (misuse of Treasury Department names, symbols, etc.) 1 year 18 U.S.C. § 402 (contempt of court) Attachment 2. Selected State Felony Statutes of Limitation

A statute of limitations dictates the time period within which a legal proceeding must begin. The purpose of a statute of limitations in a criminal case is to ensure the prompt prosecution of criminal charges and thereby spare the accused of the burden of having to defend against stale charges after memories may have faded or evidence is lost. There is no statute of limitations for federal crimes punishable by death, nor for certain federal crimes of terrorism, nor for certain federal sex offenses. Prosecution for most other federal crimes must begin within five years of the commitment of the offense. There are exceptions. Some types of crimes are subject to a longer period of limitation; some circumstances suspend or extend the otherwise applicable period of limitation. Arson, art theft, certain crimes against financial institutions, and various immigration offenses all carry statutes of limitation longer than the five-year standard. Regardless of the applicable statute of limitations, the period may be extended or the running of the period suspended or tolled under a number of circumstances, such as when the accused is a fugitive or when the case involves charges of child abuse, bankruptcy, wartime fraud against the government, or DNA evidence. Ordinarily, the statute of limitations begins to run as soon as the crime has been completed. Although the federal crime of conspiracy is complete when one of the plotters commits an affirmative act in its name, the period for conspiracies begins with the last affirmative act committed in furtherance of the scheme. Other so-called continuing offenses include various possession crimes and some that impose continuing obligations to register or report. Limitation-related constitutional challenges arise most often under the Constitution's ex post facto and due process clauses. The federal courts have long held that a statute of limitations may be enlarged retroactively as long as the previously applicable period of limitation has not expired. The Supreme Court recently confirmed that view; the ex post facto proscription precludes legislative revival of an expired period of limitation. Due process condemns pre-indictment delays even when permitted by the statute of limitations if the prosecution wrongfully caused the delay and the accused's defense suffered actual, substantial harm as a consequence. A list of federal statutes of limitation in criminal cases and a rough chart of comparable state provisions are attached. This report is available in an abbreviated form as CRS Report RS21121, Statute of Limitation in Federal Criminal Cases: A Sketch, without the attachments, footnotes, or attributions to authority found here.

Introduction Conference committees have long been known as "the third house of Congress." In a bicameral legislature like the U.S. Congress, they are usually the principal forum for reconciling major bills passed in dissimilar form by the two houses. These bicameral units often write the final version of major measures that both chambers will vote upon. As one Senator said, conferences are "where the final touches are put on legislation which constitutes the laws of the country." A House member stated, "Let's face it, the conference committee is where it all happens." Or as a congressional scholar put it, in "the legislative process, all roads lead to the conference committee." Current developments suggest, however, that the "third house" characterization might require modification. It is not that conference committees are unimportant, it is that another method for adjusting and reconciling bicameral differences on significant legislation has taken on greater prominence in the contemporary Congress. This method is the exchange of amendments—or "messages" —between the houses, the so-called "ping pong" procedure. Some lawmakers even state that conferences are becoming a thing of the past. A member of the Senate noted, "Processing bills by exchanging messages [amendments] with the House is becoming the norm rather than the exception. Formal conferences are becoming rare." If the conference committee is being somewhat eclipsed by the ping pong procedure as an important way to achieve bicameral reconciliation on consequential legislation, that would represent an important institutional change. This apparent development merits some attention and analysis. Accordingly, this report's purposes are fundamentally twofold: to examine the reasons for the heightened salience of the ping pong approach and to consider several reasons for and the implications that seem to flow from using this procedure rather than convening conferences to resolve inter-chamber disagreements on major legislation. To fulfill these two purposes, the report is organized into six sections as follows. First, it will provide an overview of the methods Congress employs to achieve inter-chamber agreement on legislation, including ping pong's place in the bicameral resolution process. Second, it will briefly discuss how each chamber gets to conference, underscoring how the convening of conference committees in the Senate can be effectively blocked, even if a majority of Senators would agree to send the measure to conference. Third, it will examine why there seems to be more reliance in recent years on the ping pong method in reconciling bicameral differences on significant legislation than on the conference committee route. Important to underscore at the outset is that informal negotiations among key bicameral actors suffuse the lawmaking process. Unsurprisingly, confidential bargaining to achieve mutually acceptable agreements is part and parcel of both the conference committee and the amendment exchange procedure. Key bicameral actors typically craft policy compromises in closed session and then use the amendment exchange method to win House-Senate agreement on them. On Capitol Hill, private negotiating sessions and discussions among House and Senate members are a day-to-day occurrence; these confidential meetings influence lawmaking from the introduction of a bill to bicameral reconciliation. Procedures usually are not isolated actions; they are employed in a policy, political, and legislative context. Hence, the fourth section of the report provides an overview of three case examples to illustrate in a concrete setting the factors that may trigger use of ping ponging over the convening of conference committees. The three measures are the Energy Independence and Security Act ( H.R. 6 ); the Honest Leadership and Open Government Act ( S. 1 ); and the reauthorization of the State Children's Health Insurance Program (or SCHIP, H.R. 976 ). A brief summary of the key elements associated with ping ponging each bill will conclude the discussion. These three bills were selected because they were the only ones in 2007 where the Senate majority leader employed a strategic maneuver called "filling the amendment tree" during the bicameral resolution stage. This procedural device is a way for the majority leader to protect an informally negotiated bicameral compromise from amendment. To be sure, there are other significant measures where ping ponging without any tree-filling has occurred in the Senate. The tree-filling maneuver may not have been necessary or appropriate because, for example, the bicameral compromise enjoyed broad bipartisan support; tree-filling might create more legislative problems than it could solve, such as arousing the ire of lawmakers who wanted to offer amendments of their own; or deadline pressures prompted agreement to the bicameral accord. Still, tree-filling can sometimes be a useful procedure in facilitating passage of priority legislation, which is why these measures were chosen for examination. Fifth, the report will discuss several reasons for, and implications of, ping ponging amendments back-and-forth between the chambers instead of forming conference committees to achieve bicameral agreement on legislation. Lastly, summary observations will be presented, including why the exchange of amendment pattern has seemingly evolved to become a more important feature of bicameral lawmaking activity. Achieving "Bicameral Ignition" on Legislation Under the Constitution, before measures can be sent to the White House for presidential consideration, they must pass the House and Senate with exactly the same bill number and legislative text. The issue, then, is how to unite what the Constitution divides when one chamber agrees to a measure at variance with a comparable bill adopted by the other house? Although the Constitution is silent on the matter, Congress has devised three basic methods or procedures to achieve "bicameral ignition." First, one house enacts unchanged the other's bill. Most measures (anywhere from 63 to around 85 percent in a biennial Congress) are enacted into law when one chamber adopts verbatim the legislation received from the other body. One chamber's deference to the other house's bill has various explanations, ranging from the lack of controversy to political necessity because time is running out in a legislative session. The hike over time in the percentage of measures "rubber stamped" into enactment (see Table 1 ) probably reflects a number of factors (setting aside their noncontroversial character), such as Members' electoral imperative—the urge felt by many to claim credit for passing constituency-focused legislation—and the artful drafting of legislation to assure that it has broad bipartisan and bicameral appeal. To be sure, House and Senate members and their staff aides often consult informally prior to a bill's introduction in either chamber to facilitate its approval by the second-acting house without amendment. The other two methods specifically deal with reconciling bicameral differences when the two chambers pass different versions of the same bill. The House and Senate can message—or "ping pong"—amendments back-and-forth between them until substantive disagreements on a measure are worked out. With the ping pong—or exchange of amendments—approach, one chamber may adopt the other house's amendments or further modify the other's amendments until both finally agree to identical language for all the provisions of the legislation. As a legislative scholar explained: When the House or Senate passes a measure, it is sent to the other chamber for further consideration. If the second chamber passes the measure with one or more amendments, it is then sent back to the originating chamber. In modern practice, the second chamber typically substitutes its version of a measure as a single amendment to the measure as passed by the first chamber. The first chamber then may accept the amendment or propose its own further amendment. In this way, the measure may be messaged back and forth between the House and Senate in the hope that both houses will eventually agree to the same version of a measure. The ping pong method of bicameral reconciliation is "frequently used in the closing days of a Congress to save time," wrote a congressional journalist. "Bills may be sent back and forth on an hourly basis until there is a meeting of the minds, or one side backs down, or the two chambers give up in failure." A week before Christmas 2007, for example, the House and Senate agreed to enact the Consolidated Appropriations Act for Fiscal Year 2008 ( H.R. 2764 ). With Congress unable to enact 11 of 12 appropriations bills by the start of the new fiscal year (October 1, 2007)—largely because of sharp conflicts over spending priorities between congressional Democrats and President Bush, as well as with congressional Republicans—the two chambers opted to use the ping pong route. Given clashes between Democrats and Republicans and lawmakers anxious to depart for the holiday season, political and temporal considerations were among the factors that prompted use of the amendment exchange method as the preferred way to reconcile inter-chamber differences on H.R. 2764 . Roughly 11% to 24% of public laws enacted during recent biennial Congresses took the ping pong, or "amendments between the houses," route. The 12% figure for the 2005-2007 period, as indicated by Table 1 , represents a 50% decline from the 103 rd Congress (1993-1995). However, the numerical dropoff does not reflect the higher policy significance of the legislation subject to the ping pong method in recent years compared with earlier Congresses. Bicameral ignition may also occur when the House and Senate agree to establish a conference committee. Each chamber selects a number of conferees from the relevant committees of jurisdiction to reconcile the items in bicameral disagreement. Only a relatively small number of public laws passed by a Congress (anywhere from around 5% to 13%, as revealed in Table 1 ) reach the conference stage, but these are often the most complex, controversial, and consequential. On some occasions a combination of the two approaches—ping pong and a conference committee, or vice versa—will be employed to reconcile matters in bicameral disagreement. For example, the chambers may start out using the ping pong procedure but then convene a conference committee to reconcile outstanding disagreements. It is quite common for House and Senate committee and party leaders, along with relevant staff, to conduct private, pre-conference negotiations prior to the formal convening of a conference. These might be characterized as "virtual" conferences. For example, meeting behind closed doors, "Senate and House leaders are taking the unusual step of negotiating a final bill to address the nation's housing crisis even before the Senate adopts its own version, trying to short-circuit a legislative process that might otherwise drag well into the summer." In these cases, sometimes the creation of a conference committee "will be more an indication that a deal is done than a forum to find one." Private negotiating sessions also occur regularly, as noted earlier, with the exchange of amendment procedure. For example, confidential negotiations occurred when the House passed a genetic nondiscrimination measure ( H.R. 493 ) on April 25, 2007, which the Senate considered the following year (April 24). The Senate replaced the language in H.R. 493 with a complete substitute and returned the bill, as amended, to the House, where it was cleared on May 1 for presidential consideration. The point is that the Senate's complete substitute was the result of informal bicameral negotiations. As the ranking Senator on the relevant committee of jurisdiction stated a few days before the House approved the substitute: "It has even been preconferenced with the House side. So we are pretty sure that once it finishes here it will go right over to the House and the House will take care of it too.... We let them into the process early so that everybody would know what was happening." Ping Ponging in the Spotlight Recently, legislative analysts and others have noted an increase in the use of the exchange of amendment procedure for bicameral reconciliation. Difficulties in creating conference committees for several major bills elevated the ping pong procedure to greater prominence in resolving inter-chamber differences on legislation. As former Senate Parliamentarian Robert Dove stated, "There's no question that amendments between the houses has been used more [today] than it has in the past, but that's because Senators blocking [legislation] from going to conference has happened more often." A congressional scholar and former House staff director calculated the extent to which major bills were resolved by establishing conference committees or using the ping pong approach during equivalent periods of the GOP-controlled 109 th Congress (2005-2007) and the Democratically controlled 110 th Congress (2007-2009). His study determined: Of major bills approved by the House and Senate that required some action to resolve differences between the two versions, 11 out of 19 (58 percent) were settled by conferences in the current Congress compared with 18 out of 19 (95 percent) in the previous Congress. Put another way, the current 110 th Congress has been negotiating eight times as many bills as the 109 th Congress outside the conference process. This is done by using the "pingpong" approach of bouncing amendments between the houses until a final agreement is achieved. In short, the current reality is that major bills often cannot reach the conference stage, leaving informal negotiations and "amendments between the houses" as the alternative methods for resolving bicameral differences on major legislation. Getting to Conference: House and Senate Procedure House Briefly, the two most-used methods for getting to conference are unanimous consent, with House Rule XXII available if an objection is made, and special rules from the Rules Committee. A routine request is for a lawmaker to ask and receive unanimous consent to go to conference on a measure. "Mr. Speaker, I ask unanimous consent to take from the Speaker's table the bill H.R. 1234 with the Senate amendments thereto, disagree to the amendments of the Senate, and ask for a conference with the Senate." (Members request unanimous consent because Senate amendments at this stage of the proceedings are not "privileged"—meaning they cannot be called up "at practically any time for immediate consideration when no other business is pending.") If a lawmaker objects, the Member who requested unanimous consent could then invoke clause 1 of House Rule XXII. This rule permits legislation to reach conference by majority vote of the House if a member of the committee(s) of original jurisdiction, typically the chair, is authorized by his or her panel to offer the following motion: "Mr. Speaker, by direction of the Committee on ____, I move to take from the Speaker's table the bill H.R. 1234 , with a Senate amendment thereto, disagree to the Senate amendment, and ask for [or agree to] a conference with the Senate." Second, the Rules Committee can report a special rule sending a measure to conference. This procedural resolution requires a majority vote of the House for adoption. The special rule would contain language such as: "That upon the adoption of this resolution it shall be in order to take from the Speaker's table the bill ( H.R. 1234 ), with the Senate amendment thereto, disagree to the Senate amendment and ask for a conference with the Senate." Special rules are privileged, debated under the hour rule, and cannot be amended unless the "previous question"—a motion that, if agreed to, ends debate and requires a vote on the pending matter (the special rule)—is rejected. Rarely is the previous question motion defeated by vote of the House members. Simply put, the House is an institution whose formal rules and precedents emphasize "majority rule." Requests to go to conference are difficult to reject, because they are typically framed as "party-line" votes by majority party leaders. Seldom, for example, are special rules or Rule XXII motions turned down by the House. An infrequently used procedure to get to conference is suspension of the rules, a motion that requires a two-thirds vote for approval. A Member will say, "Mr. Speaker, I move to suspend the rules and take from the Speaker's table the bill H.R. 1234 with the Senate amendments thereto, disagree to the amendments of the Senate, and ask for a conference with the Senate." The supermajority vote limits use of the suspension procedure as a method for getting to conference. Senate Unlike the "majority rule" principle of the House, the Senate is a "minority rule" institution. Its rules and precedents grant large parliamentary prerogatives to each senator, such as the right of extended debate. As one senator exclaimed: "The only thing [that] it's easy to do in the Senate is slow things down. The Senate is 100 human brake pads." Slowing the Senate down can occur even if a Senator merely threatens to filibuster a measure or matter. In today's Senate, there is often neither the time nor the votes to terminate dilatory debate, or a filibuster; so a talkathon threat is sometimes enough to prevent action on legislation. A three-fifths vote of the entire membership (if no vacancies, 60 of 100 senators), as prescribed in Senate Rule XXII, is required to end a filibuster. If the Senate is narrowly divided and ideologically polarized, it is often impossible to attract the 60 votes. To convene a conference, it is generally the case that the majority leader or the majority floor manager will ask and receive unanimous consent when he/she makes this request: "Mr. President, I ask unanimous consent that the Senate insist on its amendments [or disagree to the House amendments to the Senate bill], request a conference with the House on the disagreeing votes thereon, and that the Chair be authorized to appoint conferees." Notice that there are three distinguishable parts to this request: insist (or disagree), request, and authorize the appointment of conferees. If a lawmaker objects to the unanimous consent request, then the majority leader or floor manager would have to move each step separately, and each motion is subject to extended debate. As former Senate Parliamentarian Dove noted: "The three steps are usually bundled into a unanimous consent agreement and done within seconds. But if some senators do not want a conference to occur and if they are determined, they can force three separate cloture votes to close debate and that takes time. It basically stops the whole process of going to conference." And if cloture (closure of debate) as outlined in Rule XXII were invoked on each part, Senators keen on preventing a conference still could offer innumerable motions to instruct conferees (who are yet to be officially named by the Senate)—and each instruction motion is subject to a filibuster. The Senate's Difficulty in Convening Conferences A number of commonly occurring factors explains why the Senate sometimes experiences delay or difficulty in getting to conference. For example, Senate (and House) leaders—who want or expect to go to conference—may delay the appointment of conferees, because there is a dispute over conferee selection: the number to be chosen and the party ratio. At issue in these cases might be concern over the representation of diverse views in conference. Limiting the size of the conference delegation could block certain lawmakers from serving on the conference committee. Conversely, increasing the number of conferees could ensure that certain Members would serve on the conference committee. Party leaders, too, may want to conduct informal pre-conference negotiations with the White House (or House) before the Senate officially names conferees. Delay in forming a conference may be a tactic to pressure the other body to concede on certain policies in bicameral disagreement. Or delay might be a form of "hostage politics:" the naming of conferees on a certain bill will not occur until the other body appoints conferees on a different measure in bicameral dispute. Three other overlapping reasons, however, largely account for the contemporary Senate's difficulty in convening conferences. Each merits additional discussion. They are the Senate's tradition of extended debate (the filibuster); the polarization that characterizes the modern Senate; and the exclusion of minority party conferees from participating in the bicameral bargaining process. Senators and Extended Debate The reality or threat of extended debate has long been part of the Senate. So why has it now come into relatively recent prominence as a blocking tactic with respect to the convening of conferences—thus focusing more emphasis on the ping pong method? Part of the answer is the rise of the "individualist" Senate. Congressional scholars state that Senators today take for "granted that they—and their colleagues—[will] regularly exploit the powers the Senate rules [give] them. [They are] increasingly outward directed, focusing on their links with interest groups, policy communities, and the media more than on their ties to one another." Internal incentives to employ extended debate sparingly have given way to other incentives (requests by outside groups to engage in dilatory actions on certain measures, for example) that encourage lawmakers to push their own agendas even if the Senate's lawmaking activities might grind to a halt. Another part (discussed below) deals with the polarization—intense partisan and policy conflict—that characterizes Senate deliberations involving each party's priority issues. Filibustering the Senate's three-part request to go to conference with the House is of recent vintage. The first major instance of this delaying action, so far as is known, occurred during the closing days of the 103 rd Congress (1993-1995). It happened on a campaign finance reform proposal. With Congress slated to adjourn by October 7, 1994, critics of a campaign reform plan launched their precedent-establishing filibuster the week of September 19. The opponents objected to the routine motion to convene a conference on the campaign reform bill ( S. 3 ) and the House amendments thereto. As a Senate proponent of S. 3 stated: We attempted to move to conference just prior to the August [1994] recess, but that request was objected to by one of our colleagues. Under the rules of the Senate, the motion to disagree with the amendments of the House to a Senate bill, as well as a request for a conference and the appointment of conferees, are debatable motions. We have been unable to obtain unanimous consent on this issue.... On September 22, the Senate voted 96 to 2 vote to invoke cloture on the motion to disagree to the House amendments to S. 3 . In a strategic move, campaign reform opponents opted to vote for cloture to "run out the clock." Under Rule XXII, if cloture is invoked, 30 more hours of debate are permitted, a parliamentary right which is usually exercised infrequently. In this case, however, opponents of S. 3 "used every minute, talking straight through the night and through most of Sept. 23 before the Senate voted 93-0 to disagree with the House." Seven days later the Senate failed (52 to 46) to invoke cloture on the motion to request a conference and the bill died. The Senate's majority leader (Democrat George Mitchell of Maine) declared: "In the 210 years in the history of the United States Senate, never—until last week—has there been a series of filibusters on taking a bill to conference." Polarization Growing partisan tensions in the Senate are a major factor triggering dilatory activity that can prevent the convening of conference committees. In addition, the Senate is filled with lawmakers willing to exploit the chamber's procedural rules to accomplish their objectives. Mitchell's service as majority leader (1989 to 1995) occurred during a time when the Senate—long known for comity among its members and the willingness of senators to compromise and resolve policy differences—was becoming a more polarized and partisan institution. Various long- and short-term developments produced this result; they have been analyzed and discussed in numerous sources, but several merit mention. Heightened partisan feelings between Democrats and Republicans are due in large measure to a significant demographic development. A national resorting of the two parties' constituency bases has produced large policy differences between them. For instance, the South was once a Democratic bastion. Today, it is largely a Republican stronghold as conservative Democrats became conservative Republicans. The outcome, as journalist David S. Broder wrote, is two Senate parties "more cohesive internally and further apart from each other philosophically." Or as a GOP senator put it: "Today, most Democrats are far left; most Republicans are to the right; and there are very few in between." Little surprise, therefore, that we see a large number of party-line votes (a majority of one party facing off against a majority of the other party) and an increase in party cohesion on those votes. "Both Republicans and Democrats are standing with their own party against the other on about 90 percent of the [contested] votes, a level of lockstep uniformity unimaginable only a generation or two ago." Among other factors contributing to sharper partisanship in the Senate are the following: a 24/7 news cycle that focuses on party conflict and scandal; interest groups aligned with each party that expect lawmakers to toe-the-line on their preferred issues or face electoral recriminations; lawmakers' constant need to raise campaign funds from many of these same party-aligned groups that often closely monitor the votes of lawmakers; the influx of former House members into the Senate, many of whom bring a more confrontational governing style to the chamber; the reality of top party leaders being targeted by opposition Senators for electoral defeat; the use of ethics as a partisan weapon; and today's often negative "take-no-prisoners" senatorial elections. These many elements combine to make management of today's Senate difficult, especially on controversial issues and when the partisan divide is narrow. "There [is] nothing here [the majority party] can do without some degree of cooperation from a very robust 49-vote minority," remarked a Senate minority leader. Or as a former Senate majority leader stated: I think the toughest job in the whole city [is] being the majority leader in the Senate, and not just because I had it but because I got to see what it was all about. The President has the whole administration, the Speaker has the Rules Committee, but the leaders of the Senate, on both sides of the aisle, they lead because of who they are and the power of persuasion they have and the respect for the position they hold. Nothing in the Constitution gives them special powers. Cooperation across party lines, in brief, is sometimes hard to come by for two basic reasons: the arsenal of parliamentary tools that any senator can employ to frustrate policymaking and a Senate which is increasingly partisan and whose members employ public relations (or "message") strategies—the war of words—to advance party-preferred objectives. The tone of partisan warfare that often surrounds debate on many important issues makes it difficult for either side to achieve compromises that can pass the Senate. Partisan polarization in the Senate, wrote a congressional scholar, "has made constructing the necessary deals considerably tougher; the two parties' notions of what constitutes good public policy have little overlap." Exclusion of Minority Conferees From Bicameral Negotiations A specific catalyst made Senate formation of conference committees during the early 2000s highly problematic: the exclusion of minority party members from conference committee participation. As a Senate committee chair told a group of his chamber's minority party conferees, "We don't expect you to sign [the conference report], so we don't expect you to be needed" in the bargaining sessions. Four other examples underscore the exclusionary point. In 2000, a minority party senator lamented: "I have been appointed to conference committees in the Senate in name only, where my name will be read by the [presiding officer] and only the conference of Republicans goes off and meets, adopts a conference report, signs it, and sends it back to the floor without even inviting me to attend a session." A year later another Senator stated: "After much talk of bipartisanship, the other side locked out the Democrats from the conference committee....We were invited to the first meeting and told we would not be invited back, that the Republican majority was going to write the budget all on their own, which they have done." In 2003, a minority party senator said: "Once this [class action] bill leaves the Senate floor, Democrats have no bargaining power. We're not invited to any conferences." Two years later, another minority party lawmaker declaimed: "On issue after issue, we have had conferences where the minority was excluded so that the majority could ram through unpopular provisions as part of an un-amendable conference report." Members of the House minority have also been excluded from participating in conference negotiations. In one case, the ranking member of the Committee on Ways and Means, along with several party colleagues, crashed a conference meeting held in the chairman's Capitol hideaway. Only majority party members were present except for two minority party senators sympathetic to the majority's policy goals. Another ranking House minority committee member exclaimed that conferences "are simply conferences between a few well-connected people on the majority side of the aisle, with no real consultation with the minority." The House minority, unlike its counterpart in the Senate, has no effective way to block the formation of conference committees given the "majority rule" bias of its procedures. To be sure, the House minority can express its anger or frustration at being excluded from conference negotiations through various dilatory actions, such as forcing votes on repetitious motions to adjourn the House, or, as House Rule XXII, clause 7 states, offering numerous motions to instruct conferees "after a conference committee has been appointed for 20 calendar days or 10 legislative days." Senators, as noted earlier, have formidable parliamentary means to protest their exclusion from conference negotiations. "We don't think a conference can truly be a conference if only one party is represented," stated a Senate minority leader. He added that until minority conferees are assured of being present at all conference meetings, "we are unable to provide consent to go to conference." Decisions to prevent the convening of conference committees by the minority leader were made on a case-by-case basis. In lieu of convening a conference committee, the minority leader recommended that the Senate follow two other approaches to reach bicameral agreement on legislation. First, persuade the other chamber to pass Senate bills without making changes to them. Second, conduct pre-conference bargaining sessions with the other chamber and then either "confirm our agreements in a formal conference once the negotiations have been completed" or approve them using the ping pong approach. In sum, the convening of conference committees by unanimous consent is no longer the routine matter it once was. "Historically in the Senate," remarked a senator, "when we passed a bill, we automatically went to conference. That has changed." Now, advocates of getting to conference have to secure unanimous consent, "or we do not get to conference." That was also the case before—obtaining unanimous consent—but winning approval of those requests today is often much harder to attain. If the regular order is going to conference on major legislation, with majority and minority conferees as full participants, that pattern has generally not been the case in recent Congresses. Instead, there has been a noticeable shift away from convening formal conferences—largely because of disagreements in the Senate—toward House-Senate majority leadership-dominated "informal conferences." Once this House-Senate group settles their differences through informal negotiations, the ping pong approach has been employed to win bicameral approval of the leaders' work product. As a congressional correspondent wrote: Once the penultimate stage in the life of any bill as a forum for House and Senate members to work out their differences, the conference committee has fallen on hard times, shoved aside in the last five years by partisanship and legislative expediency. The preferred alternative revolves around informal meetings mainly among senior Democratic [or Republican] lawmakers, who gather to cut a final deal and then bat the finished product back and forth between the House and Senate until it is approved. A look at why the back-and-forth process was utilized on three measures may provide a better understanding of ping pong's role in the contemporary bicameral lawmaking process. Three Case Examples Energy Independence and Security Act (H.R. 6) On December 17, 2007, President Bush signed H.R. 6 into law ( P.L. 110-140 ). However, the bill's path to enactment was filled with twists and turns and procedural obstacles that made agreement difficult among the House, Senate, and Executive. The House moved first to enact H.R. 6 on January 18, 2007, because the bill limited tax subsidies for oil and gas companies. (The Constitution requires the House to initiate revenue measures.) The legislation also encouraged the development of alternative energy sources, such as solar or windmill. There is another reason for the rather rapid House action: H.R. 6 was part of Speaker Nancy Pelosi's "first 100 legislative hours" agenda, which Democrats campaigned on in the November 2006 elections. H.R. 6 was referred to four committees but none of them formally considered the legislation by holding hearings, markups, and issuing committee reports. The measure was brought up in the House on January 18, 2007, under a closed rule; it was agreed to by a 264 to 163 vote. H.R. 6 was then sent to the Senate where it was placed on the legislative calendar rather than being referred because of its tax provisions to the Finance Committee. Senate Democrats planned "to assemble their own energy package" with the Energy and Natural Resources Committee, along with other panels, contributing to this endeavor. In fact, the majority leader assembled a bipartisan energy package from the recommendations put forward by the Energy, Environment, and Commerce Committees and offered it as a complete substitute—the functional equivalent of a separate policy proposal—for H.R. 6 . As the majority leader noted, the bill we begin debate on today (June 11) is "a substitute to H.R. 6 ." On June 21, after procedural delays and intense lobbying by various stakeholders (automobile companies, environmental groups, and so on), the Senate by a 65 to 27 vote passed a comprehensive energy measure as an amendment (the aforementioned leadership substitute) to H.R. 6 . A noteworthy Senate provision was an increase—from 25 to 35 miles per gallon by 2020—in the corporate average fuel economy (CAFÉ) standards for cars and light trucks. However, the Senate rejected raising taxes on oil and gas. H.R. 6 , as amended, was returned to the House. On August 4, the House passed its version of comprehensive energy legislation ( H.R. 3221 ). Unlike H.R. 6 , which repealed about $14 billion in tax breaks for the oil and gas industry, H.R. 3221 addressed a wide range of energy issues: global warming, renewable energy, innovative energy technologies, and much more. It was the product of nearly a dozen committees. Like most major bills, H.R. 3221 was considered under a special rule from the Rules Committee, which made in order back-to-back consideration of two measures. The House first considered and agreed to the comprehensive energy bill ( H.R. 3221 ). Then the House debated and passed a separate bill ( H.R. 2776 ) that raised taxes on oil and gas with the revenue going to pay for the energy programs identified in H.R. 3221 . Finally, as the special rule directed, the text of H.R. 2776 as passed by the House was added "as new matter at the end of H.R. 3221 ." The entire energy package ( H.R. 3221 ) was sent to the Senate on September 4 and placed on the legislative calendar. Cloture was twice required—once on the motion to proceed and once on the bill itself. To date, it has not passed the Senate. Instead, senior committee and leadership staff aides from the two chambers began informal discussions in the Fall about how to reconcile their differences on the various energy provisions contained in the House-passed version of H.R. 6 ; the Senate leader's substitute for H.R. 6 ; and H.R. 3221 . Arguably complicating the discussions was a procedural issue. What bill were the two sides conferring on: H.R. 6 or H.R. 3221 ? The usual practice in going to conference is for each chamber to pass different versions of a measure but with the same bill number. A majority leadership spokesperson noted, however, that participants can "work around" those procedural concerns, and they did. Informal staff negotiations continued, but relatively little progress was made in settling differences and in "producing one bill that has a chance of passing both chambers." As a party, Senate Republicans were divided on whether there would be a formal or informal energy conference. On one side were minority members who wanted to convene a formal conference and even wrote to the majority leader "criticizing the informal talks and asking for a conference." On the other side were minority members who had placed "holds" on going to conference, in part because they objected to House action repealing tax breaks for the oil and gas industry. They also objected to the majority leader's unanimous consent request to go to conference. The minority leader favored going to conference but recognized that the chances were "pretty slim." The majority leader underscored that the House and Senate would move forward on the energy legislation "one way or the other" and "regardless of whether there is a conference." In the end, unable to convene a conference committee, the bicameral majority leadership bypassed it. The Speaker consulted extensively with the relevant House and Senate committee chairs, as well as the majority party caucus, to forge common ground on H.R. 6 , as amended by the Senate. The "dealmaking pattern," according to one account, involved "Senate committee chairmen working with their House counterparts while talking to the Speaker." Hard bargaining continued for weeks and when Congress reconvened following its traditional Thanksgiving recess, it was anticipated that key negotiators from each chamber would reach a bicameral accord by early December. And this turned out to be the case, in part because of the favorable external context—high gasoline prices with a barrel of oil nearing $100, as well as heightened national and world concern about global warming. These outside circumstances encouraged lawmakers to back the informally crafted bicameral compromise despite complaints from both sides of the aisle. On December 6, the House took up and concurred in the leadership-designed House amendment to the Senate amendment to H.R. 6 . The House amendment—hammered out in private negotiations by the House and Senate majority leadership—contained provisions in the originally passed H.R. 6 , the Senate leadership's substitute, and H.R. 3221 . Further, the House majority leadership ensured that the House amendment would be considered under a restricted procedure. The amendment was taken up under the terms of a special rule ( H.Res. 846 ): one hour of debate, no amendments, no motion to recommit, and a vote on final passage. The House voted 235 to 181 to adopt the revamped H.R. 6 , which now included two controversial provisions known to be opposed by various senators (the repeal of oil and gas tax breaks and a requirement that utilities produce 15 percent of their electricity from alternative sources by 2020). The legislation was transmitted to the Senate. Meanwhile, President Bush was threatening to veto the energy bill, in large measure because of those two provisions. The next day, December 7, the Senate began debate on the motion to concur in the House amendment—the bicameral accord negotiated without a conference—to the Senate amendment to H.R. 6 . As soon as the majority leader called up the bicameral accord, he immediately filed cloture on the motion to concur. Subsequently, the Senate tried unsuccessfully (53 to 42) to invoke cloture on the motion to concur. The cloture motion failed to attract the required 60 votes (three-fifths of the Senate membership) largely because of senatorial opposition to the elimination of tax incentives for the oil and gas industry and the renewable electricity provision. As the minority leader stated, "the bill we are voting on today is a massive tax hike and a utility rate increase for consumers across the Southeast." Still, senators from both parties continued to negotiate so that an energy package might clear their chamber. On December 12, the majority leader tried another approach to win Senate passage of an energy package. He "filled the tree" on the motion to concur to the House amendment with a revamped Senate energy package. He also filed cloture on the motion to concur to the revised Senate amendment. To mobilize the required 60 votes to invoke cloture, the Senate amendment was carefully crafted to garner sufficient support. For example, the renewable electricity mandate was dropped and energy taxes were modified; both changes were made with an eye toward wooing wavering senators. "Both sides were using whatever inducements they could to get us to vote" their way, said a senator. The next day the Senate failed to invoke cloture (59 to 40) to end debate on the majority leader's revamped energy package. Later that same day, the majority leader received unanimous consent to withdraw his pending motion to concur and to offer a motion to concur in the House's amendment with another revised Senate energy amendment. It basically contained the energy provisions negotiated originally by the key bicameral leaders, minus the controversial tax and electricity provisions. The Senate then agreed to H.R. 6 , as amended, by an 86 to 8 vote. On December 18, the House adopted a special rule that authorized the majority leader (or his designee) to offer a motion that the House concur in the Senate amendment. The chair of the Energy and Commerce Committee made that motion to concur on behalf of the majority leader, which the House agreed to by a vote of 314 to 100. With passage of H.R. 6 , as amended, by both chambers, the measure was cleared for presidential consideration. The next day, December 19, 2007, H.R. 6 , as amended, was signed into law ( P.L. 110-140 ). A summary of the ping ponging of the energy bill sets out in bold relief the operation of the exchange of amendment procedure. H.R. 6 . This bill reduced tax subsidies for oil and gas and redirected those revenue savings to the production of alternative fuels. It was passed by the House and sent to the Senate. S. Amendment to H.R. 6 . The Senate replaced the text of H.R. 6 with a complete substitute that represented its approach to comprehensive energy reform. A key feature of the Senate plan was higher fuel standards for cars and light trucks. However, the Senate rejected tax increases on oil and gas production. The Senate returned H.R. 6 , as amended, to the House. H.R. 3221 . The House adopted a separate bill, which was its comprehensive approach to energy. The measure was sent to the Senate, but it was not acted upon because of senatorial opposition to various provisions, such as the repeal of tax provisions supported by the oil and gas industry. H. Amendment to S. Amendment to H.R. 6 . Unable to convene a conference, informal negotiations between key House and Senate party and committee leaders produced an alternative to the Senate's energy plan (the aforementioned complete substitute). The House passed this amendment, but it contained controversial provisions that aroused senatorial opposition, such as the repeal of tax subsidies for oil and gas producers. S. Amendment to H. Amendment to S. Amendment to H.R. 6 . Unable to overcome resistance by senators opposed to ending tax subsidies for the oil and gas industry and other controversial provisions contained in the House amendment, the Senate deleted those provisions and passed another version of energy legislation as a Senate amendment to the House amendment. H.R. 6 , as further amended by the Senate, was returned to the House. Enactment Into Law. The House adopted the Senate amendment without change, clearing the amended version of H.R. 6 for presidential consideration. The measure was signed into law by the chief executive. To sum up, the principal factors that precipitated use of the ping pong approach were large concerns among certain Senators about raising taxes on the oil and gas industry and requiring utility companies to use alternative energy sources to produce electricity. These lawmakers exercised their parliamentary prerogatives to block the convening of a conference committee on H.R. 6 . As a result, House and Senate party leaders decided to use the amendment exchange procedure with the Speaker taking a lead role in negotiating the final compromise with appropriate House and Senate committee leaders. Further, with the first session nearing an end, and with the American public dismayed about the high price of gasoline at the pump, both parties acted to pass the energy bill. Ethics and Lobbying Reform (S. 1) The 110 th Congress enacted a major ethics and lobbying reform measure ( S. 1 ), which was signed into law ( P.L. 110-81 ). The legislation was titled the Honest Leadership and Open Government Act. The Senate passed its version of S. 1 on January 18, 2007, by a 96 to 2 vote. Six days later S. 1 was received in the House and held at the desk. The House enacted a companion honest leadership bill ( H.R. 2316 ) on May 24, 2007, by a 396 to 22 vote. That same day the House also agreed to the Lobbying Transparency Act ( H.R. 2317 ). Subsequent to House passage of the legislation, a spokesperson for the Senate majority leader stated that the leader "intends to move as quickly as possible to not only appoint conferees, but to get the final bill done as well." On June 28, the majority leader failed to receive unanimous consent so the Senate might convene a conference with the House. The Senate's minority leader also backed the convening of a conference committee on S. 1 . A number of Senators, however, opposed the appointment of conferees. They were fearful that an earmark transparency provision adopted as part of S. 1 , and which was agreed to by a 98 to 0 vote, would either be weakened in conference or not included at all in the conference report. These senators wanted a guarantee from the majority leader that the Senate's earmark language would not be changed by the conference committee. That guarantee was not forthcoming from the majority leader. It would "not say much about my leadership if we negotiated [earmark reform] out here on the floor of the Senate as to what was going to be in the conference committee. That is what the conferees are all about," said the majority leader. The sponsor of the earmark reform provision also proposed that the Senate simply adopt the earmark changes as part of the Senate's rules. "Why can't we just accept that part here and go to conference with all of these other provisions in which you know our Members are interested?" He even asked the unanimous consent of the Senate to adopt two resolutions to accomplish that goal, but a senator objected to his request. The majority leader, who opposed the idea, gave no public reason so far as is known as to why he did not favor adopting the senator's earmark reforms as part of the internal rules of the Senate. However, other Senators indicated why the earmark reforms were not adopted as part of chamber rules. Changes were required, said a lawmaker, to "make the language workable." In the end, the Speaker and Senate majority leader decided to bypass the conference stage and negotiate informally with key lawmakers to produce a bicameral compromise that both chambers might pass by the August 2007 recess. They achieved their goal. Intensive private negotiations led to a rewrite of ethics and lobbying reform. When the Democratic leaders unveiled their ethics and lobbying package on July 30, it received generally positive responses from outside groups as well as many rank-and-file lawmakers in both chambers. The next day, and as a sign of wide support among House members for the leadership's package, the House amendment to S. 1 was taken up under a procedure (suspension of the rules) requiring a two-thirds vote for passage, permitting no amendments from the floor, and allowing for only 40 minutes of debate. Further, motions to recommit are not permitted when the House suspends its rules to pass legislation. The House overwhelmingly (411 to 8) agreed to the House amendment to S. 1 . S. 1 , as amended by the House, was returned to the Senate for its review of the compromise package. Critics of the leadership's negotiated compromise strongly objected to the revised ethics and lobbying measure, especially because they believed it weakened the earmark changes which the Senate had adopted unanimously on January 18, 2007. Senate opponents of the leadership-crafted agreement recognized they confronted an uphill battle—eventually unsuccessful—to block or change the House amendment. Several procedural and political factors account for this result. First, when the majority leader asked the presiding officer to lay S. 1 with the House amendment before the Senate, he immediately filed a cloture motion to close debate on the House amendment. Further, he then "filled the amendment tree" on the motion to concur in the House amendment to S. 1 . His action prevented opponents of the package from attempting to alter the House amendment to their liking before the Senate voted on whether to agree to the cloture motion. Adoption of cloture would cut off the possibility of lengthy debate (i.e., a filibuster) on the motion to concur. Worth noting is that most measures or matters typically require 60 votes (or three-fifths of the total membership) to invoke cloture. In this case, a two-thirds vote was required to close debate because Senate Rule XXII (cloture) stipulates that on a measure or motion to amend Senate rules, an "affirmative vote [to invoke cloture] shall be two-thirds of the Senators present and voting." Plainly, S. 1 , as amended by the House, contained changes to Senate rules, such as new requirements regarding the transparency of earmarks. In the end, the Senate invoked cloture on the majority leader's motion to concur in the House amendment by an 80 to 17 vote. Second, the minority party was divided on the ethics and lobbying package. Many supported its passage, including the minority leader, despite misgivings about some of the provisions. As one minority senator was reported to say, it would be "hard to vote against a lot of good things [in the ethics and lobbying package] because there are some bad things there. We vote on imperfect legislation every day." Third, the political circumstances made it difficult for many lawmakers to vote against an ethics and lobbying reform package, especially with the August work period looming and the potential for constituents asking Members how they voted on what seemed like a "good government" initiative. (Recall that the "culture of corruption" was a theme used during the November 2006 elections.) In the judgment of one Senate minority staff aide, "There have been [corruption] investigations and questions involving some members, and the natural instinct is to do something—or anything, even if anything is bad—simply to look productive." He further opined: "We're looking at the path of least resistance versus good legislation, and typically in these situations, the former rather than the latter wins out." To conclude, both parties recognized that public dismay with the Congress over lobbying scandals, combined with the promises made by House and Senate majority party leaders to enact ethics and lobbying reforms, prompted enactment of S. 1 . The inability to create a conference committee can be largely attributed to a relatively small number of Senators who were concerned that the earmark reforms they successfully championed would be dropped or diluted by the conferees. Thus, the exchange of amendment procedure was employed with each chamber's party leader in charge of the informal negotiating process. Most party members in each chamber supported the final compromise, and S. 1 (the bill number symbolized its priority status) passed with large majorities in each house. Reauthorization of SCHIP (H.R. 976) The State Children's Health Insurance Program (SCHIP) was created more than a decade ago as part of the Balanced Budget Act of 1997 ( P.L. 105-33 ). SCHIP provides "federal matching funds to states and territories to provide health insurance to certain low-income children" whose families are not poor enough to qualify for Medicaid. In 2007, both the House and Senate took steps to reauthorize and expand the program. The House agreed to its version of the reauthorization bill ( H.R. 3162 ) on August 1, by a vote of 225 to 204. The closeness of the vote underscores the concern that many lawmakers had with the legislation. Called CHAMP (Children's Health and Medicare Protection Act), the House bill expanded coverage by adding 5 million uninsured children to the 6 million children currently covered by the program; increasing spending for SCHIP by an estimated $50 billion over five years; and making various changes to Medicare, such as reducing seniors' co-payments for preventive care. To offset the spending increases, the legislation proposed cutting a program in which private insurers provide benefits to the elderly (Medicare Advantage) and hiking by 45 cents the cigarette tax per pack. The legislation was forwarded to the Senate, but that chamber took no action on the bill. On the day before the House passed CHAMP, July 31, the Senate began consideration of its approach to reauthorizing SCHIP. The Senate used a House-passed bill ( H.R. 976 )—The Small Business Tax Relief Act—as the vehicle for reauthorizing SCHIP. Why? Because the SCHIP bill reported by the Senate Finance Committee contained tax provisions, and the Constitution, as noted earlier, requires revenue-raising measures to be initiated by the House. Thus, when H.R. 976 was taken up, the Finance chair offered a complete substitute. The substitute replaced all the text in H.R. 976 with the measure ( S. 1893 ) reported by the Finance Committee. The Senate's version of the SCHIP reauthorization was narrower than the House's. For example, the Senate proposed a $35 billion expansion compared with the House's nearly $50 billion addition to SCHIP, and the Senate's substitute did not include changes to Medicare, as did the House's bill. On August 2, the Senate passed its version of SCHIP by a 68 to 31 vote, setting the stage for the convening of a conference committee. Meanwhile, President Bush said he opposed both chambers' bills and would not sign either into law. He advocated a $5 billion expansion of SCHIP. When lawmakers returned to Capitol Hill following the August recess, a top priority was to reconcile bicameral differences on SCHIP. (The program was set to expire at the end of September.) On September 4, the Senate majority leader asked unanimous consent to appoint conferees on the SCHIP bill ( H.R. 976 ), but his request was objected to by the minority leader who said the request was "a little premature." It was reported that minority party members "want assurances ahead of a conference that the final bill will closely resemble the Senate-passed legislation in scope and spending rather than the more ambitious and expensive House bill." Such assurances were not provided by the bicameral majority leadership. Accordingly, top majority party and committee leaders of each house met informally to determine a course of action given the impasse in the Senate. In the end, unable to convene a conference committee, negotiations among House and Senate majority leaders and key GOP Senators produced a compromise that largely resembled the Senate-passed measure. House Democratic leaders realized that their expansive SCHIP bill could not pass the Senate, so they crafted a compromise (a House amendment to the Senate amendment to H.R. 976 ) that might pass that chamber. Senior House committee leaders were upset with the compromise, because they reportedly believed their side conceded too much to Senate negotiators. At the same time, they pointed to the political necessity of passing the SCHIP reauthorization. "[W]e have no choice but to send something to the president's desk or be accused of not doing something on children's health insurance" remarked a House committee chair. On September 25, the House agreed to the negotiated compromise—technically the House amendment to the Senate amendment—by a 265 to 159 vote, short of the two-thirds required to override the president's expected veto. The next day the Senate majority leader called up the message from the House with respect to H.R. 976 . Immediately, the majority leader filed cloture on the motion to concur with the House amendment. He then "filled the tree" on the motion to concur to prevent opponents from offering amendments to the leader's motion that could undermine or delay passage of the SCHIP reauthorization before the September 30 expiration deadline. On September 27, the Senate voted (69 to 30) to invoke cloture; it then passed the motion to concur to the House's amendment by a 67 to 29 vote, clearing the measure for presidential consideration. As promised, President Bush vetoed the SCHIP reauthorization on October 3, in large measure because it was too costly: he wanted to spend $5 billion more on the program, not Congress's $35 billion. The House, acting first, failed on October 18 to override the president's veto, but lawmakers in both chambers continued their efforts to expand the children's health insurance program. In summary, consideration of SCHIP aroused strong views in the two parties and the two chambers. The measure passed the House in a close vote. It easily was agreed to in the Senate, in part because the final version of the legislation was narrower and less costly than the House's original bill. A number of Senators blocked the appointment of conferees, because they wanted commitments that any compromise that emerged from conference would comport with their views. Unable to create a conference committee, majority party leaders turned to the ping pong method, which included informal negotiations among a limited number of House and Senate majority party lawmakers along with a few minority party Senators. Their privately negotiated compromise—a House amendment to the Senate amendment to H.R. 976 —was subsequently agreed to by both chambers, but President Bush vetoed the SCHIP reauthorization. Bypassing the Conference Stage: Reasons and Implications The recent tendency to bypass the conference stage underscores that House-Senate interrelationships change and adapt to the broader legislative-political environment of which they are a part. Compared with the 1950s or 1960s, today's Congress is more open, partisan, workload-packed, and deadline-driven; there are many more interest groups that influence and monitor legislative proceedings; and individual lawmakers are not reluctant to utilize parliamentary tools to advance their objectives. Because these developments have sometimes made the convening of conference committees problematic, the exchange of amendment procedure—and the concomitant informal negotiations that accompany it—has become a more efficient method for resolving bicameral differences on major legislation. Several of the reasons for the heightened importance of the ping pong approach, and the implications that flow from its use on major legislation, seem directly or indirectly related to at least six factors (setting aside the earlier discussion about the relative ease of blocking the appointment of conferees in the Senate). The six are (1) a further enhancement of the role of party leaders; (2) limits on the role of committees and their leaders; (3) a marginal role of the minority party; (4) constraints on the deliberative process; (5) the avoidance of procedural/political issues; and (6) the lack of transparency. Whether these factors are causes or effects of ping ponging, or both, merits brief mention. Because cause and effect are hard to disentangle, it is probably safe to say that the six factors reflect both ingredients to one degree or another. For example, the apparent increase in reliance on ping ponging might be viewed as either a cause or effect of enhanced party leadership influence. A cause because party leaders today play a larger role throughout all lawmaking stages, including bicameral negotiations. The preference of party leaders, in short, might be to utilize amendment exchange rather than conference committees so as to better ensure the achievement of party-preferred goals. An effect because difficulties in creating conference committees have provided central party leaders with more opportunities to step in and assume wider responsibility for reconciling bicameral differences on major legislation through the ping pong (and informal negotiating) method. Perhaps more useful than making judgments about cause and effect is to consider whether difficulties in forming conference committees helped to encourage these six developments. Further Enhancement of the Role of Party Leaders By any reasonable test, the four Capitol Hill party organizations play active roles in the lawmaking process. Their organizational elements (party caucuses or committees, for example) are active, party leaders are increasingly prominent, and party voting is at comparatively high levels. Given sharp conflicts between the two parties on key policy issues and narrow margins of party control, rank-and-file lawmakers generally recognize the need for strong leadership for their substantive and political agenda to succeed. The partisan polarization in Congress contributes to strengthened party leadership, especially in the House. Nevertheless, "majority party senators expect their leader to exploit majority status for partisan advantage." If conference committees cannot be convened because of dilatory practices—or if time constraints prevent their use—the principal negotiators on major legislation are often House and Senate majority leaders, along with a limited number of other key lawmakers. On SCHIP, for example, House majority leaders indicated that if the Senate was unable to convene a conference because of blocking actions by various senators, they would meet informally with their Senate leadership counterparts to negotiate a compromise. As one account noted, the top House and Senate majority leaders "met for nearly two hours" working "to reach a final agreement on compromise [SCHIP] legislation." Regardless of the reasons that prevent the convening of conference committees, the exchange of amendments procedure highlights the powerful negotiating role of central party leaders. They are strategically positioned to fashion major bicameral leadership compromises, perhaps with little input from rank-and-file members, the committee(s) of original jurisdiction, or the minority party. In short, the ping pong approach on major legislation is illustrative of the centralization of party control that characterizes the contemporary House and, to a lesser extent, the Senate. In the Senate, majority party leaders recognize that the ping pong method avoids a potential series of probably impossible-to-break filibusters associated with the appointment of conferees. Limits on the Role of Committees and Their Leaders The drift toward centralized party authority has tightened leadership influence over committees and their chairs. Six-year term limits for House committee and subcommittee chairs, as well as comparable six-year term limits for Senate Republicans, restrict the ability of committee chairs to accrue independent authority, as occurred during earlier decades when pundits sometimes referred to the leaders of committees as the "dukes" or "barons" of Capitol Hill. Use of the ping pong procedure on the majority party's priorities can mean that committee leaders and members exercise generally minimal influence over the compromises reached by each chamber's top party leaders. The aforementioned energy bill ( H.R. 6 ) is an example of committee members with expertise on the issue criticizing the process by which the measure was jointly assembled by each chamber's majority leaders. Press reports indicated, for example, that as "many as 40 Democrats were reported to have signed a letter of complaint [to party leaders]" expressing their dismay at the secret development of the energy compromise. As a committee chair stated: H.R. 6 is not the product of a formal conference, but rather the result of amendments being passed between the House and Senate as a means of resolving the differences between their respective bills. I have noted in the past, and will continue to note, that I find this manner of legislating to be unsatisfactory and unwise. Given the difficulty experienced by the Senate in going to conference on this bill this year, however, this process is the best that we can hope for under the circumstances .... One of the reasons this [ping pong] process is inferior to that of a formal conference is the lack of a conference report and, thus, the lack of a written legislative history detailing why certain policies were adopted and others excluded. In sum, unless committee leaders and members are invited to participate in the closed bicameral negotiations, they may have little or no say on the contents of the final leadership-produced compromise. "If we don't go to conference, there's no need for us to legislate on anything really," exclaimed a House chair, underscoring how the ping pong approach has shifted power from House and Senate committees to House and Senate party leaders. Marginal Role of the Minority Party Just as there have been cases of minority party exclusion from conference committees, as mentioned earlier, the same holds true in the case of the amendment exchange method. Minority party members have been excluded from these bicameral negotiating sessions, unless their input is sought by the leaders in charge of the back-and-forth amendment procedure. Moreover, such participation is more likely to involve minority Senators than minority House members. The contributions of minority party Senators might be important in devising a product that can attract not only a majority but also the supermajority vote often required to enact legislation in that chamber. For example, on the SCHIP legislation, two minority Senators "took part in the health talks but no [minority] House members did." The benefits of an inter-chamber bargaining process where all sides participate was underscored by a spokesperson for a House minority leader. Both parties' views are considered, the process is likely to be perceived as fair because it comports with the regular order, and a stronger and more credible bicameral product is likely to be the outcome. As the spokesperson explained: The conference process serves to allow Members to buy into a final bill. Sometimes there are tweaks and changes that have to be made, but it allows buy-in. Absent that kind of process, you're really getting a majority-driven bill without bipartisan support. Majority party lawmakers might reply that they understand the principle of minority rights, but contend that the other side often prefers obstructionism to cooperation so as to prevent the majority party from accomplishing its agenda. As a result, minority lawmakers may be excluded from participating in the processes for bicameral reconciliation. Ironically, because the Senate sometimes blocks the convening of conference committees, this may mean that Senators who normally would be chosen as conferees are likely to be excluded from the ping pong negotiations. Constraints on the Deliberative Process What constitutes good public policy is often unclear but it is more likely to be achieved through a deliberative, or reasoned, process where all major issues and views are debated and discussed. A conference process that involves lawmakers with specialized expertise from both parties and both chambers arguably provides for a wider range of interests and preferences to be considered and debated. The amendments (the bicameral compromises) that are ping ponged between the houses are usually crafted in private by a relatively small number of Members, largely from the majority party. To be sure, once these privately negotiated House amendments or Senate amendments to legislation are taken up in each chamber, there is generally time for lawmakers to debate and amend the bicameral accords. The deliberative process, however, could be constrained in the House by special rules from the Rules Committee or in the Senate by tree-filling: offering all the amendatory motions that can be pending at one time. The two chambers and the two parties have their differences, but a rigorous and vigorous exchange of views in a conference setting might better—compared with the exchange of amendments method—expose weaknesses in the legislation, promote thorough analysis, generate bipartisan support, or encourage consideration of new ideas and perspectives. In the judgment of a senior House minority member, bypassing the conference stage increases the likelihood that you "get legislation that is not well thought out because it hasn't been tugged and hauled [by] all sides." Needless to say, conference committees are not always models of inclusiveness and the wide-ranging examination of alternatives. Avoidance of Political/Procedural Concerns Sharp partisanship, particularly since the mid-1990s, has been resurgent on Capitol Hill for reasons highlighted in the previous discussion on polarization. Close elections, narrow margins of control in each chamber, and significant policy differences are among the factors that influence the political/procedural actions of House and Senate members and party leaders. House and Senate majority leaders, as a result, have an incentive to counter minority party actions aimed at forcing vulnerable majority party lawmakers to cast tough votes that might cause them electoral difficulties in the next election. The next two parts of this section highlight several formal House and Senate procedural rules governing conference committees that majority party leaders might want to avoid or circumvent because of political concerns. House After the House has agreed to go to conference but before the conferees are officially named by the Speaker, the chamber may adoption a motion to instruct their conferees (for example, to uphold the House's position on a certain policy issue). A member of the minority party is granted priority to offer this motion and only one can be made at this stage. Instructions are nonbinding on the soon-to-be named conferees, but they do serve various purposes. One of these is political. Instruction motions can be framed to force votes on "hot button" issues that could cause electoral problems for majority party members who hold closely contested seats. Furthermore, if a conference cannot reach agreement within 20 calendar days and ten legislative days, then an unlimited number of motions to instruct are in order. Minority party members can offer repetitive motions to instruct so as to compel votes on their election-year and political priorities. (Party leaders sometimes avoid this issue by delaying the appointment of conferees until the pre-conference negotiations are near completion.) The House might also take steps to recommit the conference report with instructions if the other body has not discharged its conferees by acting first and favorably on the conference report. A minority party Member is given priority by the Speaker to offer the motion to recommit the conference report with instructions, which might be drafted to require a vote on a single isolated issue that might cause political "heartburn" for the majority party. There are no motions to instruct with the ping pong method. The ping pong method also disallows use of the motion to recommit with respect to House or Senate amendments to legislation. During the initial consideration of bills or joint resolutions, the minority leader, or his designee, is guaranteed the right to offer a motion to recommit by House Rule XIII, clause 6. The minority party's right to offer the recommital motion does not apply under Rule XIII "to a Senate bill or resolution for which the text of a House-passed measure has been substituted." It further does not apply to amendments between the houses, such as a House amendment to a Senate amendment as was the case mentioned earlier with respect to H.R. 6 (the energy bill.) Motions to recommit measures during their initial floor consideration are of two types: simple (return a bill or joint resolution to committee) or with instructions (the minority party's policy alternative which the full House votes upon.) Recent Congresses have witnessed use of the motion to recommit with instructions to compel vulnerable majority party members to vote on minority-crafted alternatives that, if adopted, might undermine the core intent of the legislation and/or provoke political problems back home for majority party lawmakers. In the 110 th Congress, for example, since "switching to the minority, Republicans have launched a coordinated effort to use recommital motions to force Democrats to cast uncomfortable votes or make unwelcome changes to bills." The "House amendments to Senate-passed bills" approach avoids potential procedural maneuvers associated with artfully worded recommittal motions and attendant political headaches for the majority leadership. Another House rule that applies to conference reports but not to the exchange of amendment procedure involves earmarks . Earmarks, in brief, are provisions often included in appropriations bills or their accompanying committee reports that set aside specific funds for projects or programs in Members' districts. They are also included in other types of measures. Earmarks have been a source of controversy in recent years because of their increase in both number and cost, not to mention scandals associated with their use. Under House rules, conference reports are not to be considered unless they and their accompanying joint explanatory statements include a list of congressional earmarks and their sponsors. This House rule (Rule XXI, clause 9) does not apply to amendments between the houses. Lamented one House member, the "point of order that I would have liked to have raised against the provisions that may include earmarks [do not] lie against the bill because it is not a conference report, because it's a House amendment to a Senate amendment." Senate The threat of a filibuster potentially influences nearly everything that the Senate does, including amendments between the chambers. These amendments are also subject to filibusters and nonrelevant amendments, unless cloture is invoked or limits are placed on both the debate and amendment process by unanimous consent agreements. However, if the political circumstances are right and the House and Senate majority leadership is involved and committed, as in the case of energy, ethics and lobbying, and SCHIP, then the odds favor action rather than inaction with the ping pong method. There are, it seems, fewer procedural obstacles to overcome with the exchange of amendment procedure compared to convening conference committees. As a Senate parliamentary expert pointed out, "Notwithstanding these potential difficulties [filibusters and an uncontrolled amendment process], the use of amendments between the houses can ... be highly efficient" in achieving bicameral compromises. New rules affecting conference reports—but not the exchange of amendment procedure—were adopted by the 110 th Senate. One of the changes provided for enhanced enforcement of an existing Senate rule (Rule XXVIII), prohibiting the "airdropping" of items into conference reports. "Air drops" are measures or matters inserted into conference reports without first being enacted by the House or Senate. These are considered violations of " scope ," a parliamentary principle which also applies to the House. In brief, scope means that conferees are to consider only the matters in disagreement between the chambers, they are not to include new matter, nor are they to delete matter agreed to by both chambers. Under the previous Rule XXVIII, a scope point of order upheld by the presiding officer would effectively kill the conference report. Under the revised Senate rule, if a point of order is sustained against airdropped items, that does result in rejection of the conference report, but the offending material is deleted and the remaining matter can be returned to the House for its consideration using the exchange of amendment procedure. For example, when a Rule XXVIII point of order was raised against a conference report for first time under the new procedure, it was sustained by the presiding officer. He then stated: "Under the rule, the Senate now considers the question of whether the Senate should recede from its amendment to the House bill and concur with a further amendment [the conference report minus the offending material]." The Senate agreed to the motion put by the presiding officer. The Senate also created a brand new rule (Rule XLIV). A key feature of this rule is the public disclosure of earmarks . Before a conference report can be considered, sponsors of earmarks must be identified through lists, charts, or other means and made publicly available on a congressional website for at least 48 hours. The majority leader or appropriate committee chair must certify (in a statement on the Senate floor, for example) that these requirements have been met before it is in order to vote on a conference report. Rule XLIV also permits a Senator to "raise a point of order against one or more provisions of a conference report if they constitute new directed spending provisions" which are "targeted to a specific State, locality, or Congressional district, other than through a statutory or administrative formula-driven or competitive award process." Worth noting is that paragraph 8 of Rule XLIV applies to discretionary and mandatory spending and not to authorizations of appropriations. The point of discussing these two rule changes—the revisions to Rule XXVIII and the new Rule XLIV—is to underscore that amendments between the houses are not subject to their formal procedures and requirements. Lack of Transparency Private negotiations among a limited number of participants is a fundamental characteristic of bicameral negotiations on major bills. As for the amendment exchange method, transparency and open deliberations are minimized if combined with a special rule limiting amendments in the House and tree-filling in the Senate, which closes off amendment opportunities for Members. Unlike the joint explanatory statement accompanying a conference report, there is no required public "paper trail"or written record of the decisions made during the informally negotiated amendment exchange procedure, except for whatever material is spread on the record during House and Senate floor debate. There are also no layover requirements for the exchange of amendment procedure, but there are for conference reports. Layover rules give Members an opportunity to read about the decisions made in a conference committee prior to floor action. Layover rules, however, may be waived by special rules from the House Rules Committee and the need for cloture provides Senators with the opportunity to read the amendments associated with the ping pong method. Still, the conference route seems to provide the potential for more openness and transparency compared to the ping pong method. Three reasons buttress this assessment. First, conference committees produce two formal products that are publicly available: the conference report (the legal language) and the joint explanatory statement (an explanation of the conference report). Under House rules (Rule XIII, clause 7), the "joint explanatory statement shall be sufficiently detailed and explicit to inform the House [and Senate] of the effects of the report on the matters committed to conference." Conference reports and joint explanatory statements are printed in the Congressional Record . Joint explanatory statements are not required by the exchange of amendments procedure. (However, there are examples of ping ponged measures where something akin to a joint explanatory statement is printed in the Congressional Record , as in the case of S. 1 , the Honest Leadership and Open Government Act). Second, House and Senate rules stipulate that meetings of conference committees shall be open to the public; these rules also identify the procedures for closing the public sessions. To emphasize their commitment to open conferences, the majority leaders of each chamber pledged that conferences in the 110 th Congress would be open to public observation. In Section 515 of the Honest Leadership and Open Government Act ( P.L. 110-81 ), the Senate agreed to the following protocol: "conference committees should hold regular, formal meetings of all conferees that are open to the public." If there is a presumption of openness for conference committees, there is nothing comparable for the private negotiating sessions associated with the ping pong method. Third, transparency of conference proceedings can sometimes be an important strategic component of the lawmaking process. Televising conferences over C-SPAN (the Cable Satellite Public Affairs Network), which has occurred several times in recent years, could be part of the strategy for influencing conference decisionmaking by generating public opinion for or against particular issues. In at least one instance, according to the House chair of a conference committee, the entire proceedings were open to public view. As the chair stated, this was the first tax conference in his memory that was held "entirely with the public permitted complete access, televised over the internal television [network] for the entire time of the conference. There were no separate conference meetings. All of the conference meetings were public." The chair of the Senate conferees agreed with this assessment. On tax conferences, he said, nearly "all of the toughest decisions come down to private negotiations between the two chairmen.... In this conference, however, all discussions were aired publicly." The rationale for complete openness was to blunt any allegations from opponents that untoward deals were being made in secret. There have been no instances of television coverage of the private negotiations associated with the ping pong method. Concluding Observations Although Table 1 does not reflect a numerical increase in the ping pong method, its recent use on major bills is something that does seem significant. Volleying amendments between the houses on consequential legislation is outside what might be considered the "regular order"—the creation of a conference committee, the usual venue for reconciling bicameral differences on major measures. As a result, there are at least five issues associated with ping ponging that merit discussion. First, the more prominent role of ping ponging may reflect the gradual institutionalization of a leadership-influenced bicameral bargaining process that has been evolving for several years. Bicameral bargaining is not a static process; it has undergone many changes over the years. The "old" conference style, where a limited number of conferees from a single committee in each chamber haggle over inter-chamber differences, no longer suffices as the prime method for reaching bicameral compromises. Today, party leaders exercise large influence in achieving and coordinating inter-chamber agreement on major bills, often resorting to the ping pong method for this purpose. The bicameral role of party leaders results from various developments, such as the need to mobilize support for party-preferred policies from a diverse array of engaged actors (interest groups, executive officials, nonconferee lawmakers, bloggers, and so on.) Second, there is arguably little significant difference between convening "virtual" conferences, where bicameral compromises are worked out in private among key lawmakers, and employing the amendment exchange method where inter-chamber accords are also hammered out in closed meetings by a select number of House and Senate leaders. There are differences, however. The threat or reality of a filibuster in today's Senate appears so severe that it has produced a changed bicameral dynamic for reconciling House-Senate differences on legislation. Further, there are numerous House and Senate rules and practices triggered by the conference method that can be avoided by the ping pong approach. These include such things as potential controversies involving conferee selection, the instruction of conferees, or scope violations. Third, the bargaining dynamic associated with ping ponging may have its roots in Senate developments that have occurred over several decades. The thrust of these changes has led to a more individualistic and partisan Senate where lawmakers' individual or partisan preferences sometimes take precedence over institutional requirements. Congressional scholars have examined how the Senate has changed over several decades, and these changes influence today's conferee appointment process. A capsule summary might include the following developments. During the 1970s, there was an increase in the number of filibusters and other delaying tactics as the chamber witnessed a heightened sense of influence on the part of each Senator. Many Senators, regardless of party, were more willing to employ their formidable parliamentary prerogatives to advance individual goals even if that meant blocking the Senate's business or foiling the agenda-setting authority of the majority leader. Professor Richard F. Fenno, Jr., a noted legislative scholar, studied how the 1950s Senate evolved from a "communitarian" institution, where Members were expected to use filibusters sparingly and only for high-stakes national issues, to today's "individualistic" Senate. He found that with "more openness, more media visibility, more candidate-centered elections," more interest groups, more political obligations, and more staff, Members became independent entrepreneurs unwilling to submerge their personal and political objectives "to the norms of any collectivity." By the late 1980s and 1990s, the Senate seemed to become increasingly contentious, "with polarization along partisan and ideological lines that largely coincide." This pattern continued into the 2000s. Given any lawmaker's ability to stall legislative action, and a narrowly divided chamber's oft-inability to invoke cloture, it became much more difficult for the Senate to convene conference committees. As a result, majority party leaders in both houses turned to amendment exchanges and informal negotiations to iron out bicameral differences. This negotiating pattern has persisted in recent years regardless of which party has been in charge of the Congress. Fourth, bypassing the conference stage is not without its own complications. A brief summary of a 2008 housing measure ( H.R. 3221 ) will help make the point. Remember that the aforementioned H.R. 3221 started out as an energy bill with many of its provisions folded into H.R. 6 (the energy case example) during the exchange of amendments between the chambers. The bill remained in the Senate, however, and became the vehicle to carry a major housing initiative. The Senate devised a package of housing proposals that contained energy tax incentives and, as mentioned before, the Constitution requires the House to originate tax measures. So the Senate deleted the legislative text contained in H.R. 3221 and replaced it with housing and energy-relevant proposals. The legislation passed the Senate on April 10, 2008, as a Senate amendment to H.R. 3221 . The amended bill was returned to the House, including with a new title (the "Foreclosure Prevention Act"). On May 7, 2008, the House Rules Committee reported a procedural resolution ( H.Res. 1175 ) that made it in order for the House to take up H.R. 3221 , with the Senate amendments thereto. Worth underscoring are two points: first, Senate amendments to House-passed measures lack privilege—an automatic right to the floor—and require a special rule for this purpose; second, the House can respond to Senate amendments in any way that it wants. In this case, the special rule permitted the Financial Services chair to make a motion to concur in the Senate amendments with three House amendments. All three were adopted by the House, along with an amended title. H.R. 3221 became the "American Housing Rescue and Foreclosure Prevention Act," and was volleyed back to the Senate (the three House amendments to the Senate amendments to H.R. 3221 ). Things quickly became procedurally complicated in the Senate, leading to complex parliamentary maneuvers. There were three motions for cloture; an unsuccessful motion to refer the House amendments to the Banking Committee; tree-filling by the majority leader; controversy over whether an amendment involving energy tax incentives was germane to the housing bill; multiple amendments offered to the House amendments; and other procedural twists and turns. In brief, consideration of House amendments in the Senate provides numerous opportunities for delay and produces complications that are procedurally and politically complex. The Senate finally cleared all the procedural hurdles, and the housing bill, as amended—renamed the "Housing and Economic Recovery Act"—was returned to the other body for its consideration of the Senate amendments to the House amendments to the Senate amendments to H.R. 3221 . House negotiators returned to the drawing board to develop a housing package (another House amendment(s)—technically a third-degree amendment violation ) that the Senate could accept and thus end the back-and-forth volley of proposals. To be sure, the respective House and Senate chairs were in regular communication, working together to develop a housing package (the new House amendment) that could pass the Senate. In the end, the House on July 23 agreed to the inter-chamber negotiated compromise, which included provisions addressing housing foreclosures and credit markets, by a 272 to 152 vote. Three days later, after the filing of cloture and tree-filling by the Senate majority leader, the chamber voted 72 to 13 to concur in the amendment of the House. On July 30, the legislation was signed into law ( P.L. 110-289 ) by the President. Lastly, the history of Congress is the history of change. Lawmaking processes adapt in big and little ways to new pressures, actors, and events. Yet one constant is that both chambers must pass a measure in absolutely identical fashion before it can be sent to the White House for presidential consideration. Recall that Table 1 provides data on the methods used to secure bicameral concurrence on legislation. What the table cannot reveal is that many respected individuals believe that a once little-discussed method—the exchange of amendments between the houses—recently has taken on larger importance in reconciling House-Senate differences on major legislation. Whether this development is an anomaly, unique to recent Congresses, or reflects the wave of the future is not clear. Prediction is very hard, Yogi Berra is reputed to have said, especially about the future. One thing does seem certain, however. If there are continuing issues in convening conference committees, or circumstances warrant their calculated circumvention, institutional leaders seem certain to employ the ping pong method or devise other ways to resolve bicameral differences on legislation.

Conference committees have long been known as the "third house of Congress." They are often the principal forum for resolving bicameral differences on major measures when the House and Senate pass dissimilar versions of the same bills. Current developments suggest, however, that the "third house" characterization might require modification. It is not that conference committees are unimportant, it is that another method for adjusting and reconciling bicameral differences on significant legislation has taken on greater prominence in the contemporary Congress. This method is the exchange of amendments between the houses—the so-called "ping pong" method. If the conference committee is being somewhat eclipsed by the ping pong procedure as a way to achieve bicameral reconciliation on consequential measures, that would represent an important institutional development. This apparent development requires attention and analysis. Accordingly, this report's purposes are fundamentally twofold: to examine the reasons for the heightened salience of the ping pong approach and to consider several implications that seem to flow from using this procedure rather than convening conferences to resolve inter-chamber disagreements on major legislation. To fulfill these two purposes, the report will examine six issues. First, it will provide an overview of the methods Congress employs to achieve bicameral agreement on legislation. Second, it will briefly discuss how each chamber gets to conference, underscoring how the convening of conferences in the Senate can be effectively blocked, even if a majority of Senators would agree to send the measure to conference. Third, it will examine several factors that have apparently contributed to the more conspicuous use of the ping pong method on significant measures. Fourth, procedures are usually not isolated actions; they are employed in a policy, political, and legislative context. Hence, the report will use three case examples to illustrate in a concrete setting the factors that might trigger use of ping ponging over the convening of conference committees. Fifth, the report will discuss several reasons for, and implications of, ping ponging amendments back-and-forth between the chambers instead of forming conference committees to achieve bicameral agreement on legislation. Lastly, summary observations will be presented, including why the exchange of amendment pattern has seemingly evolved to become a more important feature of bicameral lawmaking activity. This report will be updated if circumstances warrant such action.

Introduction Foreign assistance is one of the tools the United States has employed to advance U.S. interests in Latin America and the Caribbean, with the focus and funding levels of aid programs changing along with broader U.S. policy goals. Current aid programs reflect the diversity of the countries in the region. Some countries receive the full range of U.S. assistance as they continue to struggle with political, socioeconomic, and security challenges. Others, which have made major strides in democratic governance and economic and social development, no longer receive traditional U.S. development assistance but continue to receive some support for security challenges, such as combating transnational organized crime. Although U.S. relations with the nations of Latin America and the Caribbean have increasingly become less defined by the provision of assistance as a result of this progress, foreign aid continues to play an important role in advancing U.S. policy in the region. Congress authorizes and appropriates foreign assistance to the region and conducts oversight of aid programs and the executive branch agencies charged with managing them. Current efforts to reduce budget deficits in the aftermath of the recent global financial crisis and U.S. recession have triggered closer examination of competing budget priorities. Congress has identified foreign assistance as a potential area for spending cuts, placing greater scrutiny on the efficiency and effectiveness of U.S. aid programs. This report provides an overview of U.S. assistance to Latin America and the Caribbean. It examines historical and recent trends in aid to the region as well as the Obama Administration's FY2015 request for State Department and U.S Agency for International Development (USAID)-administered assistance. It also examines congressional action on foreign aid appropriations for Latin America and the Caribbean in FY2015, and raises questions Congress may examine as it considers future foreign aid appropriations for the region. Trends in U.S. Assistance to Latin America and the Caribbean The United States has long been a major contributor of foreign assistance to countries in Latin America and the Caribbean, and has provided the region over $160 billion in constant 2012 dollars (or nearly $77 billion in historical, non-inflation-adjusted, dollars) since 1946. U.S. assistance to the region spiked in the early 1960s following the introduction of President Kennedy's Alliance for Progress, an anti-poverty initiative that sought to counter Soviet and Cuban influence in the aftermath of Fidel Castro's 1959 seizure of power in Cuba. After a period of decline, U.S. assistance to the region increased again following the 1979 assumption of power by the leftist Sandinistas in Nicaragua. Throughout the 1980s, the United States provided considerable support to the Contras , who sought to overthrow the Sandinista government, and to Central American governments battling leftist insurgencies. U.S. aid flows declined in the mid-1990s following the dissolution of the Soviet Union and the end of the Central American conflicts (see Figure 1 ). U.S. foreign assistance to Latin America and the Caribbean began to increase once again in the late 1990s and remained on a generally upward trajectory through the past decade. The higher levels of assistance were partially the result of increased spending on humanitarian and development assistance. In the aftermath of Hurricane Mitch in 1998, the United States provided extensive humanitarian and reconstruction aid to several countries in Central America. The establishment of the President's Emergency Plan for AIDS Relief (PEPFAR) in 2003 and the Millennium Challenge Corporation (MCC) in 2004 provided a number of countries in the region with new sources of U.S. assistance. More recently, the United States provided significant amounts of assistance to Haiti in the aftermath of its massive January 2010 earthquake. Increased funding for counternarcotics and security programs also contributed to the rise in U.S. assistance through 2010. Beginning with President Clinton and the 106 th Congress in FY2000, successive Administrations and Congresses have provided substantial amounts of foreign aid to Colombia and its Andean neighbors in support of "Plan Colombia"—a Colombian government initiative to combat drug trafficking, end its long-running internal armed conflict, and foster development. Spending on counternarcotics and security assistance received another boost in FY2008 when President George W. Bush joined with his Mexican counterpart to announce the Mérida Initiative, a package of U.S. counterdrug and anticrime assistance for Mexico and Central America. In FY2010, Congress and the Obama Administration split the Central America portion of the Mérida Initiative into a separate Central America Regional Security Initiative (CARSI) and created a similar program for the countries of the Caribbean known as the Caribbean Basin Security Initiative (CBSI). After more than a decade of generally increasing aid levels, U.S. assistance to Latin America and the Caribbean has again begun to decline. This is partially the result of reductions in the overall U.S. foreign assistance budget. The Administration and Congress have sought to reduce budget deficits in the aftermath of the recent global financial crisis and U.S. recession, and have identified foreign assistance as a potential area for spending cuts. U.S. aid to Latin America and the Caribbean has decreased each year since FY2010, and spending caps and across-the-board cuts that were included in the Budget Control Act of 2011 ( P.L. 112-25 ), as amended, could place downward pressure on the aid budget for the foreseeable future. The recent decline in U.S. assistance to Latin America and the Caribbean also reflects changes in the region. As a result of stronger economic growth and the implementation of more effective social policies, the percentage of people living in poverty in Latin America fell from 44% in 2002 to 28% in 2012. Likewise, electoral democracy has been consolidated in the region; every country except Cuba now has a democratically elected government (although some elections have been controversial). These changes have allowed the U.S. government to concentrate its resources in fewer countries and sectors. For example, USAID closed its mission in Panama in 2012 following the country's graduation from foreign assistance, and the agency has largely transitioned out of providing support for family planning and elections administration as governments throughout the region have demonstrated their ability to finance and carry out such activities on their own. Some Latin American nations, such as Brazil, Chile, Colombia, and Uruguay, have even begun providing foreign aid to other countries. The United States has partnered with these nations through so-called "trilateral cooperation" initiatives to jointly plan and fund development and security assistance efforts in third countries. Other countries, such as Bolivia and Ecuador, have demonstrated less interest in working with the United States, leading to significant reductions in U.S. assistance and the closure of USAID missions. As a result of these developments in the region and competing U.S. foreign policy priorities elsewhere in the world, U.S. assistance to Latin America and the Caribbean as a proportion of total U.S. foreign assistance dropped from 11.8% in FY2004 to 7.6% in FY2014. FY2015 Foreign Assistance Request for Latin America and the Caribbean8 As the region has evolved and the U.S. government has sought to cut expenditures, the Obama Administration and Congress have dedicated fewer resources to Latin America and the Caribbean. U.S. assistance to the region has declined each year since FY2010, and would continue to decline under the Administration's foreign aid budget request for FY2015. The Administration requested $1.3 billion for the region, which is 10% ($149 million) below the FY2014 estimate and 27% lower than the amount provided in FY2012—the last year before budget sequestration took effect (see Table 1 ). Foreign Aid Categories and Accounts9 The Administration's FY2015 foreign aid request for Latin America and the Caribbean would shift the emphasis of U.S. assistance efforts, as nearly 40% ($528 million) would go toward development and humanitarian assistance programs—up from 31% in 2014 (see Figure 2 ). Development assistance seeks to foster sustainable broad-based economic progress and social stability in developing nations. Such funding is often used for long-term projects in the areas of democracy promotion, economic reform, basic education, human health, and environmental protection. This assistance is provided primarily through the Development Assistance (DA) and Global Health Programs (GHP) accounts, which would receive $282 million and $233 million, respectively, under the Administration's FY2015 request. In terms of humanitarian assistance, the Administration requested $13 million through the Food for Peace (P.L. 480) account to address immediate food security needs. While funding provided through the GHP and P.L. 480 accounts would remain relatively stable, the FY2015 request includes nearly 28% ($63 million) more DA funding than the FY2014 estimate for the region. This is partially due to the Administration's decision to request funding through the DA account in FY2015 for some programs that were funded through the Economic Support Fund (ESF) account in FY2014. It also reflects increased development support for countries struggling with drug trafficking and violence, such as El Salvador, Guatemala, Honduras, and Peru. About 30% ($393 million) of the Administration's FY2015 request for the region would be provided through the ESF account, which has as its primary purpose the promotion of special U.S. political, economic, or security interests. In practice, the ESF account generally funds programs that are designed to promote political and economic stability, and are often indistinguishable from those funded through the regular development and humanitarian assistance accounts. The Administration's FY2015 ESF request for the region is 14% lower than the FY2014 estimate. As noted above, this change is partially the result of the Administration requesting funding for ongoing programs under the DA account instead of the ESF account. It also reflects declining aid for Colombia and Haiti, which had received elevated levels of assistance for several years. The remaining 30% ($405 million) of the Administration's FY2015 request for Latin America and the Caribbean would support security assistance programs. This includes $332 million under the International Narcotics Control and Law Enforcement (INCLE) account, which supports counternarcotics and civilian law enforcement efforts as well as projects designed to strengthen justice sector institutions. It also includes $13 million requested under the Nonproliferation, Anti-terrorism, De-mining, and Related programs (NADR) account, which funds efforts to counter global threats such as terrorism and proliferation of weapons of mass destruction. Additionally, $61 million was requested under the Foreign Military Financing (FMF) and International Military Education and Training (IMET) accounts to provide equipment and personnel training to Latin American and Caribbean militaries. Funding provided to the region through each of the security assistance accounts would decline under the FY2015 request. The biggest cuts fall under the INCLE account, however, with funding decreasing by 29% ($135 million) compared to the FY2014 estimate. This decline is almost entirely the result of cuts to the four major U.S. security programs in the region: Plan Colombia, the Mérida Initiative for Mexico, the Central America Regional Security Initiative (CARSI), and the Caribbean Basin Security Initiative (CBSI). Major Country and Regional Programs10 Under the Administration's FY2015 request, U.S. assistance to Latin America and the Caribbean would continue to be heavily concentrated in a few countries. Although the request would cut aid to Colombia, Haiti, and Mexico, those three countries would continue to be the top regional recipients of U.S. foreign aid, and would together account for more than 52% of U.S. assistance for Latin America and the Caribbean. Some of these funding reductions would be reinvested in the region's mid-sized aid programs in Peru, Guatemala, Honduras, and El Salvador (see Table 2 ). As noted above, Colombia has received significant amounts of U.S. aid to support counternarcotics and counterterrorism efforts since FY2000. U.S. assistance to Colombia has been on a downward trajectory in recent years, however, as the security situation in Colombia has improved, the country has taken ownership of programs, and the United States has shifted the emphasis of its assistance away from costly military equipment toward economic and social development efforts. Under the Administration's FY2015 request, Colombia would receive nearly $281 million to support drug eradication and interdiction; alternative development; land restitution; the demobilization and reintegration of ex-combatants; efforts to promote human rights and improve access to justice; programs to protect and provide services to vulnerable groups such as internally displaced persons, Afro-Colombians, and indigenous populations; and environmental resiliency initiatives. Although U.S. assistance to Colombia would fall by 14% ($44 million) compared to the FY2014 estimate, Colombia would continue to receive more aid than any other country in Latin America and the Caribbean. The United States has provided high levels of aid to Haiti for many years as a result of the country's significant humanitarian and development challenges. U.S. assistance to Haiti increased significantly after the country was struck by a massive earthquake in January 2010, but has gradually declined from those elevated levels. The Administration's FY2015 request includes $274 million to help the Haitian government develop transparent and accountable institutions; provide energy, shelter, and other infrastructure; increase access to health and education services; and implement a comprehensive food security strategy. The country would receive 6% ($16 million) less than it is estimated to have received in FY2014. Administration officials maintain that less funding is needed in FY2015 since assistance appropriated in previous years remains in the pipeline. Although, historically, Mexico had not been a major recipient of U.S. assistance, it began receiving large amounts of aid through the anticrime and counterdrug program known as the Mérida Initiative in FY2008. The Administration's FY2015 request includes $137 million to continue supporting the Mexican government's efforts to combat transnational criminal organizations, reform rule of law institutions, implement crime and violence prevention programs, strengthen border security, and foster low carbon development. The request continues a downward trend in aid to Mexico, cutting assistance to the country by nearly 34% ($70 million) compared to the FY2014 estimate. Administration officials assert that while Mexico remains a top priority, less funding is needed in FY2015 since funding from previous years has yet to be expended. Despite the overall decline in funding for Latin America and the Caribbean in the Administration's FY2015 foreign aid request, Peru would receive a 25% ($19 million) increase in U.S. assistance. Under the request, the United States would provide $94 million to Peru, primarily to support counternarcotics efforts such as eradication, interdiction, and alternative development. Some funds would also be used to support environmental programs designed to protect the Amazon Rainforest and help communities adapt to the effects of global climate change. The Peruvian government has significantly increased the amount of its own funding it dedicates to counternarcotics and development efforts, and the Administration has requested an increase in U.S. assistance for Peru in FY2015 in order to take advantage of the country's commitment to shared goals. El Salvador , Guatemala , and Honduras are all part of the northern triangle of Central America that has long struggled with major development challenges and has experienced high levels of crime and violence in recent years. Each of the countries would receive additional bilateral aid under the FY2015 request; U.S. assistance to El Salvador would increase by 24% ($5 million) to $28 million, U.S. assistance to Guatemala would increase by 18% ($12 million) to $77 million, and U.S. assistance to Honduras would increase by 15% ($6 million) to $48 million. Most of the funding for these countries would be split between efforts to strengthen justice and security sector institutions and traditional development activities in areas such as agriculture, basic education, and economic reform. Administration officials maintain "a more balanced approach" is needed in Central America, and they are adjusting U.S. strategy to "focus equally on governance, prosperity, and security." In addition to bilateral assistance for individual countries, the Administration's FY2015 foreign aid request includes $295 million for five regional programs administered by the State Department and USAID. The State Department's Western Hemisphere Regional program would receive the majority of the funds, accounting for 14% ($190 million) of all assistance to Latin America and the Caribbean. This assistance would primarily fund two regional security initiatives: the Central America Regional Security Initiative (CARSI) and the Caribbean Basin Security Initiative (CBSI) . Both initiatives are designed to strengthen governments' capacities to combat threats from drug trafficking and organized crime, strengthen rule of law institutions, and address social problems such as poverty and inequality. Compared to the FY2014 estimate, funding for CARSI would be cut by 20% ($32 million) to $130 million, and CBSI would be cut by 11% ($7 million) to $57 million in FY2015. Despite these cuts, the Administration maintains that the FY2015 request continues to make citizen security the highest U.S. priority in the Western Hemisphere. Legislative Action Since Congress has not enacted a foreign assistance authorization measure since FY1985, annual Department of State, Foreign Operations, and Related Programs appropriations bills tend to serve as the primary legislative vehicles through which Congress reviews U.S. assistance and influences executive branch foreign policy. The Senate Committee on Appropriations reported its bill ( S. 2499 ) on June 19, 2014, and the House Committee on Appropriations reported its bill ( H.R. 5013 ) on June 27, 2014. Neither measure received floor consideration. Instead, Congress chose to include foreign aid funding in the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ), which President Obama signed into law on December 16, 2014. The legislation includes some $33.2 billion for bilateral economic assistance and international security assistance worldwide. This global funding level is about 1.2% higher than the Administration's request (as amended), 5.7% higher than S. 2499 , and 9.6% higher than H.R. 5013 . It is unclear how much foreign assistance will be directed to each of the nations of Latin America and the Caribbean, however, since, for the most part, appropriations levels for individual countries and programs are not specified in the legislation or the accompanying explanatory statement. The explanatory statement does designate assistance levels above the Administration's request in certain instances. For example, the legislation provides $260 million for CARSI, which is $130 million more than the Administration requested for FY2015. The explanatory statement directs the Administration to use the additional funds to implement a strategy "to address the key factors in the countries in Central America contributing to the migration of unaccompanied, undocumented minors to the United States." The legislation also provides at least $64 million more than was requested for aid to Mexico. These additional funds "are for enhanced border security initiatives with a focus on the southern border of Mexico, and for other law enforcement and judicial reform programs." Moreover, the legislation includes at least $24 million more than was requested for security and justice sector assistance programs in Colombia, and $10.5 million more than was requested for environmental programs in the Brazilian Amazon. Potential Issues for Congressional Consideration As Congress considers future foreign assistance appropriations for Latin America and the Caribbean, there are a number of issues it may take into consideration. These include policy priorities and budget constraints, coordination of aid efforts, and the sustainability of U.S. assistance programs. Policy Priorities and Budget Constraints As Congress debates foreign aid legislation, Members may consider how U.S. policy priorities in the Western Hemisphere compare to U.S. priorities elsewhere in the world as well as the relative merits of various U.S priorities within the region. According to Administration officials, "the Western Hemisphere is a vitally important region for the United States. It is home to robust democracies and our closest trading partners. The Americas are at the center of the world's new energy map and many countries are becoming increasingly relevant on the global stage." As noted above, however, the Administration's FY2015 budget request cuts aid to the region by 10% compared to the FY2014 estimate. Aid to Latin America and the Caribbean would also fall in relative terms, declining from 7.6% of all U.S. assistance in FY2014 to 6.8% in FY2015. When questioned by Members of Congress about the declining levels of assistance for the region, Administration officials have noted shifting circumstances, such as improvements in Colombia, as well as tradeoffs that need to be made in the overall budget allocation process. The Obama Administration's framework for U.S. policy toward Latin America and the Caribbean centers on four priorities: promoting economic and social opportunity, ensuring citizen security, strengthening effective institutions of democratic governance, and securing a clean energy future. The Administration maintains that "U.S. assistance in the region responds directly to U.S. policy priorities, particularly citizen security concerns that directly impact U.S. security." As previously noted, the emphasis of the Administration's FY2015 foreign aid budget request for Latin America and the Caribbean would shift slightly toward development assistance and away from security assistance, as compared to the FY2014 estimate. Given constraints on the overall aid budget, some Members of Congress have criticized the Administration for dedicating some funding to clean energy and climate change mitigation programs, maintaining the assistance would be better spent supporting security efforts. As U.S. assistance to Latin America and the Caribbean has declined, Administration officials have emphasized other forms of engagement to advance U.S. policy priorities. For example, the Administration is currently focused on concluding the Trans-Pacific Partnership (TPP) trade negotiations, which include countries such as Chile, Mexico, and Peru. Many other countries in the region benefit from trade preference programs like the Generalized System of Preferences (GSP) and the Caribbean Basin Initiative (CBI). The Administration has also emphasized initiatives such as 100,000 Strong in the Americas , which is designed to increase the number of Latin American students studying in the United States and the number of U.S. students studying in Latin America, and Connecting the Americas 2022 , which is designed to ensure universal access to reliable, clean, and affordable electricity. To date, few U.S. government resources have been dedicated to initiatives such as these, which rely on private sector funding. Some questions Members of Congress might consider include: How do U.S. policy priorities in the Western Hemisphere compare to U.S. priorities elsewhere in the world, and are U.S. priorities properly reflected in the foreign aid budget? Does the foreign aid budget adequately reflect U.S. interests and objectives in Latin America and the Caribbean, and is it balanced appropriately among these myriad interests and objectives? What are the potential effects of foreign aid reductions on political, economic, and security conditions in the region? How might cuts in assistance affect U.S. bilateral relations and influence in the region? If additional cuts are to be made to foreign aid to the region, which areas can be identified for reduction with the least harm to U.S. interests or objectives? Are there other forms of engagement the U.S. government could use to advance its policy priorities in Latin America and the Caribbean, and should more resources be dedicated to those initiatives as U.S. relations with the region become less defined by the provision of foreign assistance? Inter-Agency and International Donor Coordination31 As Congress seeks to maximize the impact of scarce foreign assistance funds, it may consider resource coordination, both among U.S. government agencies as well as with international donors. U.S. foreign assistance is currently split among a variety of different government agencies. Although the State Department and USAID continue to manage the majority of assistance in Latin America and the Caribbean, the role of the Department of Defense (DOD) has grown. In FY2012 (the most recent year for which data are available), DOD provided nearly $283 million to the region through U.S. Northern Command and U.S. Southern Command. While most of these resources were dedicated to counternarcotics assistance, DOD also provided some humanitarian assistance and other forms of security aid. Several other agencies, such as the Inter-American Foundation (IAF), the MCC, and the Peace Corps, also provide aid to the region. A 2012 Government Accountability Office (GAO) report found that the State Department, USAID, and DOD are not fully aware of each other's assistance efforts, and, consequently, the potential exists for unnecessary overlap. GAO maintains that while there are some initiatives underway to improve the situation, and ad hoc arrangements exist in certain cases, there is no formal framework for readily sharing information across the three agencies. With better coordination, the various U.S. agencies providing assistance may be able to ensure that their efforts are complementary and thereby increase the potential impact of their programs. Congress might also consider the advantages and disadvantages of closer coordination with other international donors. According to the Organisation for Economic Co-operation and Development (OECD), the nations of Latin America and the Caribbean received $10.1 billion in official development assistance disbursements in 2012 (the most recent year for which data are available). The United States provided about $2 billion (20%) of the total while other major bilateral donors provided $4.6 billion (46%) and multilateral organizations provided $3.4 billion (34%). Some studies that have attempted to map programs being carried out in the region by the various donors have found a lack of coordination, including programs that duplicate efforts or support conflicting goals. Closer coordination could enable the various donors to focus on specific countries or sectors, ensure that their efforts are complementary, and use their limited funds for foreign assistance more efficiently. Such coordination could be difficult, however, as it is unclear which country or organization might lead the effort and donors may disagree on the division of labor. Moreover, foreign assistance often has strategic objectives in addition to development goals. While donors may be able to carry out aid programs more efficiently by focusing on certain sectors or countries, doing so could negatively affect their strategic interests. In recent years, the United States has begun working with countries in the region that have been successful in overcoming their domestic development challenges to provide assistance to third countries. The United States has signed trilateral cooperation agreements with Brazil, Chile, Colombia, and Uruguay, which are designed to provide the U.S. government and its development partners with access to new solutions and expertise, and multiply the impact of that expertise by combining best practices with larger scale financial resources. The Administration's FY2015 foreign aid request included $2 million to work with the Brazilian Development Agency and implement joint projects designed to improve food security in countries such as Haiti, Honduras, and Mozambique. The FY2015 foreign aid request also included $1 million to support Colombian efforts to provide training and other security support to countries in Central America and the Caribbean. Efforts such as these could build the capacities of U.S. partners to take on more responsibility for regional stability and development. Critics assert that providing assistance through foreign governments raises serious oversight concerns, as doing so could potentially lead to U.S. funds being used to support activities that would otherwise be prohibited. Some questions Members of Congress might consider include: Are there U.S. agencies that have comparative advantages in providing certain types of assistance? Do the intended roles of the various U.S. agencies providing foreign assistance need to be clarified? Are additional mechanisms to encourage inter-agency coordination necessary? Are there certain types of assistance programs that the United States has a comparative advantage in providing? Are there countries or development sectors of lower strategic importance that other donors would be willing to support if the United States concentrated its efforts elsewhere? How might building the foreign assistance capacities of regional partners affect the short-term and long-term interests of the United States? Are there controls in place to ensure that U.S. funds provided through partner nations are used in accordance with U.S. law? Political Will and Program Sustainability When considering foreign assistance levels for Latin American and Caribbean nations, Congress might examine the issues of political will and program sustainability. According to the State Department's first Quadrennial Diplomacy and Development Review (QDDR), the United States should "assess and monitor host nations' political will to make the reforms necessary to make effective use of U.S. assistance to ensure our assistance is being targeted where it can have the most impact." Unless partner nations are willing to implement complementary reforms and take ownership and sustain programs as aid is reduced and withdrawn, the results of U.S. assistance will likely be limited and short-lived. The nations of Latin America and the Caribbean have a mixed record in terms of demonstrating political will and ensuring program sustainability. The Colombian government, which has benefitted from high levels of U.S. assistance for more than a decade, has undertaken numerous reforms and raised revenue. As a result, the United States is able to carry out a managed transition of its assistance programs in the country in which aid is slowly reduced as Colombia takes over financial and technical responsibility. Similarly, USAID has closed its mission in Panama, and has withdrawn from a number of development sectors in other Latin American countries because partner nations have developed the capacity to manage and fund the programs on their own. Despite these successes, numerous GAO reports indicate that political will has often been lacking in the region, especially with regard to raising sufficient government revenue to sustain efforts initiated with U.S. support. A 2003 study of U.S. democracy programs in six Latin American nations found "cases in which U.S.-funded training programs, computer systems, and police equipment had languished for lack of resources after U.S. support ended." A 2010 study of counternarcotics programs found that several countries in the region were unable to use U.S.-provided boats for patrol or interdiction operations due to a lack of funding for fuel and maintenance. Even Millennium Challenge Corporation (MCC)-funded projects, in which assistance is contingent on partner nation actions, have run into problems with program sustainability. A 2011 study of the MCC compact in Honduras found that the lifespan of roads built to improve small farmers' access to markets may be relatively limited, as the municipalities where they were constructed lack the equipment, expertise, and funding for road maintenance. As Members of Congress consider foreign aid appropriations for Latin American and Caribbean countries, they might consider questions such as: Does the country have the capacity to maintain the equipment that is to be provided? Is there a plan for the host country to eventually take on financial and operational responsibility for the assistance program? How much assistance will be necessary over what time frame in order to build the host nation's technical and financial capacity to sustain these efforts? Has the country demonstrated the political will to implement necessary fiscal and policy reforms? Will U.S. assistance be complemented with host nation resources or through public-private partnerships? Should U.S. assistance be contingent upon host nation reforms or financing?

Geographic proximity has forged strong linkages between the United States and the nations of Latin America and the Caribbean, with critical U.S. interests encompassing economic, political, and security concerns. U.S. policy makers have emphasized different strategic interests in the region at different times, from combating Soviet influence during the Cold War to advancing democracy and open markets since the 1990s. Current U.S. policy is designed to promote economic and social opportunity, ensure citizen security, strengthen effective democratic institutions, and secure a clean energy future. As part of broader efforts to advance these priorities, the United States provides Latin American and Caribbean nations with substantial amounts of foreign assistance. Trends in Assistance Since 1946, the United States has provided over $160 billion (constant 2012 dollars) in assistance to the region. Funding levels have fluctuated over time, however, according to regional trends and U.S. policy initiatives. U.S. assistance spiked during the 1960s under President Kennedy's Alliance for Progress, and then declined in the 1970s before spiking again during the Central American conflicts of the 1980s. After another decline during the 1990s, assistance remained on a generally upward trajectory through the first decade of this century, reaching its most recent peak in the aftermath of the 2010 earthquake in Haiti. Aid levels for Latin America and the Caribbean have fallen in each of the past four fiscal years, however, as Congress has sought to trim the foreign aid budget and countries have been seen to require less assistance. FY2015 Obama Administration Request The Obama Administration's FY2015 foreign aid budget request would continue the recent downward trend in assistance to Latin America and the Caribbean. The Administration requested some $1.3 billion to be provided through the State Department and the U.S. Agency for International Development (USAID), which is 10% below the FY2014 estimate and 27% lower than the amount provided in FY2012—the last year before budget sequestration took effect. Under the request, the balance of U.S. assistance to the region would shift toward development aid and away from security aid, as each of the four major U.S. security initiatives would see cuts. Aid levels for Colombia, Haiti, and Mexico would decline, but they would continue to be the top three recipients in the region, accounting for 52% of all U.S. aid to Latin America and the Caribbean. Congressional Action In recent years, the annual Department of State, Foreign Operations, and Related Programs appropriations measure has been the primary legislative vehicle through which Congress reviews U.S. assistance. Although the House and Senate Appropriations Committees reported out their respective bills (H.R. 5013 and S. 2499) in June 2014, no action was taken on those measures. After funding foreign aid programs through a series of continuing resolutions, Congress included foreign assistance appropriations in the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235), which the President signed into law on December 16, 2014. The legislation includes some $33.2 billion for bilateral economic assistance and international security assistance worldwide; this funding level is about 1.2% higher than the Administration's request (as amended), 9.6% higher than the House bill, and 5.7% higher than the Senate bill. It is unclear how much foreign assistance will be directed to each of the nations of Latin America and the Caribbean, however, since, for the most part, appropriations levels for individual countries and programs are not specified in the legislation or the accompanying explanatory statement. Nevertheless, funding for a number of countries and programs will exceed the Administration's request. The legislation provides at least $24 million more than was requested for Colombia, $64 million more than was requested for Mexico, and $130 million more than was requested for the Central America Regional Security Initiative (CARSI).

Why This Issue Is Important to Congress The nexus of robotics and autonomous systems (RAS) and artificial intelligence (AI) has the potential to change the nature of warfare. RAS offers the possibility of a wide range of platforms—not just weapon systems—that can perform "dull, dangerous, and dirty" tasks—potentially reducing the risks to soldiers and Marines. Regarding AI, one report suggests One of the promises of AI in the military that seems to guarantee its adoption is its broad applicability. AI can be used to increase effectiveness and efficiency for more than just combat operations. AI can improve supply lines, enhance the training of new soldiers, and increase the effectiveness and efficiency of intelligence gathering and processing. But their effectiveness in combat operations seems especially promising. AI is not a wholly revolutionary idea to be applied to the military domain, and it is merely the next logical step in the digitization and mechanization of the modern battlefield. As a stated imperative in the National Defense Strategy, the Department of Defense (DOD) and the Services are pursuing RAS and AI for a wide variety of applications. Aside from the programmatic and budgetary considerations for Congress, another key aspect of these technologies that may merit consideration by Congress is articulated in the following passage from a U.S. Air Force document: Authorizing a machine to make lethal combat decisions is contingent on political and military leaders resolving legal and ethical questions. These include the appropriateness of machines having this ability, under what circumstances should it be employed, where responsibility for mistakes lies, and what limitations should be placed on the autonomy of such systems.... Ethical discussions and policy decisions must take place in the near term in order to guide the development of future [unmanned aircraft systems] capabilities, rather than allowing the development to take its own path apart from this critical guidance. Apart from the U.S. military's pursuit of RAS and AI, there has been a proliferation of RAS and AI internationally, ranging from foreign militaries, to violent nonstate groups to criminal organizations. These technologies have already been used to a limited degree against U.S. military forces. How the United States will address further foreign advances in these realms may be of interest to Congress. An Overview of Robotics and Autonomous Systems (RAS) and Artificial Intelligence (AI) Definitions There are a variety of definitions for the following terms and, for the purposes of this report, the following definitions will be used: Autonomy The level of independence that humans grant a system to execute a given task. It is the condition or quality of being self-governing to achieve an assigned task based on the system's own situational awareness (integrated sensing, perceiving, analyzing), planning, and decisionmaking. Autonomy refers to a spectrum of automation in which independent decisionmaking can be tailored for a specific mission, level of risk, and degree of human-machine teaming. Robot A powered machine capable of executing a set of actions by direct human control, computer control, or both. It is composed minimally of a platform, software, and a power source. Robotic and Autonomous Systems (RAS) RAS is an accepted term in academia and the science and technology (S&T) community and highlights the physical (robotic) and cognitive (autonomous) aspects of these systems. For the purposes of this concept, RAS is a framework to describe systems with a robotic element, an autonomous element, or more commonly, both. Artificial Intelligence (AI) The capability of a computer system to perform tasks that normally require human intelligence such as visual perception, speech recognition, and decisionmaking. In the 115 th Congress, multiple bills included definitions for AI and incorporated an often-cited classification scheme that categorizes AI systems as designed to think rationally, act rationally, think like humans, or act like humans. These classifications were broadly incorporated into the first definition of AI in statute, included in the John S. McCain National Defense Authorization Act for Fiscal Year 2019 ( P.L. 115-232 ), which states that the term AI includes (1) Any artificial system that performs tasks under varying and unpredictable circumstances without significant human oversight, or that can learn from experience and improve performance when exposed to data sets. (2) An artificial system developed in computer software, physical hardware, or other context that solves tasks requiring human-like perception, cognition, planning, learning, communication, or physical action. (3) An artificial system designed to think or act like a human, including cognitive architectures and neural networks. (4) A set of techniques, including machine learning that is designed to approximate a cognitive task. (5) An artificial system designed to act rationally, including an intelligent software agent or embodied robot that achieves goals using perception, planning, reasoning, learning, communicating, decision-making, and acting. While not specified in these definitions, a distinction between narrow and general AI is important when discussing the current and future abilities of AI systems. The term "narrow AI" describes technologies tailored to particular, narrowly defined tasks; the AI systems in use today fall within this category. While narrow AI systems can exceed human capabilities in their specific task set, they cannot understand context or apply what the systems have learned to related tasks. In contrast, "general AI" refers to systems that demonstrate intelligent behavior across a range of cognitive tasks, which is unlikely to occur for decades or longer, according to most analysts. Machine Learning Machine learning is an application of AI that provides systems the ability to automatically learn and improve from experience without being explicitly programmed. It focuses on the development of computer programs that can access data and use it to learn for themselves. The process of learning begins with observations or data, such as examples, direct experience, or instruction, in order to look for patterns in data and make better decisions in the future based on the examples that are provided by humans. The primary aim is to allow the computers to learn automatically without human intervention or assistance and adjust actions accordingly. Automated Weapon System (AWS) A weapon system that, once activated, can select and engage targets without further intervention by a human operator. This includes human-supervised autonomous weapon systems that are designed to allow human operators to override operation of the weapon system, but can select and engage targets without further human input after activation. RAS and AI in Society12 Much has been written about how RAS and AI have affected society and, in particular, the workplace. A comprehensive 2017 study by the International Bar Association's (IBA) Global Employment Institute offers some interesting insights on both society and the workplace: Modern information technologies and the advent of machines powered by artificial intelligence (AI) have already strongly influenced the world of work in the 21 st century. Computers, algorithms and software simplify everyday tasks, and it is impossible to imagine how most of our life could be managed without them. However, is it also impossible to imagine how most process steps could be managed without human force? The information economy characterized by exponential growth replaces the mass production industry based on economy of scales. When we transfer the experience of the past to the future, disturbing questions arise: what will the future world of work look like and how long will it take to get there? Will the future world of work be a world where humans spend less time earning their livelihood? Alternatively, are mass unemployment, mass poverty and social distortions also a possible scenario for the new world, a world where robots, intelligent systems and algorithms play an increasingly central role? What is the future role of a legal framework that is mainly based on a 20 th century industry setting? What is already clear and certain is that new technical developments will have a fundamental impact on the global labor market within the next few years, not just on industrial jobs but on the core of human tasks in the service sector that are considered 'untouchable.' Economic structures, working relationships, job profiles and well-established working time and remuneration models will undergo major changes. In addition to companies, employees and societies, education systems and legislators are also facing the task of meeting the new challenges resulting from constantly advancing technology. Legislators are already lagging behind and the gap between reality and legal framework is growing. The study further suggests that because of RAS and AI, society has entered a "Fourth Industrial Revolution," described as [t]he technical integration of cyber physical systems (CPS) into production and logistics and the use of the 'internet of things'(connection between everyday objects) and services in (industrial) processes—including the consequences for a new creation of value, business models as well as downstream services and work organization. CPS refers to the network connections between humans, machines, products, objects and ICT (information and communication technology) systems. Within the next five years, it is expected that over 50 billion connected machines will exist throughout the world. The introduction of AI in the service sector distinguishes the fourth industrial revolution from the third. The analysis also provides examples of Fourth Industrial Revolution robotics and artificial intelligence: Well-known examples from the field of robotics and AI are the so-called 'smart factories', driverless cars, delivery drones or 3D printers, which, based on an individual template, can produce highly complex things without changes in the production process or human action in any form being necessary. Well-known service models are, for example, networking platforms like Facebook or Amazon Mechanical Turk, the economy-on-demand providers Uber and Airbnb, or sharing services, such as car sharing, Spotify and Netflix. Studies show that merely due to sharing services the turnover of the sector will grow twentyfold within the next ten years. If, as some suggest, society is in a "Fourth Industrial Revolution" what are the implications for the U.S. military as a whole and, in particular, U.S. ground forces, namely the Army and Marine Corps? The Rationale for RAS and AI Adoption by U.S. Ground Forces The U.S. 2018 National Defense Strategy of the United States of America, in describing DOD's strategic approach, states The Department will invest broadly in military application of autonomy, artificial intelligence, and machine learning, including rapid application of commercial breakthroughs, to gain competitive military advantages. In this regard, the Army and Marines are directed to pursue RAS and AI in support of the National Defense Strategy, but there are also more practical reasons why the Army and Marines might emphasize the development of RAS and AI. Some of these reasons include the following: Changing Geostrategic Environment Since 2001, the U.S. military—the Army and Marine Corps in particular—has focused on counterinsurgency and counterterrorism operations, with modernization for traditional ground combat receiving less emphasis. The 2018 National Defense Strategy of the United States of America changed the military's focus from counterinsurgency and counterterrorism, noting The central challenge to U.S. prosperity and security is the reemergence of long-term, strategic competition by what the National Security Strategy classifies as revisionist powers. It is increasingly clear that China and Russia want to shape a world consistent with their authoritarian model—gaining veto authority over other nations' economic, diplomatic, and security decisions. This change of strategic focus toward great power competition has prompted a renewed emphasis on preparing for conventional ground combat both in training and modernization, which may be contributing to a greater focus by the Army on RAS and AI. The Army's June 2018 Vision statement notes This modernization includes experimenting with and developing autonomous systems, artificial intelligence, and robotics to make our Soldiers more effective and our units less logistically dependent. Revisionist powers and smaller states are also modernizing and seeking these technologies as well. One defense expert suggests The robotics revolution isn't American-made. It isn't even American-led. Countries around the world are pushing the envelope in autonomy, many further and faster than the United States. Conversations in U.S. research labs and the Pentagon's E-ring are only one factor influencing the future of autonomous weapons. Other nations get a vote too. What they do will influence how the technology develops, proliferates, and how other nations—including the United States—react. As Secretary of the Army Mark Esper reportedly noted, "Whoever gets to robotics and AI first, it'll be a game changer on the battlefield." In this regard, the stage appears set for nations to aggressively pursue RAS and AI over the near- and long-term to achieve a battlefield advantage. Military Implications of RAS and AI Advances in Industry RAS and AI have been described as changing the very nature of work and workforce design, with some experts predicting an acceleration of this trend over the next two decades. RAS and AI advances in the private sector in areas such as transportation, logistics, manufacturing, health care, and engineering could be readily adapted by the military and ground forces. A potential added incentive is the adoption of these technologies would likely face little international opposition, as these types of technologies do not readily fall into the category of autonomous weapons. Workforce Implications Regarding the civilian labor market, researchers from industry, government, and academia have conducted numerous studies and surveys attempting to predict the impact of AI and automation on the U.S. and international workforce. While the reports vary in the many ways—including the populations studied, the timeframe for projected impacts, predicted numbers of jobs lost or gained, and whether the study looks at whole jobs or skills/tasks—there are some overarching takeaways. First, impacts are very difficult to predict, even for experts working in AI and automation. For example, in a 2014 survey of expert "technology builders and analysts" by Pew Research Center, 48% of respondents predicted that AI and robots would displace more jobs than they created by 2025, while the remaining 52% predicted that more jobs would be created than displaced. Second, the range of methodologies used in such workforce reports makes comparing studies challenging, thereby adding to the difficulty in projecting workforce impacts. Third, the studies raise additional questions that may have implications for both civilian and military workers. These include, but are not limited to, the following: Will AI and RAS displace certain skills/tasks or entire jobs, and what types of roles will the new technologies fill? If certain skills/tasks are automated, employees might have opportunities to upgrade the skills of their employers. If entire jobs are eliminated, employers could be reluctant to maintain the size of their workforce and pay for employee re-skilling while also investing in AI and RAS technologies. How will the pace of innovation and adoption of new technologies affect the workforce and corresponding labor policies? Some experts argue that AI and RAS technologies are developing much more rapidly than disruptive technologies of prior years (which have largely involved physical systems such as automated teller machines at banks) and a subsequent long time lag between innovation and full adoption. While there have been concerns about automation and new technologies displacing middle class workers for the past two centuries, the ability to implement AI systems and software on existing physical hardware could facilitate rapid adoption and allow for more disruptive changes to the labor market than have been seen historically. Further, RAS and AI technologies together can replace both physical and cognitive labor. Some analysts have raised concerns that wide spread adoption of AI and RAS systems might cause shifts in the workforce that outpace changes to labor policies. Are there a sufficient number of AI and RAS experts in the workforce to implement the technologies across the public and private sectors? A number of studies have noted that there is far more demand than supply of such experts. What are the roles and responsibilities of the public and private sectors in meeting the demand? These civilian workforce issues could have implications for military organizations. As RAS and AI have changed the global civilian labor market, some believe they will eventually affect military personnel management models. They contend that new technologies will permit the automation of many tasks currently performed by soldiers. As automation and AI allow civilian business leaders to place humans in different kinds of work, so too will military personnel planners be forced to think anew about the recruiting and employment opportunities of a new global workforce approach. It is likely to drive the creation of new military personnel models and in turn the designing of new ground force structures. This, along with the disruptive technologies of robotics, AI, and human augmentation could enable new operating concepts. Fewer soldiers and Marines could have a direct impact on the size and allocation of the defense budget, not just in military compensation, but also in military logistics, construction, and health care, for example. Overwhelming Data and Required Speed of Action Advances in technology, sensors, computers, and networked communications have served to cut through a large portion of the "fog of war" that military planners and commanders have to contend with by providing a vast array and amount of data, including real-time data. One study observes: The number of images and signal intercepts are well beyond the capacity of the existing analyst community, so there are huge backlogs for translators and image interpreters, and much of the collected data are never reviewed. The dilemma facing human analysts is further characterized: Today's analysts also face a wide variety of data streaming in from different platforms and sensors—data they must integrate (or fuse) to ensure accurate, comprehensive situational awareness. Their workstations comprise multiple screens, each showing different streams of data and each loaded with different suites of tools. In many cases, the applications, databases, and operating systems underlying these tools are produced by different vendors and are not interoperable. Sailors told us they are overwhelmed as they struggle to master the functions provided by each tool in the suite at their workstations. Another challenge is the existence of multiple and often mutually exclusive security domains (different classification levels). Automated systems and AI can be of significant value in assisting military analysts, planners, and commanders in processing and synthesizing large and diverse data sets. The availability of significant quantities and types of data and the required speed of action often required to address time-sensitive military threats presents a challenge for military decisionmakers: Processing speed and communication capabilities also increasingly tilt the equation against human decision makers, both generally and especially in military situations. Humans now process at about one-millionth the speed of machines. Machines are becoming faster. Humans aren't. When instant response is imperative, even our Defense Department's proponents of humans in the loop concede that their desired human control cannot be achieved. It can be anticipated that this exception will allow the rule as the range of tasks that can be accomplished by machines grows, machine speeds increase (both in calculation and in kinetic operations), and autonomous operations proliferate. As two observers conclude, "military superpowers in the next century will have superior autonomous capabilities, or they will not be superpowers." Automated systems and AI can also be of great value in dealing with military situations where a "manual" or human-in-the-loop response is insufficient, such as dealing with "swarms" of unmanned ground or aerial vehicles or an inbound hypersonic weapon. RAS and AI Implications for U.S. Ground Forces33 Although the future is unpredictable, it is a reasonable assumption that selected RAS and AI advances in the private sector such as logistics, data analysis, and education and training will be adopted by militaries to enhance their institutional and operational effectiveness. Some of the potential implications of RAS and AI for U.S. ground forces include the following: Improved Performance/Reduced Risk to Soldiers and Marines RAS and AI have the potential to improve both the individual performance of troops as well as the performance of virtually every type of unit. RAS has applicability in lightening soldiers' and Marines' individual combat loads, improving situational awareness at the squad and platoon levels, and serving as "teammates" rather than simply tools. AI can be employed as a planning and decision support tool and could be a central component in automated weapon systems (AWS), which can provide protection from incoming aircraft, missiles, rockets, artillery and mortar shells, and other threats. Some believe RAS and AI also show great promise in reducing physical risks to soldiers and Marines. RAS and AI can be used in such missions as explosive ordnance disposal (EOD), route clearance, obstacle breaching, and chemical, biological, radiological, and nuclear (CBRN) reconnaissance—all considered extremely high-risk operations—in a manner that significantly limits troop exposure to these hazards. As previously noted, RAS and AI are expected to play a greater role in force protection, particularly from the risk of aircraft, missile, rocket, and artillery and mortar attack. New Force Designs One report suggests that a highly capable and sustainable land combat battlegroup in 2030 may consist of as few as 250–300 human soldiers and several thousand robotic systems of various sizes and functions. By the same token, many functions of artillery and combat engineer units, currently undertaken by humans, might be better done by robots in human-robot teams. This has the potential to reduce the size of these types of units by hundreds of combat arms personnel. This approach could free up personnel for redeployment into areas where the art of war demands leadership and creativity-enabling intelligence functions; training and education; planning; and, most importantly, command and leadership. In some cases, RAS- and AI-inspired force redesigns could not only be revolutionary but controversial as well. The Army, for example, plans to replace the current M-2 Bradley-series infantry fighting vehicle with an Optionally-Manned Fighting Vehicle (OMFV), which can also be operated remotely instead of by a crew. Remotely transporting an infantry unit in an OMFV could give rise to concerns that should the remote control capability fail or be disrupted, the vehicle's occupants would be unduly vulnerable to enemy fire. Better Institutional Support to Combat Forces From an institutional perspective, RAS and AI have a wide range of applicability in training and educating troops and leaders which, in addition to improved efficiency, could result in both cost savings as well freeing up personnel previously dedicated to these tasks for other assignments. From an institutional support perspective, RAS and AI developed for private sector use can most likely be readily adapted for military use. Military warehouse and depot functions are likely prime candidates for RAS and AI applications, potentially increasing efficiency, reducing costs, and freeing up personnel for other endeavors. Efforts are also underway for the partial automation of both ground and air logistics so that unmanned systems can be used to deliver supplies and evacuate casualties. Another potential application being explored by the Army is using AI to predict when vehicle parts might breakdown and prevent equipment failures before they happen. RAS and AI also have potential applications in treatment of wounded soldiers in combat zones and in rear areas as well. Potential New Operational Concepts RAS and AI offer the possibility of new operational concepts for ground forces. One potential concept would be to "saturate an operational area with small autonomous systems that force an adversary to move, be detected, and be targeted by friendly forces." Another possible operational concept to mitigate the effects of enemy anti-access/area denial (A2/AD) capabilities during forced entry operations (such as an airborne assault or amphibious landing) could be to employ autonomous air, ground, and naval systems to attack A2/AD systems prior to the introduction of U.S. ground forces. As a corollary to such potential new RAS/AI-enhanced offensive operational concepts, U.S. policymakers and defense officials may also explore what sort of defensive countermeasures and systems might be required should potential U.S. adversaries employ RAS and AI in a similar manner against U.S. and allied forces. As one study suggests, "some of the major platforms and strategies upon which current military forces rely might be rendered obsolete, or at least highly vulnerable" if RAS and AI are employed in combat. New Models for Recruiting and Retaining Soldiers and Marines? How soldiers and Marines are recruited, trained and educated, and retained is likely to change as RAS and AI become a more prevalent part of the military. One study notes that as robots replace humans in many "dirty, dull, and dangerous" functions, it is possible that many lower ranking soldiers may be displaced. This will necessitate a change to the traditional career pyramids, where the mass of the Army is found in the lowest ranks. Such a fundamentally different force could have profound impacts on the institutional Army and Marine Corps and could put both services in even greater competition with the private sector for highly skilled and educated recruits. It could also result in fewer opportunities in the U.S. military for those with limited education or those lacking technical skills. The Army cautions, however, that the displacement of lower-ranking soldiers is a "hypothesis" and that many of these soldiers would not be replaced but instead fill new positions to support RAS and AI. A Need for Systems and Tactics to Defend Against RAS and AI Use? While it remains to be seen to what extent the Army and Marines adopt RAS and AI for battlefield use, it is reasonable to assume potential adversaries might seek to pursue these capabilities, possibly even to a greater extent than the United States. For example, while the United States may choose not to pursue autonomous weapons based on moral, ethical, and legal considerations, other nations might not feel so obligated and aggressively develop these capabilities for possible use against U.S. forces. In this and other cases, the Army and Marines could be required to develop new systems, tactics, operational concepts, and possibly even units to counter the threat posed by enemy RAS and AI. Selected Non-U.S. Military RAS and AI Efforts Other nations have military RAS and AI aspirations. Recognizing the importance of these technologies, in 2017 the Chinese government reportedly stated its goal of being the world's premier artificial intelligence innovation center by 2030, with Russian President Vladimir Putin stating, "Whoever becomes the leader in this sphere [AI] will become ruler of the world." One analyst notes Armed robots are also proliferating on the ground and at sea. South Korea has deployed a robot sentry gun to its border with North Korea. Israel has sent an armed robotic ground vehicle, the Guardium, on patrol near the Gaza border. Russia is building an array of ground combat robots and has plans for a robot tank. Even the Shiite militias in Iraq have gotten in on the game, fielding an armed ground robot in 2015. These technologies are not the exclusive purview of nations or paramilitary groups. One report notes in 2017 a criminal group used a swarm of small unmanned aerial vehicles against a FBI hostage rescue team's observation post in an attempt to force them from their hidden position. The following sections provide a brief illustrative description of selected non-U.S. RAS and AI efforts. For the selected countries, the efforts discussed are only examples and might not constitute that nation's entire military RAS/AI program. Russia One study notes, "The Russian Military Industrial Committee has approved a plan that would have 30 percent of Russian combat power consist of entirely remotely controlled and autonomous robotic platforms by 2030." At a 2016 military technology forum, Russia reportedly unveiled the Vikhr (Whirlwind) unmanned ground combat vehicle (UCGV) ( Figure 1 ) based on its BMP-3 infantry fighting vehicle (IFV). The Vikhr is reportedly armed with a stabilized 30mm Shipunov 2A72 automatic cannon, a coaxial 7.62mm Kalashnikov PKT/PKTM machine gun, and six ready-to-launch 9M133M Kornet-M (AT-14 Spriggan) anti-tank guided missiles (ATGMs). The Vikhr can be reconfigured to accommodate a variety of weapons. The 2A72 main gun can be replaced by a single or twin-barrel 23mm 2A14 anti-aircraft cannon, 12.7mm NSVT or Kord heavy machine gun, or a 30mm Gsh-6-30K six-barrel naval automatic cannon. The Vikhr can also accommodate surface-to-air missiles of Igla (SA-18 Grouse) or 9K333 Verba man-portable air defense systems, as well as Shmel-M reactive flame throwers. Foreign artillery systems can also be integrated onto the Vikhr. The Vikhr can also be equipped with four mini unmanned aerial vehicles (UAVs) to provide a surveillance capability. The Vikhr is said to be remotely controlled up to a distance of 10 kilometers. Russia has also developed the Uran-9 a smaller robotic tank ( Figure 2 ) with a 30mm Shipunov 2A72 automatic cannon, four ready-to-launch 9M120-1 Ataka (Spiral-2) ATGMs, four Igla-V surface-to-air missiles, and a 7.62mm Kalashnikov PKT/PKTM machine gun. The Uran-9 can also mount a Shmel-M reactive flame thrower. The Uran-9 can be remotely controlled up to a distance of 3 kilometers. Russia reported in 2018 that it had tested the Uran-9 in Syria in "near combat conditions" to conduct mine clearing and force protection operations. Reportedly, the Russian Ministry of Defense is urgently pursuing AI along with the Ministry of Education and Science. While it may not currently possess the relevant high-technology culture and funds, Russia is undertaking efforts to organize its academic, scientific, and commercial communities to develop Russian AI and to compete globally. China One report discusses China's AI aspirations: People's Liberation Army PLA thinkers expect AI to reshape the character of war itself, from today's "informatized" ways of warfare into "intelligentized" warfare, in which AI is critical. According to Lt. Gen. Liu Guozhi, who leads the Central Military Commission's (CMC) Science and Technology Commission, AI could accelerate military transformation, reshaping military units' programming, operational styles, equipment systems, and models of combat power generation, ultimately leading to a profound military revolution. He warns, "facing disruptive technology, [we] must ... seize the opportunity to change paradigms. If you don't disrupt, you'll be disrupted!" So the PLA is pursuing intelligent and autonomous unmanned systems; AI-enabled data fusion, information processing, and intelligence analysis; war-gaming, simulation, and training; defense, offense, and command in information warfare; and intelligent support to command decision-making, among other applications. In particular, the CMC Joint Staff Department has called for the PLA to leverage the "tremendous potential" of AI in planning, decision support, and operational command. Another report suggests China has already developed a range of unmanned aerial, underwater, surface, and ground platforms and is working on cutting-edge unmanned systems, including those with stealth, swarming, and hypersonic capabilities. China believes these modern unmanned systems could be used to introduce a persistent presence in disputed waters or territories. These reports suggest China has wide-ranging military applications for RAS and AI in mind, which could present a multifaceted challenge to the U.S. military. Pentagon officials have reportedly noted that China has made it a national goal to acquire foreign technology—through both licit and illicit means—to advance its military technologies, including AI and unmanned aerial vehicle (UAV) technology. Army officials note this presents a number of challenges and limitations when working with U.S. academic institutions to develop RAS and AI, as many of these institutions have significant numbers of foreign nationals enrolled in science and engineering programs. South Korea The South Koreans have developed the Samsung SGR-A1 robot sentry to defend South Korea against North Korean border intrusion. In 2007, it was revealed the SGR-A1 had a fully autonomous mode, and a number of press sources began referring to it as a fully autonomous weapons system, which resulted in a great deal of negative press, although Samsung and South Korean officials noted that a human was required to engage targets. Reportedly, the SGR-A1s, which cost $200,000 apiece, are remotely operated sentries that mount either a 5.5mm machine gun or a 40mm automatic grenade launcher, which work in conjunction with cameras and radar systems that can detect intruders with heat and motion sensors and can challenge them through audio or video communications. The SGR-A1 is deployed throughout the 160-mile Korean demilitarized zone (DMZ). United Kingdom The Brimstone missile developed for the Royal Air Force is an aircraft-launched, fire-and-forget missile designed to destroy ground vehicles or small boats ( Figure 3 ). Brimstone has two modes of operation, one that involves a human "painting" a target with a laser and the other "fire and forget" mode where the missile's software seeks a predesignated target type within an established kill box. Brimstone has reportedly been used against Islamic State targets in Syria. Saudi Arabia has acquired the Brimstone missile as well. While the United States has a similar system—the Long Range Anti-Ship Missile (LRASM)—Brimstone is an example of an exportable, semi-autonomous weapon system (which could be converted to an autonomous weapon system by adding a loiter capability and switching it to a single fire-and-forget mode) against which U.S. ground forces will likely need to develop countermeasures. Governing Policies and Managing Organizations Army and Marine RAS and AI efforts are governed by various policies and managed by a number of different organizations. The following sections provide an overview of selected authorities and managing organizations. DOD Governing Policies Office of the Secretary of Defense (OSD) Unmanned Systems Integrat ed Roadmap 2017-2042, June 2018 OSD's Unmanned Systems Integrated Roadmap is to provide overarching strategic guidance that will align the Services' unmanned systems goals and efforts with the DOD strategic vision. This strategic guidance will focus on reducing duplicative efforts, enabling collaboration, identifying challenges, and outlining major areas where DOD and industry may collaborate to further expand the potential of unmanned systems. As DOD has embraced the use of unmanned systems across nearly every operating environment, this strategy will allow DOD to capitalize on the technology advancements and paradigm shift that unmanned systems provide. The overarching themes of OSD's Unmanned Systems Integrated Roadmap include interoperability, autonomy, secure network, and human-machine collaboration. In addition to autonomous systems, it also addresses cyber operations, information assurance, the electromagnetic spectrum, and electronic warfare. Joint Concept for Robotic and Autonomous Systems (JCRAS), October 16, 2016 DOD's 2016 JCRAS stipulates that by 2035, the Joint Force will employ integrated human-RAS teams in diverse combinations to expand the Joint Force commander's options. Noting that "war will remain a human endeavor with humans retaining responsibility and accountability for military actions" the JCRAS establishes the following future precepts: employment of human-RAS teams, leveraging autonomy as a key enabler, and integrating RAS capabilities to develop innovative concepts of operations. Department of Defense (DOD) Directive 3000.09, Change 1, May 8, 2017, Autonomy in Weapons Systems establishes DOD policy assigns responsibilities for the development and use of autonomous and semi-autonomous functions in weapon systems, including manned and unmanned platforms and establishes guidelines designed to minimize the probability and consequences of failures in autonomous and semi-autonomous weapon systems that could lead to unintended engagements. The directive also stipulates that "autonomous and semi-autonomous weapon systems shall be designed to allow commanders and operators to exercise appropriate levels of human judgment over the use of force," precluding the development of fully autonomous weapons systems. This reluctance to pursue fully autonomous weapons systems was further emphasized during 2017 testimony to the Senate Armed Services Committee, when then Vice Chairman of the Joint Chiefs of Staff General Paul Selva stated, "I am an advocate for keeping the restriction, because we take our values to war.... I do not think it is reasonable for us to put robots in charge of whether or not we take a human life." In a similar manner, the 2018 Department of Defense Artificial Intelligence Strategy lays out DOD's strategic approach to effectively integrate AI into the Department and maintain military advantage. DOD and Service Managing Organizations Joint Artificial Intelligence Center (JAIC) In June 2018, DOD established the Joint Artificial Intelligence Center (JAIC) to accelerate the delivery of AI-enabled capabilities to the Joint Force and synchronize DOD AI activities. Reportedly, DOD hopes to attract "world-class" AI talent to the new organization. A decision where to locate the JAIC is pending. Army The Army has a variety of organizations involved in its RAS and AI efforts. In managing these efforts, there are three major organizations involved. At the Army level, the Assistant Secretary of the Army for Acquisitions, Logistics, and Technology (ASA [ALT]) Program Director for Robotics is responsible for RAS. In terms of major command-level management, the Training and Doctrine Command (TRADOC) Capability Manager for RAS exercises management of Army ground and air RAS efforts, as well as overall RAS integration. In July 2018, the Army stood up Army Futures Command (AFC), intended to establish unity of command and effort that consolidates the Army's modernization process under one roof. It is not yet established how AFC will manage the Army's RAS and AI efforts, but it is expected that AFC will have a major role in managing these efforts. Army Artificial Intelligence Task Force73 On October 2, 2018, the Army announced the creation of the Army Artificial Intelligence Task Force in Support of the Department of Defense Joint Artificial Intelligence Center (A-AI TF). The Army's intent is to "establish a scalable A-AI TF under U.S. Army Futures Command (AFC) consisting of hand-selected Army personnel with specific skill sets to lead Army AI efforts and support DOD projects, principally based at Carnegie Mellon University." The A-AI TF will work with Carnegie Mellon's National Robotics Engineering Center in Pittsburg, PA, and the Army expects to achieve an initial operating capability at Carnegie Mellon University in early November 2018. Marine Corps75 In a similar manner, a number of organizations are involved in Marine RAS and AI efforts. The Marine Corps Combat Development and Integration Command (CDIC) is responsible for developing RAS and AI concepts of operation and employment. Next, the Marine Corps Warfighting Laboratory is responsible for scientific and technological (S&T) development of RAS and AI. Finally, the Marine Corps Systems Command (MCSC) is responsible for the acquisition of RAS and AI technologies/systems. Army and Marine Corps RAS and AI Strategies The Army's RAS and AI Strategy In March 2017, the Army published its Robotics and Autonomous Systems Strategy. The Army describes its RAS objectives as follows: 1. Increase situational awareness. Complex terrain and enemy countermeasures limit soldiers' abilities to see and fight at the battalion level and below. Advancements in RAS allow for persistent surveillance and reconnaissance over wide areas, often going where manned systems cannot, thereby increasing standoff distances, survivability and reaction time for commanders. 2. Lighten the s oldiers' physical and cognitive workloads. Excessive equipment requirements reduce stamina and endurance. Autonomous systems lighten equipment loads and increase soldier speed, mobility, stamina and effectiveness. Vast amounts of information overload leaders' ability to make decisions. RAS facilitate mission command by collecting, organizing, and prioritizing data to facilitate decision-making as well as improving tactical mobility while reducing cyber, electronic, and physical signatures. 3. Sustain the force with increased distribution, throughput, and efficiency. Logistics distribution is resource intensive. Soldiers and teams become vulnerable at the end of extended supply lines. Air and ground unmanned systems and autonomy-based capabilities enhance logistics at every stage of supply movement to the most forward tactical resupply points. RAS move materiel to the most urgent points of need and provide options for Army logistics distribution to the warfighter. 4. Facilitate movement and maneuver. Joint combined arms maneuver in the 21 st century requires ready ground combat forces capable of outmaneuvering adversaries physically and cognitively in all domains. Through credible forward presence and resilient battle formations, future ground forces integrate and synchronize joint, interorganizational, and multinational capabilities to create temporary windows of superiority across multiple domains; seize, retain, and exploit the initiative; and achieve military objectives. Investments in Anti-Access/Area Denial (A2/AD) capabilities allows future enemies to engage Army forces earlier and at greater distances. In addition, adversaries will look to emplace obstacles to threaten movement and maneuver across extended avenues of advance. As a counter, Army forces employ RAS to extend the depth of the area of operations and to provide responses to enemy action. RAS expand the time and space at which Army forces can operate and improve the ability to overcome obstacles. 5. Protect the force. The congested and contested future operational environment (OE) increases soldiers' exposure to hazardous situations. RAS technologies will enhance soldiers' survivability by providing greater standoff distance from enemy formations, rockets, artillery, and mortars as well as placing less soldiers at risk during convoy operations. While the Army does not have specific strategic objectives for AI like it does RAS, the Army's RAS Strategy does suggest a future role for AI: Artificial intelligence (AI) is the capability of computer systems to perform tasks that normally require human intelligence such as perception, conversation, and decision-making. Advances in AI are making it possible to cede to machines many tasks long regarded as impossible for machines to perform. AI will play a key role in RAS development as reasoning and learning in computers evolves. AI will improve the ability for RAS to operate independently in tasks such as off-road driving and analyzing and managing mass amounts of data for simplified human decision-making. Increasingly, AI will account for operational factors such as mission parameters, rules of engagement, and detailed terrain analysis. As human-machine collaboration matures, AI will contribute to faster and improved decision-making in five areas: identifying strategic indications and warnings; advancing narratives and countering adversarial propaganda; supporting operational/campaign-level decision-making; enabling leaders to employ "mixed" manned/unmanned formations; and enhancing the conduct of specific defensive missions in which functions of speed, amount of information, and synchronization might overwhelm human decision making. The Army's RAS Priorities Within the context of the Army's RAS Strategy, Army leadership has established near-, mid-, and far-term RAS priorities. Near-Term RAS Priorities (2017-2020) Near-term priorities are partially funded in current budgets and consist of the following: increase situational awareness for dismounted forces at lower echelons; lighten the physical load for dismounted forces; improve sustainment with automated ground resupply; facilitate movement with improved route clearance; and protect the force with Explosive Ordnance Disposal (EOD) RAS platform and payload improvements. Mid-Term RAS Priorities (2021-2030) Mid-term priorities have research and procurement funding lines submitted for the budget under consideration and consist of the following: increase situational awareness with advanced, smaller RAS and swarming; lighten the load with exoskeleton capabilities; improve sustainment with fully automated convoy operations; and improve maneuver with unmanned combat vehicles and advanced payloads. Far-Term Priorities (2031-2040) Far-term priorities have limited research and development funding programmed in the budget and consist of the following: increase situational awareness with persistent reconnaissance from swarming systems; improve sustainment with autonomous aerial cargo delivery; and facilitate maneuver with advancements to unmanned combat vehicles. The Marines' RAS and AI Strategy The Marines' RAS and AI Strategy is articulated in the Marine Corps Robotic and Autonomy Strategy (MCRAS). The MCRAS's stated objectives are to increase situational awareness; lighten the Marines' cognitive and physical burden; improve sustainment; facilitate movement and maneuver; and protect the force. As part of the Marines' AI strategy, they hope to speed up and improve decisionmaking in the following areas: identifying strategic indications and warnings; advancing narratives and countering adversarial propaganda; supporting operational/campaign-level decisionmaking; enabling leaders to employ manned-unmanned formations; and enhancing mission execution through big data analysis. The Marines' Robotic and Autonomy Priorities In a manner similar to the Army's, the Marines have established near-, mid-, and far-term priorities. Near-Term Robotics and Autonomy Priorities (2018-2022) Increase situational awareness. Lighten the Marine burden. Improve sustainment. Facilitate movement. Protect the force. Mid-Term Robotics and Autonomy Priorities (2023-2027) Increase situational awareness with advanced, smaller and swarming RAS. Lighten the load with exoskeleton capabilities. Improve sustainment with fully automated convoy operations. Improve maneuver with unmanned combat vehicles and advanced payloads. Far-Term Robotics and Autonomy Priorities (2028-2032) Enable manned and unmanned teaming (MUM-T). Scalable sensors, scalable teaming to support MUM-T. Advancements in machine learning. Selected Army and Marine Corps RAS and AI Efforts The Challenge of Autonomous Ground Navigation Developing autonomous robotic ground systems that can successfully navigate tactically cross-country is a significant challenge that will need to be overcome before these systems can be employed effectively on the battlefield. One researcher describes the challenge of autonomous ground navigation as well as a brief history of driverless car development as follows: Autonomous unmanned aerial vehicle (UAV) navigation, for example, is relatively straightforward, since the world model according to which it operates consists simply of maps that indicate preferred routes, height obstacles and no-fly zones. Radars augment this model in real time by indicating which altitudes are clear of obstacles. Global Positioning System (GPS) coordinates convey to the UAV where it needs to go, with the overarching goal of the GPS coordinate plan being not to take the aircraft into a no-fly zone or cause it to collide with an obstacle. In comparison, navigation for driverless cars is much more difficult. Cars not only need similar mapping abilities, but they must also understand where all nearby vehicles, pedestrians and cyclists are, and where all these are going in the next few seconds. Driverless cars (and some drones) do this through a combination of sensors like LIDAR (Light Detection and Ranging), traditional radars, and stereoscopic computer vision. Thus the world model of a driverless car is much more advanced than that of a typical UAV, reflecting the complexity of the operating environment. A driverless car computer is required to track all the dynamics of all nearby vehicles and obstacles, constantly compute all possible points of intersection, and then estimate how it thinks traffic is going to behave in order to make a decision to act. Driverless car development originated with a Defense Advanced Research Projects Agency (DARPA) program in 2004. When the program ended in 2007, driverless cars could move only slowly through closed courses, and not without accidents. A decade later, industry is on the verge of commercializing driverless cars around the world. This rapid progress is a result of the significant industry-sponsored Research and Development (R&D) investment, as well as competition for the multi-billion-dollar automotive consumer market. Meanwhile—and paradoxically, given the origins of the technology—there has been very little progress in military autonomous vehicle development. Overcoming the challenges of tactical cross-country autonomous navigation (e.g., avoiding obstacles such as barbed wire, minefields, and antitank ditches) and using terrain to shield military vehicles from detection and engagement by direct-fire weapons remains, for the foreseeable future, a crucial developmental challenge for both U.S. and foreign ground forces. The following sections provide a brief description of selected unclassified Army and Marine Corps RAS and AI efforts. Squad Multi-Purpose Equipment Transport (SMET) The SMET is an unmanned robotic vehicle intended to provide logistical support to squads in Army Infantry Brigade Combat Teams (IBCTs) and Marine Infantry Battalions. The SMET will be designed to operate in unmanned and optionally manned modes and will be required to carry up to 1,000 lb., operate over 60 miles in 72 hours, and generate 3 kW stationary and 1 kW moving to enable equipment and charge batteries. The target cost for the SMET is no more than $100,000 per system. The SMET is largely a commercial off-the-shelf effort, as a number of vendors had previously developed prototypes for past Army robotic initiatives. Conceptually, the SMET is intended to carry troops, food and water, ammunition, supplies, and other weapons such as mortars and anti-armor weapons. The SMET is also to be expandable and could conduct route clearance and breaching operations by the addition of special mission modules. Theoretically, the SMET could also be configured to conduct reconnaissance and serve as a semi- or fully autonomous weapon system when armed. In December 2017, the Army selected four vendors—Team Polaris (Applied Research Associates, Polaris Defense, and Neya Systems), General Dynamics Land Systems, HDT Global, and Howe and Howe Technologies—to conduct a six-month operational technology demonstration in FY2019. Sixty-four SMETs (16 from each vendor) are to be made available to the 1 st Brigade Combat Team (BCT), 10 th Mountain Division, Ft. Drum, NY, and the 2 nd BCT, 101 st Airborne Division, Ft. Campbell, KY, for evaluation in November 2018. Army plans call for SMET to transition to a Program of Record by first quarter FY2020, after which the Army would transition into Low Rate Initial Production (LRIP) of the SMET. By the second or third quarter of FY2021, the first Army units will begin to receive the SMETs. Depending on budgets, the Army could eventually procure as many as 5,723 SMETs. Leader-Follower Technology for Tactical Wheeled Vehicles (TWVs) The Army's Leader-Follower Technology for Tactical Wheeled Vehicles (TWVs) effort revolves around a suite of sensors and vehicle upgrades intended to provide TWVs the capability of linking three unmanned vehicles to a single manned vehicle during the conduct of logistics road convoy operations. This effort is intended to reduce the number of soldiers required to operate a convoy, thereby reducing the number of exposed soldiers to risk of injury from attack. The Army's Tank Automotive Research, Development and Engineering Center (TARDEC) of Warren, MI, is reportedly working with several industry partners on the effort. Robotic Research LLC, of Gaithersburg, MD, is providing the autonomy kit for the vehicles, and Oshkosh Defense of Oshkosh, WI, is building the kits that allow the trucks to be remotely operated. Lockheed Martin of Bethesda, MD, is the integrated systems developer, and DCS Corporation of Alexandria, VA, is creating the graphic user interface allowing the soldier in the lead vehicle to control the follower trucks. Plans call for a year-long operational technical demonstration in late FY2019 involving deploying 60 systems to two Palletized Load System (PLS) Truck Companies. If successful, the Army plans to enter Low-Rate Initial Production in FY2021 and Full-Rate Production in FY2023, with production completed by FY2027. Army's Next Generation Combat Vehicle (NGCV) and Robotic Combat Vehicle (RCV) The Next Generation Combat Vehicle (NGCV) is intended to replace the M-2 Bradley Infantry Fighting Vehicle, which has been in service since 1981. As part of this effort, the Army plans for the NGCV to have the capability to be "optionally manned"—meaning that soldiers will be onboard the NGCV most of the time, but the vehicle will have the ability to conduct limited operations without them. As part of this effort, the Army also plans to develop Robotic Combat Vehicles to serve as "wingmen" for the NGCV. The Army's long-term vision is for RCVs to act as "scouts and escorts" for manned NGCVs, with soldiers controlling the RCVs from stations in the NGCV. At present, it takes one soldier to direct a single ground robotic vehicle by remotely controlling every movement and action. The Army hopes to improve AI to the extent that a single soldier can control "a squadron of robots." The Army plans to develop an initial set of six experimental NGCV prototypes—two manned NGCVs and four RCVs—for delivery by the end of FY2019. In FY2020, the Army plans for hands-on soldier testing with the final effort—testing a company-sized element (14 RCVs)—from FY2023 to FY2024. M-2 Bradley Infantry Fighting Vehicle and Predictive AI In June 2018, the Army reportedly awarded a $1 million yearlong contract to Uptake Technologies, an industrial AI company based in Chicago, IL, to build AI software for the M-2 Bradley intended to "predict component failures, decrease the frequency of unscheduled maintenance, and improve the productivity of repair operations." The basic concept is to install sensors inside the Bradley's engine and other components to record information such as temperature and revolutions per minute (RPM) and transmit it to the Uptake software, where machine learning would look for patterns in data that match known engine failures in similar vehicles. Reportedly, Uptake will install its software on 32 M-2 Bradleys at Ft. Hood, TX, not only to predict when future repairs might be needed but also to optimize the timing of general maintenance. In addition, if the software performs as envisioned, it could also "prevent the Army from doing unnecessary preventative maintenance work, saving time and money." If successful, Army officials reportedly could expand this effort to the entire Bradley fleet as well as other combat vehicle fleets. Officials are cautious, noting that these industrial machine-learning technologies have not yet been fully tested on military vehicles. Marine Corps Robotic Vehicle (Modular) (RV (M))103 The Marine RV (M) is a custom-built, multimission-tracked platform that incorporates AI but also fulfils the need for man-in-the-loop capabilities. It is intended to accommodate a wide variety of mission modules, ranging from route clearance and breaching; logistics; reconnaissance, surveillance, and target acquisition (RSTA); casualty evacuation; and direct- and indirect-fire weapons. Marine Corps Fully Autonomous First Wave Concept As part of efforts to develop innovative concepts of operation, the Marines are exploring a Fully Autonomous First Wave Concept whereby robotic and autonomous aerial, amphibious, and ground platforms would be employed as the first wave of an amphibious assault to address enemy anti-access/area denial (A2/AD) capabilities. As part of the Marines' Expeditionary Advance Base Operations (EABO), implementation of Fully Autonomous First Wave could result in the need for fewer Marines to participate in high-risk amphibious assault operations, as well as a reduction in the logistical footprint needed to support Marine amphibious operations. RAS and AI in Military Units: Personnel Considerations A fully manned, capable and well-trained workforce is a key component of military readiness. The integration of RAS and AI into military units raises a number of personnel-related issues that may be of interest to Congress. Unit Manning Changes The introduction of RAS and AI will almost certainly lead to significant changes in how units are organized, equipped, and manned. Sometimes this is conceptualized as a need for reduced manpower, as RAS and AI are used to replace personnel and reduce unit manning. For example, the use of leader-follower technology could lead to the ability to provide logistical support to the deployed units with fewer truck drivers. However, from another perspective, manpower savings in one area may be offset by manpower increases in another. Some observers note that the increased use of unmanned aircraft have increased manning requirements rather than reducing them: Yet the military's growing body of experience shows that autonomous systems don't actually solve any given problem, but merely change its nature. It's called the autonomy paradox: The very systems designed to reduce the need for human operators require more manpower to support them. Consider unmanned aircraft—which carry cameras aloft without a crew, yet require multiple shifts of operators, maintainers and intelligence analysts on the ground to extract useful data—and it becomes clear that many researchers and policymakers have been asking the wrong question. It is not "what can robots do without us?" but "what can robots do with us?" Another consideration revolves around assessments of risks associated with potential failure of RAS and AI systems. National security leaders may want to retain manpower to provide certain capabilities in the event RAS and AI systems are degraded or inadequate for a given mission or requirement. Recruiting and Retention of Those with Advanced Technical Skills The introduction of RAS and AI brings with it a greater need for military personnel with advanced technical knowledge. The military has extensive experience bringing new members into the armed forces (recruiting) and convincing those members to stay in the armed forces after their initial term of service has ended (retention). However, for the great majority of individuals currently brought into the armed forces, the highest degree they have is a high school diploma, in the case of enlisted personnel, or a bachelor's degree, in the case of officers. As the military integrates RAS and AI into its formations, the need to recruit and retain those with advanced technical training will increase. At least some military personnel will need to have a sophisticated understanding of RAS and AI to assist with the design, acquisition, programming, testing, and quality control of such systems. A more sizable population will need to have fairly extensive knowledge of particular systems to effectively use and maintain them. Recruiting and retaining the types of individuals needed to perform these roles may be challenging. They will likely need to have high cognitive ability and years of advanced technical training, in addition to meeting the physical and behavioral standards for joining the armed forces. In addition, the military will likely face intense competition from the private sector for the individuals who do meet all of these requirements. Training As RAS and AI become integrated into military formations, the need to train servicemembers on how to use and maintain such systems will increase. While the scope of training required will vary depending on the types of systems introduced and the work roles of individuals, the time and expenses required to develop appropriate training curricula and to train individuals will likely be significant. Such training will not be a one-time event, but will need to be ongoing to accommodate the fielding of new systems and upgrades to older systems. At present, the armed forces provide most military skill training through an extensive network of military schools and training sites. However, this might not be the optimal way to develop and maintain proficiency in RAS and AI systems, particularly for those whose work roles require current, high-level knowledge. Career Paths Most individuals who join the armed forces come in at the lowest enlisted or officer grade (rank) and are gradually promoted to higher grades over the course of their military career. These career paths are well defined, and a close connection is typically maintained between one's grade and technical skill, professional military knowledge, leadership experience, authority, status, and compensation. For most military personnel, the career path takes an individual from a focused specialist in a given skill set to a leader of increasingly larger organizations, which themselves are increasingly complex in terms of personnel, systems, and capabilities. Various levels of professional military education, as well as broadening assignments, are designed to facilitate this development. However, maintaining the desired supply of individuals with expertise in RAS and AI may require a different career path model—for example, higher entry level grades or a technical career track that requires fewer assignments to leadership positions. In addition, in light of rapid technological change, maintaining expertise in RAS and AI might be enhanced by periodic assignments outside of the military—for example, in the private sector or academia. One career path model that has been cited as potentially applicable to those with advanced technical training is the one which exists in the military medical community. In this model, officers are routinely brought in at a higher grade based primarily on their medical skills, with less emphasis placed on developing professional military skills and large scale organizational leadership. However, it is not yet clear that this model would be ideal for RAS and AI experts. Legal and Ethical Considerations of RAS and AI The legal and ethical debate over the development and deployment of autonomous weapons systems largely concerns technology that does not currently exist—mobile robotic weapons systems capable of selecting and attacking targets without human intervention. While some argue that such weapons can and should be developed and fielded if they meet the requirements of the international law of armed conflict (LOAC, also known as international humanitarian law, or IHL) for lawful weapons —described more fully below—others view the lack of human participation in the decision to take a human life to make such systems inherently unlawful or unethical. Opponents of fully autonomous weapons systems urge the adoption of an international treaty banning such weapons or at least providing a legal framework to ensure that such weapons are subject to meaningful human control. Others advocate a moratorium on developing such weapons until advances in technology enable the weapons to comply with LOAC. Proponents of autonomous weapons systems argue that the possibility that such systems may enhance compliance with LOAC could make their use more ethical than fighting wars without them. They recommend rigorous testing and review of proposed weapons under the existing Article 36 legal review process. "Article 36 Review" refers to the obligation of states to evaluate new or modified weapons to ensure they do not violate LOAC. The obligation stems from Article 36 of Additional Protocol I (API). The Law of Armed Conflict Two well-established general principles governing armed attacks during armed conflict are distinction and proportionality. Distinction refers to distinguishing between combatants and military targets on the one hand, and civilians and civilian objects on the other. Proportionality refers to the balance between the military advantages expected to be gained from an attack versus the probable extent of collateral civilian harm. Some observers note the difficulty posed by reducing these principles to a digital format such that autonomous weapons systems will be capable of obeying them. A corollary to these basic principles is individual and group accountability for failure to adhere to them. Some commentators have raised the concern that robots are not amenable to deterrence or punishment, and wonder who will be held responsible for any noncompliant behavior. Distinction As far as objects are concerned, lawful targeting requires the ability to distinguish between military objectives and civilian objects. The API defines military objectives as objects that by "nature, location, purpose, or use make an effective contribution to military action and whose total or partial destruction, capture, or neutralization, in the circumstances ruling at the time, offers a definite military advantage." Objects not meeting those criteria are civilian objects. The nature of an object may change, making constant reassessment necessary. An object ordinarily used for civilian purposes may not be targeted unless the adversary is using it for military purposes such that it meets the criteria above, with any doubt to be resolved in favor of its treatment as a civilian object. Moreover, the API prohibits targeting facilities or other objects that are necessary for the survival of the civilian population or that would be likely to cause environmental harm if subjected to an armed attack. There are also rules applicable to targeting individuals. Under the API and customary international law, only combatants are lawful targets, and even they are protected if they become wounded or surrender. The API bars targeting civilians unless, and for so long as, they participate directly in hostilities. The API also protects certain military personnel, such as medics and clergy. Proportionality Like the principle of distinction, the principle of proportionality has as its central aim the protection of civilians during armed conflict. It requires balancing the expected military advantage that an armed attack may obtain against the potential harm to civilians and civilian objects. Whether a given attack is proportionate is a judgment made at the initiation of the attack, which is subject to fluid conditions on the battlefield. There is disagreement among practitioners and academics as to how these dissimilar components—concrete military advantage versus incidental deaths of civilians and damage to property—might effectively be evaluated to determine what civilian harm is excessive. No clear formula exists. Some doubt that it will ever be possible to create an algorithm capable of making an adequate proportionality assessment. Permissible Weapons A central premise of the law of armed conflict is that the permissible means and methods of warfare are "not unlimited." Specifically, the API prohibits employing weapons and methods of warfare that are of a nature to cause superfluous injury or unnecessary suffering, or that are intended or may be expected to cause widespread long-term and severe damage to the environment. Specific types of weapons that these treaties ban include chemical and biological weapons. These treaties also forbid weapons that are indiscriminate in their effect, that is, those that are not able to be used in accordance with the principle of distinction. Consequently, API Article 36 requires that parties test new weapons to ensure compliance with the law of war: In the study, development, acquisition or adoption of a new weapon, means or method of warfare, a High Contracting Party is under an obligation to determine whether its employment would, in some or all circumstances, be prohibited by this Protocol or by any other rule of international law applicable to the High Contracting Party. The proper test, then, is whether, in some or all circumstances, an autonomous weapons system is indiscriminate by nature or is of such a nature as to cause superfluous injury or unnecessary suffering, or is likely to cause widespread long-term and severe damage to the environment. In other words, an autonomous weapons system, like all other weapon systems, must be able to distinguish targets appropriately and to ensure that the attack is proportionate to the expected military advantage. Some argue that the fact that the weapon system operates autonomously does not per se govern whether it can meet these criteria. As the argument goes, as long as the autonomous system can be programmed with sufficiently reliable targeting information to ensure that it can be fired at a lawful target, the autonomous weapon system can survive an Article 36 review. On the other hand, some scientists have warned that robotic systems capable of distinguishing between civilians and combatants or making proportionality judgments are not likely in the short term. The ban on weapons that cause superfluous or unnecessary damage or suffering likewise arguably can be met by, among other things, ensuring the payload is not a prohibited type, such as biological or chemical in nature. As mentioned above, the Department of Defense has a directive on the development of autonomous weapons systems. It states that "[a]utonomous and semi-autonomous weapons systems shall be designed to allow commanders and operators to exercise appropriate levels of human judgment over the use of force." The directive requires the evaluation and testing process to ensure that autonomous weapons systems (a) Function as anticipated in realistic operational environments against adaptive adversaries. (b) Complete engagements in a timeframe consistent with commander and operator intentions and, if unable to do so, terminate engagements or seek additional human operator input before continuing the engagement. (c) Are sufficiently robust to minimize failures that could lead to unintended engagements or to loss of control of the system to unauthorized parties. The directive emphasizes the need for an effective human-machine interface, requiring that autonomous weapons systems (a) Be readily understandable to trained operators. (b) Provide traceable feedback on system status. (c) Provide clear procedures for trained operators to activate and deactivate system functions. Whether these efforts will assuage critics may turn on the "appropriate levels of human judgment over the use of force" that the Department of Defense adopts. Ethical Arguments Some opponents of developing fully autonomous weapons systems have raised a variety of concerns that do not necessarily implicate humanitarian law, but rather, concern whether the availability of such systems could make armed conflict more prevalent. According to this view, national leaders may be more likely to involve their nations in hostilities when the risk to human soldiers is minimized. A counter argument is that most new weapons are developed in order, at least in part, to minimize risk to troops and have been subject to the same criticism. Another argument for such systems is that robots are unlikely to replace soldiers on the battlefield entirely, although they may reduce the numbers of soldiers some envision that robotic systems are likely to enhance the capabilities of soldiers as a force multiplier. Opponents also argue that human compassion and other emotions are necessary to ethical war-fighting. Human empathy, some argue, helps soldiers to evaluate the intent of potential human targets to determine whether they actually pose a threat; machines, they argue, may possibly never be programmable to emulate compassion or empathy effectively. On the other side, proponents of such systems argue that human emotions—fear, anger, and the instinct for self-preservation—may lead to adverse consequences on the battlefield. Robots, they posit, may not be subject to human errors or unlawful behavior induced by human emotions. One other argument skeptics of automated weapon systems make is that the phenomenon of "automation bias," in which humans trust computer interpretations rather than their own senses and instincts regarding their environment, may nullify meaningful human control over such systems. A variation of this concern is that relying on robots will make killing too remote for soldiers, dehumanizing the endeavor by making it seem more like participating in a video game. Organized Groups Concerned with Lethal Autonomous Weapon Systems (LAWS) Notable futurists, such as Elon Musk and the late Steven Hawking, have warned that AI has the potential to be far more dangerous than nuclear weapons and could be "the worst event in the history of our civilization." While of note perhaps more important is a growing level of organized groups concerned with LAWS. The following are examples of organized groups concerned with lethal autonomous weapon systems (LAWS). Google Employee Opposition to DOD's Project Maven160 In April 2017, DOD established the Algorithmic Warfare Cross-Functional Team to oversee Project Maven, a project to use AI to autonomously extract objects of interest from moving or still UAV imagery. Project Maven would develop computer vision algorithms, trained using AI techniques such as machine learning, to better identify targets. Tools built through Project Maven would be used to complement the labor-intensive process of humans analyzing drone video, a practice that delays providing results to warfighters for targeting purposes. It was suggested that such AI-enhanced tools could allow human analysts to process up to two to three times as much data within the same time period, providing more time-sensitive targeting data and, according to DOD, a reduction of collateral damage and civilian casualties. Google is one of a number of companies involved in Project Maven. In March 2018, Google's role in Project Maven came to light and a number of Google employees reportedly expressed concern "that the company would offer resources to the military for surveillance technology involved in drone operations" while "others argued that the project raised important ethical questions about the development and use of machine learning." Reportedly about a dozen Google employees resigned in protest and about 4,000 employees signed a petition demanding "a clear policy stating that neither Google nor its contractors will ever build warfare technology." Reportedly Google will not renew its contract with DOD for Project Maven when the current contract expires in 2019. Campaign to Stop Killer Robots The Campaign to Stop Killer Robots is a nonprofit umbrella organization that advocates for a ban on LAWS. Their belief is autonomous weapon systems are immoral and lack the decisionmaking capability of humans and, therefore, should be banned. They advocate for the preemptive ban on LAWS, arguing that "the introduction of such weapons would violate international humanitarian law and risk devastating consequences to civilian populations." The campaign to Stop Killer Robots is said to be emulating the past success of a nongovernment organization (NGO) movement in the late 1990s—the International Campaign to Ban Landmine (ICBL). The ICBL successfully lobbied for the negotiation of an international ban on landmines—the Ottawa Convention—and won the Nobel Peace Prize in 1997. Some note the similarities between autonomous weapon systems, landmines, and cluster munitions movements and suggest the Campaign to Stop Killer Robots and its proven NGO strategy raises some interesting possibilities. The United Nations (U.N.) The parties to the United Nation's Convention on Conventional Weapons (CCW) has met on a variety of occasions—most recently from August 27 to August 31, 2018—to discuss lethal autonomous weapons. In November 2017 in Geneva, Switzerland, the U.N. Group of CCW Government Experts (GCE) reportedly affirmed that "international humanitarian law continues to apply fully to all weapon systems, including the potential development and use of lethal autonomous weapon systems." More happened at the GCE meeting, however. Their goal was to set the stage for negotiating an annex to the CCW, but they were not successful. The Russians, for example, strongly opposed any restrictions. There was, however, general agreement that meaningful human control over autonomous weapons systems is required. Accordingly, meaningful human control over LAWS can be exercised in five instances: humans defining LAWS targets; humans not activating LAWS until it is clearly understood what the weapon will target; humans confirming targets selected by LAWS; humans confirming LAWS decision to engage targets—effectively "pulling the trigger"; and humans deactivating a LAWS that is malfunctioning. European Parliament (EP)170 On September 12, 2018, Members of the European Parliament overwhelming passed a nonbinding resolution urging Member States and the European Council to work toward an international ban on weapon systems that lack meaningful human control over the critical function of selecting and engaging targets. It was also noted that France and Germany are not working toward and do not support the strict and total prohibition of autonomous weapons. DOD's View of Opposition to LAWS Regarding opposition to LAWS, DOD notes the current challenge: A lack of trust by the Warfighters, and the wider public, is a major roadblock in DOD's continued development and use of autonomous unmanned systems. This lack of trust is highlighted by international efforts at the United Nations (U.N.) to consider policies that would prohibit the deployment of autonomous systems with lethal capabilities. Additionally, there are technological shortcomings in the current abilities of AI regarding ethical thinking that may limit the public's trust of autonomous unmanned systems developed for military capabilities. Situational ethical reasoning is currently not coherently implementable by AI in the range of scenarios that military forces may encounter. Given this limitation, it is paramount to ensure that human authority, accountability, and the ability to maintain command and control (C2) are preserved as increasing numbers of unmanned systems become more widely deployed. DOD and LAWS Policy and Challenges As part of the discussion of the ethics and legality of LAWS that will have a direct impact on whether or not the Army and Marines develop LAWS for battlefield use, DOD notes In considering the specific use of weaponized systems, Department of Defense Directive (DoDD) 3000.09, Autonomy in Weapon Systems, signed in November 2012, established policies and assigned responsibilities to shape the development and use of autonomous functions in weapon systems, including manned and unmanned platforms. It mandates that autonomous and semi-autonomous weapon systems be designed to allow commanders and operators to exercise appropriate levels of human judgment over the use of force. DoDD 3000.09 also requires that persons who authorize the use of, direct the use of, or operate autonomous and semi-autonomous weapon systems must do so with appropriate care and in accordance with the law of war, applicable treaties, weapon system safety rules, and applicable ROE. DoDD 3000.09 underwent a mandatory periodical update with administrative changes (Change 1, May 8, 2017), but a more substantive update was expected to be completed in late 2017. That substantive update, when released, is expected to involve clarifications of definitions and processes rather than a shift in the overall thrust of the policy. DOD does not currently have an autonomous weapon system that can search for, identify, track, select, and engage targets independent of a human operator's input. These tasks currently rely heavily on a human operator using remote operation, also referred to as "tele-operation." In the future, weaponization will be a crucial capability in mission sets where the unmanned system is directly supporting forces engaging in hazardous tasks. In the realms of public and international diplomacy, concerned states, non-governmental organizations (NGOs), and experts in AI have urged an immediate and intensive effort to formulate and secure an international treaty restricting the development, deployment, and use of weapon systems that can autonomously locate, select, and attack human targets. In response to similar expressions of concern from some High Contracting Parties to the Geneva Conventions on Certain Conventional Weapons (CCW), the UN Office in Geneva hosted informal experts' meetings on lethal autonomous weapon systems (LAWS) in 2014, 2015, and 2016. The CCW established a Group of Governmental Experts (GGE) which met to discuss LAWS in a more formalized setting in 2017. A second meeting is foreseen for 27 to 31 August 2018. If such restrictions on autonomous weapon systems were to come into existence, and if the U.S. were to follow it, the ban would severely limit the ability to develop and use lethal autonomous weapon systems. In view of this policy position and, in consideration to the challenges posed by a possible treaty regulating AI, this suggests future DOD development of LAWS is possible, given favorable advances in AI technology and an absence of international restrictions. Even under the current DOD directive to have humans in the loop for LAWS, some analysts have called for caution, as people might give too much deference to technology. For example, one analyst points to the 1988 case of the USS Vincennes guided missile cruiser mistakenly shooting down an Iranian passenger jet. The analyst notes that while there were indicators that it was a civilian aircraft, and final authorization for firing lay with the crew, no one was willing to challenge the computer. Potential Considerations for Congress Congress has an active and ongoing interest in RAS and AI. In its September 2018 report titled "Rise of the Machines: Artificial Intelligence and its Growing Impact on U.S. Policy," the House Subcommittee on Information Technology notes The loss of American leadership in AI could also pose a risk to ensuring any potential use of AI in weapons systems by nation-states comports with international humanitarian laws. In general, authoritarian regimes like Russia and China have not been focused on the ethical implications of AI in warfare, and will likely not have guidelines against more bellicose uses of AI, such as in autonomous weapons systems. As Congress continues policy debates on RAS and AI, potential considerations could include, but are not limited to, the following: Assessment of Foreign Military RAS and AI Efforts and Potential Impact on U.S. Ground Forces As the United States pursues military RAS and AI applications and systems, an examination of foreign military RAS and AI efforts and their potential impact on U.S. ground forces could be of benefit to policymakers. One report notes The emphasis on armed robots underscores the difference between U.S. concepts of operations, in which unmanned ground systems largely support intelligence, surveillance, and reconnaissance (ISR) and augment warfighters' capabilities, while the Russian military contemplates small to large unmanned ground vehicles (UGVs) doing the actual fighting in the near future alongside or ahead of the human fighting force. It has been suggested that military RAS and AI have the potential to change the very nature of war. At the strategic level, this could affect how the U.S. organizes ground forces, how it fights, and what types of major weapon systems it will need. At the operational and tactical levels, enemy RAS and AI capabilities could dictate specific weapon systems design, the development of new types of units to address enemy RAS and AI, and how brigade to squad level units conduct tactical operations. While the DOD and the Services emphasizes the development of RAS and AI for the U.S. military, it might be considered prudent to have a full understanding of foreign military RAS and AI efforts to help guide U.S. efforts and possibly preclude strategic or tactical RAS and AI "surprises" posed by foreign militaries or nonstate groups. Should the United States Develop Fully Autonomous Weapon Systems for Ground Forces? Regarding fully autonomous weapon systems, one report notes Some of the most prominent leaders in these fields are publicly warning about the dangers in an unconstrained environment. Military operations enabled by these technologies, and especially by artificial intelligence, may unfold so quickly that effective responses require taking humans out of the decision cycle. Letting intelligent machines make traditionally human decisions about killing other humans is fraught with moral peril, but may become necessary to survive on the future battlefield, let alone to win. Adversaries will race to employ these capabilities and the powerful operational advantages they may confer. While DOD continues to eschew fully automated ground combat systems, there is a possibility that other nations could aggressively pursue fully autonomous weapons systems to achieve a battlefield advantage. This raises a question: are other nation's efforts to develop LAWS sufficient justification for the United States to do the same? The evolution of other weapons, such as hypersonic weapons, could also result in U.S. development of fully autonomous weapon systems from a purely defensive perspective. Despite DOD's insistence that a "man in the loop" capability will always be part of RAS systems, it is possible if not likely, that the U.S. military could feel compelled to develop ground fully autonomous weapon systems in response to comparable enemy ground systems or other advanced threat systems that make any sort of "man in the loop" role impractical. How Will U.S. Ground Forces Counter Foreign RAS and AI Capabilities? While U.S. development of RAS and AI for use by ground forces is articulated in a variety of strategies and directives, it can be argued that equally and, possibly, more important is the development of technologies, systems, formations, and tactics, techniques, and procedures designed to counter foreign use of RAS and AI against U.S. ground forces. Such a "defensive" approach to RAS and AI could prove to be particularly prudent, as it is possible other nations may introduce RAS and AI systems into ground combat before the United States, thereby necessitating an effective means of countering their use. Furthermore, foreign RAS and AI advances not directly related to weapons such as AI-enhanced military decisionmaking and intelligence or RAS-enabled logistics could have an indirect impact on U.S. ground forces and may be taken into consideration when developing U.S. counter RAS and AI capabilities. How Should DOD and the Services Engage with the Private Sector? Many cutting-edge innovations in AI and RAS are occurring in the private sector, and these innovations could be adapted for use by U.S. ground forces. However, engaging with the private sector raises policy considerations for the Army and Marine Corps, as well as DOD more broadly. For example, if policymakers seek to assist the military in making use of emerging technologies such as AI and RAS, they might consider expanding support for entities such as the Defense Innovative Unit. If the Administration or Congress seeks to have more in-house expertise in AI and RAS, they might also consider supporting the development of service incentives or recruitment models to attract additional experts, either on a permanent or temporary basis. There are other potential considerations which might merit further examination. As previously noted, there are a number of security challenges associated with DOD and the Services engaging with academic institutions and the private sector in regards to foreign national students and employees who might pose a security risk. Another consideration is how academia and private industry view the morality of military RAS and AI use. As technologies in these areas advance, some academic and private sector institutions might choose to "opt out" of working with DOD on technologies which they might view as counter to their values—much as Google reportedly is doing with DOD's Project Maven. If this becomes a pervasive practice, DOD efforts to develop RAS and AI technologies could be significantly hindered. Some experts have argued that a productive relationship could be encouraged by DOD approaching AI development and use with a focus on ethics and safety. The memorandum establishing the JAIC includes these principles, which must be considered within the Center's overarching goal of accelerating the delivery of AI-enabled capabilities. What Are Potential Personnel-Related Concerns Associated with RAS and AI? Aside from equipping the Services, personnel-related issues may be a major congressional concern as the Services incorporate various levels of RAS and AI into the force both in the near and far term. As such, Congress might choose to examine a number of topics in the following areas: Unit Manning Changes Questions Congress may consider include the following: Where will RAS and AI be integrated into the military most rapidly? Which occupational specialties will be less needed due to replacement by RAS and AI? Which occupational specialties will be in greater demand as RAS and AI are integrated into the force? What degree of "human backup" is desired in the event RAS and AI systems do not perform as required? Recruiting and Retention of Those with Advanced Technical Skills Questions Congress may consider include the following: Which particular skills do the military services require to support the integration of RAS and AI systems? What fields of academic study and work history are most essential to target for recruiting and retention? The armed forces have any array of special and incentive pay authorities that allow them to increase compensation for targeted skill sets and assignments. Are these authorities sufficient? Are the Services using them effectively? What nonmonetary incentives are most attractive to individuals with those skills? Do the armed forces have the authority to offer those incentives? How valuable are those skills to private-sector employers? How competitive are the armed forces in competing for this type of labor? Should certain eligibility criteria for joining the armed forces be modified to make military service a more viable option for those with the necessary skills? To what extent can other federal civilians and contractors with advanced technical skills be substituted for military personnel with those skills? Training Some considerations for training servicemembers on RAS and AI include the following: How much training will the armed forces have to provide to their work force can effectively employ RAS and AI systems? When and where will this training occur, and at what cost? How quickly will the armed forces be able to adapt their training programs to account for technical advances in RAS and AI, and new concepts of operations? What role might private-sector training or training with industry play, particularly for those whose work roles require the most sophisticated knowledge of RAS and AI? Career Paths Some considerations for developing a career path model for RAS and AI experts include the following: What assignments will be most critical to the professional development of RAS and AI experts and their ability to contribute to operational missions? Might private-sector or academic assignments be part of the career path? Will specialists in RAS and AI be expected to lead units and, if so, of what size and complexity? Does a technical track make sense? How much professional military knowledge will RAS and AI specialists need to possess to effectively integrate into military organizations? How much knowledge of warfighting functions will they need to advise commanders on how best to employ RAS and AI and how to synchronize them with other systems for maximum effect? What Role Should Congress Play in the Legal and Ethical Debate on LAWS? Legal and ethical considerations associated with the possible development and adoption of fully autonomous lethal weapon systems are both considerable and complicated. As RAS and AI technology development advances in both the commercial and military sectors, a point will likely be reached where U.S. policymakers will be faced with the decision—can the United States (legally) and should the United States (ethically) develop LAWS? The Administration will likely have its own views on the legality and morality of LAWS, as will Congress. As previously noted Authorizing a machine to make lethal combat decisions is contingent on political and military leaders resolving legal and ethical questions. These include the appropriateness of machines having this ability, under what circumstances should it be employed, where responsibility for mistakes lies, and what limitations should be placed on the autonomy of such systems.... Ethical discussions and policy decisions must take place in the near term in order to guide the development of future [unmanned aircraft systems] capabilities, rather than allowing the development to take its own path apart from this critical guidance. In view of this, there appears to be an opportunity for Congress to examine these issues and perhaps define its role in the overall U.S. governmental debate on LAWS. These debates and resulting policy decisions and guidance could prove beneficial to DOD as a whole—and the Army and Marines in particular—as they develop RAS and AI systems and capabilities for use on the battlefield. What Role Should the United States Play in Potential Efforts to Regulate LAWS? Given current deliberations on LAWS and ongoing discussions in the U.N., it is conceivable that at some point in the future, formal international efforts could be undertaken to regulate LAWS development and use. As DOD has previously noted If such restrictions on autonomous weapon systems were to come into existence, and if the U.S. were to follow it, the ban would severely limit the ability to develop and use lethal autonomous weapon systems. Such restrictions could limit other nations as well. Should deliberate formal efforts to regulate LAWS emerge in the coming years, the United States has the option of playing an active role, a passive role, or no formal role whatsoever. Because of the potential national security implications of a potential LAWS ban, as well as its impact on Army and Marine RAS and AI developmental efforts, policymakers both in the Administration and Congress might examine and decide what the appropriate level of U.S. involvement should be in such an international regulatory process.

The nexus of robotics and autonomous systems (RAS) and artificial intelligence (AI) has the potential to change the nature of warfare. RAS offers the possibility of a wide range of platforms—not just weapon systems—that can perform "dull, dangerous, and dirty" tasks—potentially reducing the risks to soldiers and Marines and possibly resulting in a generation of less expensive ground systems. Other nations, notably peer competitors Russia and China, are aggressively pursuing RAS and AI for a variety of military uses, raising considerations about the U.S. military's response—to include lethal autonomous weapons systems (LAWS)—that could be used against U.S. forces. The adoption of RAS and AI by U.S. ground forces carries with it a number of possible implications, including potentially improved performance and reduced risk to soldiers and Marines; potential new force designs; better institutional support to combat forces; potential new operational concepts; and possible new models for recruiting and retaining soldiers and Marines. The Army and Marines have developed and are executing RAS and AI strategies that articulate near-, mid-, and long-term priorities. Both services have a number of RAS and AI efforts underway and are cooperating in a number of areas. A fully manned, capable, and well-trained workforce is a key component of military readiness. The integration of RAS and AI into military units raises a number of personnel-related issues that may be of interest to Congress, including unit manning changes, recruiting and retention of those with advanced technical skills, training, and career paths. RAS and AI are anticipated to be incorporated into a variety of military applications, ranging from logistics and maintenance, personnel management, intelligence, and planning to name but a few. In this regard, most consider it unlikely that appreciable legal and ethical objections to their use by the military will be raised. The most provocative question concerning the military application of RAS and AI being actively debated by academics, legal scholars, policymakers, and military officials is that of "killer robots" (i.e., should autonomous robotic weapon systems be permitted to take human life?). Potential issues for Congress include the following: Would an assessment of foreign military RAS and AI efforts and the potential impact on U.S. ground forces benefit policymakers? Should the United States develop fully autonomous weapon systems for ground forces? How will U.S. ground forces counter foreign RAS and AI capabilities? How should the Department of Defense (DOD) and the Services engage with the private sector? What are some of the personnel-related concerns associated with RAS and AI? What role should Congress play in the legal and ethical debate on LAWS? What role should the United States play in potential efforts to regulate LAWS?

Introduction The integration of drones into U.S. skies is expected by many to yield significant commercial and societal benefits. Drones could be employed to inspect pipelines, survey crops, and monitor the weather. One newspaper has already used a drone to survey storm damage, and real estate agents have used them to survey property. In short, the extent of their potential domestic application is bound only by human ingenuity. In an effort to accelerate this introduction, in the FAA Modernization and Reform Act of 2012, Congress tasked the Federal Aviation Administration (FAA) with safely integrating drones into the national airspace system by September 2015. Likewise, sensing the opportunities that unmanned flight portend, lobbying groups and drone manufacturers have joined the chorus of those seeking a more rapid expansion of drones in the domestic market. Yet, the full-scale introduction of drones into U.S. skies will inevitably generate a host of legal issues. This report will explore some of those issues. To begin, this report will describe the regulatory framework for permitting the use of unmanned vehicles and the potential rulemaking that will occur over the next few years. Next, it will discuss theories of takings and property torts as they relate to drone flights over or near private property. It will then discuss the privacy interests implicated by drone surveillance conducted by private actors and the potential countervailing First Amendment rights to gather and receive news. Finally, this report will explore possible congressional responses to these privacy concerns, discuss how the FAA has approached these concerns, and identify additional potential legal issues. Development of Aviation Law and Regulations The predominant theory of airspace rights applied before the advent of aviation derived from the Roman Law maxim cujus est solum ejus est usque ad coelum , meaning whoever owns the land possesses all the space above the land extending upwards into the heavens. This maxim was adopted into English common law and eventually made its way into American common law. At the advent of commercial aviation, Congress enacted the Air Commerce Act of 1926 and later the 1938 Civil Aeronautics Act. These laws included provisions stating that "to the exclusion of all foreign nations, [the United States has] complete sovereignty of the airspace" over the country. Additionally, Congress declared a "public right of freedom of transit in air commerce through the navigable airspace of the United States." This right to travel in navigable airspace came into conflict with the common law idea that each landowner owned the airspace above the surface in perpetuity. If the common law idea was to be followed faithfully, there could be no right to travel in navigable airspace without constantly trespassing in private property owners' airspace. This conflict was directly addressed by the Supreme Court in United States v. Causby , discussed extensively below. With the passage of the Federal Aviation Act in 1958, the administrator of the FAA was given "full responsibility and authority for the advancement and promulgation of civil aeronautics generally.... " This centralization of responsibility and creation of a uniform set of rules recognized that "aviation is unique among transportation industries in its relation to the federal government—it is the only one whose operations are conducted almost wholly within federal jurisdiction.... " The FAA continues to set uniform rules for the operation of aircraft in the national airspace. In the FAA Modernization and Reform Act of 2012 (FMRA), Congress instructed the FAA to "develop a comprehensive plan to safely accelerate the integration of civil unmanned aircraft systems into the national airspace system." These regulations must provide for this integration "as soon as practicable, but not later than September 30, 2015." Current FAA Regulations of Navigable Airspace Fixed-Wing Aircraft FAA regulations define the minimum safe operating altitudes for different kinds of aircraft. Generally, outside of takeoff and landing, fixed-wing aircraft must be operated at an altitude that allows the aircraft to conduct an emergency landing "without undue hazard to persons or property on the surface." In a congested area, the aircraft must operate at least "1,000 feet above the highest obstacle within a horizontal radius of 2,000 feet of the aircraft." The minimum safe operating altitude over non-congested areas is "500 feet above the surface." Over open water or sparsely populated areas, aircraft "may not be operated closer than 500 feet to any person, vessel, vehicle, or structure." Navigable airspace is defined in statute as the airspace above the minimum safe operating altitudes, including airspace needed for safe takeoff and landing. Helicopters While a fixed-wing aircraft is subject to specific minimum safe operating altitudes based on where it is flying, regulation of helicopter minimum altitudes is less rigid. According to FAA regulations, a helicopter may fly below the minimum safe altitudes prescribed for fixed-wing aircraft if it is operated "without hazard to person or property on the surface." Therefore, arguably a helicopter may be lawfully operated outside the zone defined in statute as navigable airspace. Drones The FAA does not currently regulate safe minimum operating altitudes for drones as it does for other kinds of aircraft. Defining navigable airspace for drone operation may be one way that the FAA responds to Congress's instruction, in FMRA, to write rules integrating civil drones into the national airspace, which is discussed in more detail below. One possibility is for the FAA to create different classes of drones based on their size and capabilities. Larger drones that physically resemble fixed-wing aircraft could be subject to similar safe minimum operating altitude requirements whereas smaller drones could be regulated similar to helicopters. Current FAA Regulation of Drones In 2007, the FAA issued a policy notice stating that "no person may operate a UAS in the National Airspace without specific authority." Therefore, currently all drone operators who do not fall within the recreational use exemption discussed below must apply directly to the FAA for permission to fly. Public and Civil Operators Drones operated by federal, state, or local agencies must obtain a certificate of authorization or waiver (COA) from the FAA. After receiving COA applications, the FAA conducts a comprehensive operational and technical review of the drone and can place limits on its operation in order to ensure its safe use in airspace. In response to a directive in FMRA, the FAA recently streamlined the process for obtaining COAs, making it easier to apply on their website. It also employs expedited procedures allowing grants for temporary COAs if needed for time-sensitive missions. Civil operators, or private commercial operators, must receive a special airworthiness certificate in the experimental category in order to operate. These certificates have been issued on a limited basis for flight tests, demonstrations, and training. Presently, there is no other method of obtaining FAA approval to fly drones for commercial purposes. It appears these restrictions will be loosened in the coming years, since the FAA has been instructed to issue a rulemaking that will lead to the phased-in integration of civilian unmanned aircraft into national airspace. Recreational Users The FAA encourages recreational users of model aircraft, which certain types of drones could fall under, to follow a 1981 advisory circular. Under the circular, users are instructed to fly a sufficient distance from populated areas and away from noise-sensitive areas like parks, schools, hospitals, or churches. Additionally, users should not fly in the vicinity of full-scale aircraft or more than 400 feet above the surface. When flying within three miles of an airport, users should notify the air traffic control tower, airport operator, or flight service station. Compliance with these guidelines is voluntary. Future FAA Regulation of Drones FMRA instructs the FAA to integrate civil unmanned aircraft systems into the national airspace by the end of FY2015 and implement new standards for public drone operators. This law included provisions describing the comprehensive plan and rulemaking the agency must create to address different aspects of integrating civil drones, restricting the FAA's ability to regulate "model aircraft," and requiring the creation of drone test sites. Civil Operators The statute instructs the FAA to create a "comprehensive plan to safely accelerate the integration of civil unmanned aircraft systems into the national airspace" and submit the plan to Congress within one year of enactment. The statute contains a non-exhaustive list of elements that the plan must address, including predictions on how future rulemaking will address the certification process for drones; drone sense and avoid capabilities; and establishing operator or pilot standards, including a licensing and registration system. The plan must also include a timeline for a phased-in approach to integration and ways to ensure the safe operation of civil drones with publicly operated drones in the airspace. The FAA has not yet submitted this comprehensive plan to Congress. FMRA also directs the FAA to promulgate a series of rules, including rules governing the civil operation of small drones in the national airspace and rules implementing the comprehensive plan described above. Additionally, the FAA must update its 2007 policy statement that established the current scheme of drone authorizations. Public Operators As noted above, the FAA has already implemented a streamlined process for public operators to obtain COAs. In addition to this streamlining, FMRA instructs the FAA to "develop and implement operations and certification requirements for the operation of public unmanned aircraft systems in the national airspace." Similar to the provisions governing civil users, these standards must be in place by the end of 2015. Recreational Users In FMRA, the FAA was prohibited from promulgating rules regarding certain kinds of model aircraft flown for hobby or recreational use. This prohibition applies if the model aircraft is less than 55 pounds, does not interfere with any manned aircraft, and is flown in accordance with a community-based set of safety guidelines. Additionally, the aircraft must be flown within the line of sight of the operator and be used solely for hobby or recreational purposes. If flown within five miles of an airport, the operator of the model aircraft must notify both the airport operator and air traffic control tower. While the FAA is prohibited from writing rules or regulations governing these aircraft, it is not prohibited from pursuing enforcement actions "against persons operating model aircraft who endanger the safety of the national airspace system." Test Ranges As part of its efforts to integrate drones into the national airspace, FMRA also directed the FAA to establish six test ranges that will serve as integration pilot projects. As part of the test range program, the FAA must designate airspace for the operation of both manned and unmanned flights, develop certification and air traffic standards for drones at the test ranges, and coordinate with both NASA and the Department of Defense during development. The test ranges should address both civil and public drone operations. In February 2013, the FAA published a notice in the Federal Register announcing the process for selection of the sites. In its words, "The overall purpose of this test site program is to develop a body of data and operational experiences to inform integration and the safe operation of these aircraft in the National Airspace System." As directed in the statute, factors for site selection include geographic and climactic diversity and a consideration of the location of the ground infrastructure needed to support the sites. Additionally, in the notice the FAA announced privacy requirements that will be applicable to operations at test sites. These provisions are discussed in more detail below. The FAA received 50 applications spread across 37 states and is in the process of making its test range site selections. Airspace and Property Rights Since the popularization of aviation, courts have had to balance the need for unobstructed air travel and commerce with the rights of private property owners. The foundational case in explaining airspace ownership rights is United States v. Causby . United States v. Causby In United States v. Causby , the Supreme Court directly confronted the question of who owns the airspace above private property. The plaintiffs filed suit against the U.S. government arguing that flights of military planes over their property constituted a violation of the Fifth Amendment Takings Clause, which states that private property shall not "be taken for public use, without just compensation." Generally, takings suits can only be filed against the government when a government actor, as opposed to a private party, causes the alleged harm. Causby owned a chicken farm outside of Greensboro, North Carolina, that was located near an airport regularly used by the military. The proximity of the airport and the configuration of the farm's structures led the military planes to pass over the property at 83 feet above the surface, which was only 67 feet above the house, 63 feet above the barn, and 18 feet above the tallest tree. While this take-off and landing pattern was conducted according to the Civil Aeronautics Authority guidelines, the planes caused "startling" noises and bright glare at night. As the Court explained, "as a result of the noise, respondents had to give up their chicken business. As many as six to ten of their chickens were killed in one day by flying into the walls from fright. The total chickens lost in this manner was about 150.... The result was the destruction of the use of the property as a commercial chicken farm." The Court had to determine whether this loss of property constituted a taking without just compensation. At the outset, the Court directly rejected the common law conception of airspace ownership: "It is ancient doctrine that at common law ownership of the land extended to the periphery of the universe— Cujus solum ejus est usque ad coelum. But that doctrine has no place in the modern world." The Court noted that Congress had previously declared a public right of transit in air commerce in navigable airspace and national sovereignty in the airspace. These statutes could not be reconciled with the common law doctrine without subjecting aircraft operators to countless trespass suits. In the Court's words, "common sense revolts at the idea." Even though it rejected the idea that the Causbys held complete ownership of the air up to the heavens, the Court still had to determine if they owned any portion of the space in which the planes flew such that a takings could occur. The government argued that flights within navigable airspace that do not physically invade the surface cannot lead to a taking. It also argued that the landowner does not own any airspace adjacent to the surface "which he has not subjected to possession by the erection of structures or other occupancy." The Court did not adopt this reasoning, finding instead that "the landowner owns at least as much space above the ground as he can occupy or use in connection with the land. The fact that he does not occupy it in a physical sense—by the erection of building and the like—is not material." Therefore, it found that the landowner owns the airspace in the immediate reaches of the surface necessary to use and enjoy the land and invasions of this space "are in the same category as invasions of the surface." Above these immediate reaches, the airspace is part of the public domain, but the Court declined to draw a clear line. The Court also noted that the government's argument regarding the impossibility of a taking based on flights in navigable airspace was inapplicable in this case because the flights over Causby's land were not within navigable airspace. At the time, federal law defined navigable airspace as the space above the minimum safe flying altitudes for specific areas, but did not include the space needed to take off and land. Even though these flights were not within navigable airspace, the Court seemed to suggest that if they were, the inquiry would not immediately end. Instead, the Court would then have to determine if the regulation itself, defining the navigable airspace, was valid. Ultimately, in the context of a taking claim, the Court concluded that "flights over private land are not a taking, unless they are so low and so frequent to be a direct and immediate interference with the enjoyment and use of the land." With regard to the Causbys' chicken farm, the Court concluded that the military flights had imposed a servitude upon the land, similar to an easement, based on the interference with the use and enjoyment of their property. Although the land did not lose all its economic value, the lower court's findings clearly established the flights led directly to a diminution in the value of the property, since it could no longer be used for its primary purpose as a chicken farm. Post-Causby Theories of Airspace Ownership Causby clearly abandoned the ancient idea that private landowners each owned their vertical slice of the airspace above the surface in perpetuity as incompatible with modern life. The case set up three factors to examine in a takings claim that courts still utilize today: (1) whether the planes flew directly over the plaintiff's land; (2) the altitude and frequency of the flights; and (3) whether the flights directly and immediately interfered with the plaintiff's use and enjoyment of the surface land. However, it left many questions unanswered. Where is the dividing line between the "immediate reaches" of the surface and public domain airspace? Can navigable airspace intersect with the "immediate reaches" belonging to the private property? Can aircraft flying wholly within navigable airspace, as defined by federal law, ever lead to a successful takings claim? How does one assess claims based on lawfully operated aircraft, such as helicopters, flying below navigable airspace? Subsequent cases have been brought using many different legal claims, including trespass and nuisance, as discussed below, and various ways of describing the resulting injury. Claims could include an "inverse condemnation," another way of describing a taking, or the establishment of an avigation, air, or flying easement. While these legal claims may have different names, it appears that courts use Causby as the starting point for analyzing all property-based challenges to intrusions upon airspace. Several different interpretations of Causby have emerged in the attempt to articulate an airspace ownership standard, a few of which are described here. Following Causby , several lower courts employed a fixed-height theory and interpreted the decision as creating two distinct categories of airspace. On the one hand, the stratum of airspace that was defined in federal law as "navigable airspace" was always a part of the public domain. Therefore, flights in this navigable airspace could not lead to a successful property-right based action like a takings or trespass claim because the property owner never owned the airspace in the public domain. On the other hand, the airspace below what is defined as navigable airspace could be "owned" by the surface owner and, therefore, intrusions upon it could lead to a successful takings or property tort claim. Since this fixed-height theory of airspace ownership relies heavily on the definition of navigable airspace, the expansion of the federal definition of "navigable airspace" to include the airspace needed to take-off and land greatly impacts what airspace a property owner could claim. This strict separation between navigable airspace and the airspace a landowner can claim seems to have been disavowed by the Supreme Court. First, in dicta in Braniff Airways v. Nebraska State Board of Equalization & Assessment , a case primarily dealing with the question of federal preemption of state airline regulations, the Court left open the possibility of a taking based on flights occurring in navigable airspace. It summarized Causby as holding "that the owner of land might recover for a taking by national use of navigable air space resulting in destruction in whole or in part of the usefulness of the land property." Next, in Griggs v. Allegheny County the Supreme Court found that the low flight of planes over the plaintiff's property, taking off from and landing at a nearby airport's newly constructed runway, constituted a taking that had to be compensated under the Fifth Amendment. The noise and fear of a plane crash caused by the low overhead flights made the property "'undesirable and unbearable'" for residential use, making it impossible for people in the house to converse or sleep. The Court reached this conclusion that a taking occurred based on this injury, despite the fact that the flights were operated properly under federal regulations and never flew outside of navigable airspace. Despite this holding, some lower courts have continued to lend credence to a fixed-height ownership theory as a reasonable interpretation of Causby . Another interpretation of Causby essentially creates a presumption of a non-taking when overhead flights occur in navigable airspace. This presumption would recognize the importance of unimpeded travel of air commerce and that Congress placed navigable airspace in the public domain. However, the presumption could be rebutted by evidence that the flights, while in navigable airspace, interfered with the owner's use and enjoyment of the surface enough to justify compensation. As one court reasoned, "as the height of the overflight increases... the Government's interest in maintaining sovereignty becomes weightier while the landowner's interest diminishes, so that the damage showing required increases in a continuum toward showing absolute destruction of all uses of the property." Finally, some courts have concluded that the altitude of the overhead flight has no determinative impact on whether a taking has occurred. One federal court noted that the government's liability for a taking is not impacted "merely because the flights of Government aircraft are in what Congress has declared to be navigable airspace and subject to its regulation." Under this approach, "although the navigable airspace has been declared to be in the public domain, 'regardless of any congressional limitations, the land owner, as an incident to his ownership, has a claim to the superjacent airspace to the extent that a reasonable use of his land involves such space.'" Under this theory, the court would only need to examine the effect of the overhead flights on the use and enjoyment of the land, and would not need to determine if the flight occurred in navigable airspace. While the definition of navigable airspace impacts each theory differently, it is clear that under each interpretation a showing of interference with the use and enjoyment of property is required. Cases have clearly established that overhead flights leading to impairment of the owner's livelihood or that cause physical damage qualify as an interference with use and enjoyment of property. Additionally, flights that cause the surface to become impractical for its intended use by the current owner also satisfy the use and enjoyment requirement. For example, in Griggs , the noise, vibration, and fear of damage caused by overhead flights made it impossible for the plaintiffs to converse with others or sleep within their house, leading to their retreat from the property, which had become "undesirable and unbearable for their residential use." Some courts have recognized a reduction in the potential resale value of the property as an interference with its use and enjoyment, even if the property continues to be suitable for the purposes for which it is currently used. One court explained: "Enjoyment of property at common law contemplated the entire bundle of rights and privileges that attached to the ownership of land.... Owners of fee simple estates ... clearly enjoy not only the right to put their land to a particular present use, but also to hold the land for investment and appreciation.... " However, other courts have rejected the idea that restrictions on uses by future inhabitants, without showing loss of property value, are relevant to a determination of the owner's own use and enjoyment of the property. Trespass and Nuisance Claims Against Private Actors Although Causby arose from a Fifth Amendment takings claim, its articulation of airspace ownership standards is also often used in determining state law tort claims such as trespass and nuisance. These state law tort claims could be used to establish liability for overhead flights operated by private actors, where a lack of government involvement precludes a takings claim. Generally, the tort of trespass is any physical intrusion upon property owned by another. However, unlike with surface trespass claims, simply proving that an object or person was physically present in the airspace vertically above the landowner's property is generally not enough to establish a trespass in airspace. Since Causby struck down the common law idea of ad coelum , landowners generally do not have an absolute possessory right to the airspace above the surface into perpetuity. Instead, airspace trespass claims are often assessed using the same requirements laid out in the Causby takings claim. Arguably, these standards are used in property tort claims because there can be no trespass in airspace unless the property owner has some possessory right to the airspace, which was the same question at issue in Causby . To allege an actionable trespass to airspace, the property owner must not only prove that the interference occurred within the immediate reaches of the land, or the airspace that the owner can possess under Causby , but also that its presence interferes with the actual use of his land. As one court explained, "a property owner owns only as much air space above his property as he can practicable use. And to constitute an actionable trespass, an intrusion has to be such as to subtract from the owner's use of the property." This standard for airspace trespass was also adopted by the Restatement (Second) of Torts. Nuisance is a state law tort claim that is not based on possessory rights to property, like trespass, but is rooted in the right to use and enjoy land. Trespass and nuisance claims arising from airspace use are quite similar, since trespass to airspace claims generally require a showing that the object in airspace interfered with use and enjoyment of land. However, unlike trespass, nuisance claims do not require a showing that the interference actually occupied the owner's airspace. Instead, a nuisance claim can succeed even if the interference flew over adjoining lands and never directly over the plaintiff's land, as long as the flight constitutes a substantial and unreasonable interference with the use and enjoyment of the land. Potential Liability Arising from Civilian Drone Use The integration of drones into domestic airspace will raise novel questions of how to apply existing airspace ownership law to this new technology. How courts may apply the various interpretations of Causby , discussed above, to drones will likely be greatly impacted by the FAA's definition of navigable airspace for drones. The potential for successful takings, trespass, or nuisance claims from drone use will also be impacted by the physical characteristics of the drone, especially given that current case law heavily emphasizes the impact of the flight on use and enjoyment of the surface property. Several characteristics of drones may make their operation in airspace less likely to lead to liability for drone operators than for aircraft operators. First, the noise attributed to drone use may be significantly less than noise created by helicopters or planes powered by jet engines. Second, drones commonly used for civilian purposes could be much smaller than common aircraft used today. This decreased size is likely to lead to fewer physical impacts upon surface land such as vibration and dust, which are common complaints arising from overhead aircraft and helicopter flights. Finally, it is unknown at this time how most drones will be deployed into flight. Will drone "airports" be used to launch the aircraft or will they take off and land primarily from individual property? If drone use remains decentralized and is not organized around an "airport," then drones are less likely to fly repeatedly over the same piece of property, creating fewer potential takings, trespass, or nuisance claims. Additionally, the majority of drones are more likely to operate like helicopters, taking off and landing vertically, than like traditional fixed-wing aircraft. This method of takeoff reduces the amount of surface the aircraft would have to fly over before reaching its desired flying altitude, minimizing the potential number of property owners alleging physical invasion of the immediate reaches of their surface property. Alternatively, the potential ability for drones to fly safely at much lower altitudes than fixed-wing aircraft or helicopters could lead to a larger number of property-based claims. Low-flying drones are more likely to invade the immediate reaches of the surface property, thus satisfying part of the requirement for a takings or trespass claim. Privacy Perhaps the most contentious issue concerning the introduction of drones into U.S. airspace is the threat that this technology will be used to spy on American citizens. With the ability to house high-powered cameras, infrared sensors, facial recognition technology, and license plate readers, some argue that drones present a substantial privacy risk. Undoubtedly, the government's use of drones for domestic surveillance operations implicates the Fourth Amendment and other applicable laws. In like manner, privacy advocates have warned that private actors might use drones in a way that could infringe upon fundamental privacy rights. This section will focus on the privacy issues associated with the use of drones by private, non-governmental actors. It will provide a general history of privacy law in the United States and survey the various privacy torts, including intrusion upon seclusion, the privacy tort most applicable to drone surveillance. It will then explore the First Amendment right to gather news. Application of these theories to drone surveillance will be discussed in the section titled " Congressional Response ." Early Privacy Jurisprudence Although early Anglo-Saxon law lacked express privacy protections, property law and trespass theories served as proxy for the protection of individual privacy. Lord Coke pronounced in 1605 that "the house of everyone is to him as his castle and fortress, as well for his defence against injury and violence, as for his respose[.]" This proposition that individuals are entitled to privacy while in their homes crossed the Atlantic with the colonists and appeared prominently in early revolutionary thinking. In one early American common law decision, the court noted that "[t]he law is clearly settled, that an officer cannot justify the breaking open an outward door or window, in order to execute process in a civil suit; if he doth, he is a trespasser." In cases lacking physical trespass, prosecutors relied on an eavesdropping theory, which protected the privacy of individuals' conversations while in their home. These century-old theories of trespass and eavesdropping, however, failed to keep up with a rapidly changing society fueled by advancing technologies. As with today's celebrity-obsessed society, late-19 th century society experienced the birth and spread of "yellow journalism," a new media aimed at emphasizing the "curious, dramatic, and unusual, providing readers a 'palliative of sin, sex, and violence.'" Faster presses and instantaneous photography enabled journalists to exploit and spread gossip. Louis D. Brandeis (then a private attorney) and Samuel Warren were bothered with the press's constant intrusions into the private affairs of prominent Bostonians. In 1890, they published a seminal law review article formulating a new legal theorythe right to be let alone. Brandeis and Warren understood that existing tort doctrines such as trespass and libel were insufficient to protect privacy rights, as "only a part of the pain, pleasure, and profit of life lay in physical things." They noted that this new right to privacy derived not from "the principle of private property, but that of an inviolate personality." The authors observed that "instantaneous photographs and newspaper enterprise have invaded the sacred precincts of private and domestic life; and numerous mechanical devices threaten to make good the prediction that 'what is whispered in the closet shall be proclaimed from the house-tops.'" Although this new theory had its detractors, it found its way into the common law of several states. Privacy Torts In 1939, the First Restatement of Torts (a set of model rules intended for adoption by the states) created a general tort for invasion of privacy. By 1940, a minority of states had adopted some right of privacy either by statute or judicial decision, and six states had expressly refused to adopt such a right. Twenty years later, Dean William Prosser surveyed the case law surrounding this right and concluded that the right to privacy entailed four distinct (yet, sometimes overlapping) rights: (1) intrusion upon seclusion; (2) public disclosure of private facts; (3) publicity which puts the target in a false light; and (4) appropriation of one's likeness. These four categories were incorporated into the Restatement (Second) of Torts. Section 652B of the Restatement (Second) of Torts creates a cause of action for intrusion upon seclusion, the privacy tort most likely to apply to drone surveillance. It has been adopted either by common law or statute in an overwhelming majority of the states. Section 652B provides: "One who intentionally intrudes, physically or otherwise, upon the solitude or seclusion of another or his private affairs or concerns, is subject to liability to the other for invasion of his privacy, if the intrusion would be highly offensive to a reasonable person." Courts have developed a set of rules for applying Section 652B. First, it requires an objective person standard, testing whether a person of "ordinary sensibilities" would be offended by the alleged invasion. Thus, someone with an idiosyncratic sensitivitysay, an aversion to camerascould not satisfy this standard by simply having his photograph taken. Likewise, the intrusion must not only be offensive, but " highly offensive," or as one court put it, "outrageously unreasonable conduct." Generally, a single incident will not suffice; instead, the intrusion must be "repeated with such persistence and frequency as to amount to a course of hounding" and "becomes a burden to his existence.... " However, in a few cases a single intrusion was adequate. The invasion of privacy must been intentional, meaning the defendant must desire that the intrusion would occur, or as with other torts, knew with a substantial certainty that such an invasion would result from his actions. An accidental intrusion is not actionable. Finally, in some states, the intrusion must cause mental suffering, shame, or humiliation to permit recovery. A review of the case law demonstrates that the location of the target of the surveillance is, in many cases, determinative of whether someone has a viable claim for intrusion upon seclusion. For the most part, conducting surveillance of a person while within the confines of his home will constitute an intrusion upon seclusion. The illustrations to Section 652B offer an example of a private detective who photographs an individual while in his home with a telescopic camera as a viable claim. Likewise, as one court observed, "when a picture is taken of a plaintiff while he is in the privacy of his home, ... the taking of the picture may be considered an intrusion into the plaintiff's privacy just as eavesdropping or looking into his upstairs windows with binoculars are considered an invasion of his privacy." The likelihood of a successful claim is diminished if the surveillance is conducted in a public place. The comments to Section 652B explain that there is generally no liability for photographing or observing a person while in public "since he is not then in seclusion, and his appearance is public and open to the public eye." Likewise, Prosser observed: On the public street, or in any other public place, the plaintiff has no right to be alone, and it is no invasion of his privacy to do no more than follow him about. Neither is it such an invasion to take a photograph in such a place, since this amounts to nothing more than making a record, not differing essentially from a full written description, of a public sight which anyone present would be free to see. The case law also supports this proposition. The Alabama Supreme Court dismissed a claim of wrongful intrusion against operators of a race track who photographed the plaintiffs while they were in the "winner's circle" at the track. Similarly, a federal district court dismissed a claim by a husband and wife who had been photographed by Forbes Magazine while waiting in line at the Miami International Airport as it was taken in "a place open to the general public." Likewise, a Vietnam veteran lost a claim for invasion of privacy based on photographs that depicted him and other soldiers during a combat mission in Vietnamagain, a public setting. Other examples include the recording of license plate numbers of cars parked in a public parking lot and photographing a person while walking on a public sidewalk. Indeed, even plaintiffs who were videotaped or photographed while on their own property have generally been unsuccessful in their privacy claims so long as they could be viewed from a public vantage point. Rejecting one plaintiff's claim for intrusion upon seclusion, the Supreme Court of Oregon held that even though the investigators trespassed on the plaintiff's property to film him, the investigation did not "constitute an unreasonable surveillance 'highly offensive to a reasonable man[,]'" as the plaintiff could have been viewed from the road by his neighbors or passersby. In another case, the wife of a prominent Puerto Rican politician sought damages from a newspaper for invasion of privacy allegedly committed when an agent of the newspaper photographed her house as part of a news story about her husband. The court dismissed her claim as the photographers were not "unreasonably intrusive," and the photographs depicted only the outside of the home and no persons were photographed. Similarly, in one case a couple sued a cell phone company for intrusion upon seclusion when the company's workers looked onto their property each time they serviced a nearby cell tower. The court rejected their claim, holding that "[t]he mere fact that maintenance workers come to an adjoining property as part of their work and look over into the adjoining yard is legally insufficient evidence of highly offensive conduct." There are many other examples. However, there have been some successful claims for intrusion upon seclusion involving surveillance conducted in public. The comments to Section 652B explain: "Even in a public place, however, there may be some matters about the plaintiff, such as his underwear or lack of it, that are not exhibited to the public gaze, and there may still be invasion of privacy when there is intrusion upon these matters." One of the most famous cases concerning this "public gaze" theory involved a suit for invasion of privacy against a newspaper when it published a picture of the plaintiff with her dress blown up as she was leaving a fun house at a county fair. In upholding the plaintiff's claim, the court observed: "To hold that one who is involuntarily and instantaneously enmeshed in an embarrassing pose forfeits her right of privacy merely because she happened at the moment to be part of a public scene would be illogical, wrong, and unjust." In Huskey v. National Broadcasting Co. Inc. , a prisoner sued NBC, a television broadcasting company, alleging that by filming him without consent while he was working out in the exercise yard at the prison, NBC invaded his privacy. NBC countered that depictions of persons in a "publicly visible area" could not support the claim for invasion of seclusion. Ultimately, the court permitted the prisoner's claim to go forward, observing that "[o]f course [the prisoner] could be seen by guards, prison personnel and inmates, and obviously he was in fact seen by NBC's camera operator. But the mere fact a person can be seen by others does not mean that person cannot legally be 'secluded.'" Although relief is available for certain cases of public surveillance, recovery seems to be the exception rather than the norm. First Amendment and Newsgathering Activities Based on the foregoing discussion, safeguarding privacy from intrusive drone surveillance is clearly an important societal interest. However, this interest must be weighed against the public's countervailing concern in securing the free flow of information that inevitably feeds the "free trade of ideas." Unmanned aircraft can improve the press and the public's ability to gather news: they can operate in dangerous areas without putting a human operator at risk of danger; can carry sophisticated surveillance technology; can fly in areas not currently accessible by traditional aircraft; and can stay in flight for long durations. However, challenges arise in attempting to find an appropriate balance between this interest in newsgathering and the competing privacy interests at stake. The First Amendment to the United States Constitution provides that "Congress shall make no law ... abridging the freedom of speech, or of the press.... " The Court has construed this phrase to cover not only traditional forms of speech, such as political speeches or polemical articles, but also conduct that is "necessary for, or integrally tied to, acts of expression," such as distribution of political literature or door-to-door solicitation. Additionally, the Court has pulled within the First Amendment's protection other conduct that is not expressive in itself, but is "necessary to accord full meaning and substance to those guarantees." For example, the Court has said that the public is entitled to a "right to receive news" as a correlative of the right to free expression. Like this right to receive news, the Court has intimated in a series of cases beginning in the 1960s that the public and the press may be entitled to a right to gather news under the First Amendment. Initially, in Zemel v. Rus k , the Court observed that the right "to speak and publish does not carry with it the unrestrained right to gather information."   The Court's reluctance to extend this right may have signaled its concern that an unconditional newsgathering right could subsume almost any government regulation that places a slight restriction on the ability to gather news. However, several years later the Court indicated in Branzburg v. Hayes that although laws of general applicability apply equally to the press as to the general public, that "[n]ews gathering is not without its First Amendment protections,"  and that "without some protection for seeking out the news, freedom of the press could be eviscerated." The Court, however, failed to clearly delineate the parameters of such a protection. In the Court's most recent case, Cohen v. Cowles Media Co. , the Court adhered to the "well-established line of decisions holding that generally applicable laws do not offend the First Amendment simply because their enforcement against the press has incidental effects on its ability to gather and report the news." The Court noted that it is "beyond dispute 'that the publisher of a newspaper has no special immunity from the application of general laws. He has no special privilege to invade the rights of others.'" The lower federal courts have explored this right to gather news in the context of photographing or video recording. In Dietemann v. Tim e, Inc. the Ninth Circuit Court of Appeals explored the extent to which reporters could use surreptitious means to carry out their newsgathering. There, defendants Time Life sent undercover reporters to a man's house where he claimed to use minerals and other materials to heal the sick. The reporters used a hidden camera to take pictures of the man, and a hidden microphone to transmit the conversation to other operatives. The defendants claimed that the First Amendment's right to freedom of the press shielded its newsgathering activities. In rejecting this claim, the court observed that although an individual accepts the risk when inviting a person into his home that the visitor may repeat the conversation to a third party, "he does not and should not be required to take the risk that what is heard and seen will be transmitted by photograph or recording, or in our modern world, in full living color and hi-fi to the public at large or to any segment of it that the visitor may select." The court held that "hidden mechanical contrivances" are not indispensable tools of investigative reporting, and that the "First Amendment has never been construed to accord newsman immunity from torts or crimes committed during the course of newsgathering." In Galella v. Onassis , Galella, a self-proclaimed "paparazzo," constantly followed around, harassed, and photographed Jacqueline Kennedy Onassis and her children. As part of an ongoing lawsuit, Onassis sued Galella for, inter alia , invasion of her and her family's privacy. Galella argued that he was entitled to the absolute "wall of immunity" that protects newsmen under the First Amendment. The Second Circuit Court of Appeals quickly rejected this absolutist position: "There is no such scope to the First Amendment right. Crimes and torts committed in news gathering are not protected. There is no threat to a free press in requiring its agents to act within the law." By contrast, the Seventh Circuit in Desnick v. American Broadcast Companies, Inc. held that surreptitious recording was not a privacy invasion because the target of the surveillance was a party to the conversation, thereby vitiating any claim to privacy in those conversations. Congressional Response If Congress chooses to act, it could create privacy protections to protect individuals from intrusive drone surveillance conducted by private actors. Such proposals would be considered in the context of the First Amendment rights to gather and receive news. Several bills have been introduced in the 113 th Congress that would regulate the private use of drones. Additionally, there are other measures Congress could adopt. Drone Aircraft Privacy and Transparency Act of 2013 (H.R. 1262) In the 113 th Congress, Representative Ed Markey introduced the Drone Aircraft Privacy and Transparency Act of 2013 ( H.R. 1262 ). This bill would amend FMRA to create a comprehensive scheme to regulate the private use of drones, including data collection requirements and enforcement mechanisms. First, this bill would require the Secretary of Transportation, with input from the Secretary of Commerce, the Chairman of the Federal Trade Commission, and the Chief Privacy Officer of the Department of Homeland Security, to study any potential threats to privacy protections posed by the introduction of drones in the national airspace. Next, the bill would prohibit the FAA from issuing a license to operate a drone unless the application for such use included a "data collection statement." This statement would require the following items: a list of individuals who would have the authority to operate the drone; the location in which the drone will be used; the maximum period it will be used; and whether the drone would be collecting information about individuals. If the drone will be used to collect personal information, the statement must include the circumstances in which such information will be used; the kinds of information collected and the conclusions drawn from it; the type of data minimization procedures to be employed; whether the information will be sold, and if so, under what circumstances; how long the information would be stored; and procedures for destroying irrelevant data. The statement must also include information about the possible impact on privacy protections posed by the operation under that license and steps to be taken to mitigate this impact. Additionally, the statement must include the contact information of the drone operator; a process for determining what information has been collected about an individual; and a process for challenging the accuracy of such data. Finally, the FAA would be required to post the data collection statement on the Internet. H.R. 1262 includes several enforcement mechanisms. First, the FAA may revoke any license of a user that does not comply with these requirements. The Federal Trade Commission would have the primary authority to enforce the data collection requirements just stated. Additionally, the Attorney General of each state, or an official or agency of a state, is empowered to file a civil suit if there is reason to believe that the privacy interests of residents of that state have been threatened or adversely affected. H.R. 1262 would also create a private right of action for a person injured by a violation of this legislation. Preserving American Privacy Act of 2013 (H.R. 637) Representative Poe introduced the Preserving American Act of 2013 ( H.R. 637 ) which would prohibit the use of drones to capture images in a manner highly offensive to a reasonable person where the person is engaging in a personal or familial activity under circumstances in which the individual has a reasonable expectation of privacy, regardless of whether there is a physical trespass. Other Proposals Additionally, Congress could create a cause of action for surveillance conducted by drones similar to the intrusion upon seclusion tort provided under Restatement Section 652B. How would a court assess whether drone surveillance violated this type of tort? First, generally speaking, the location of the search would be determinative of whether a person is entitled to an expectation of privacy. Although courts have posited that the common law, like the Fourth Amendment, is intended to "protect people, not places[,]" the location of an alleged intrusion factors heavily in a privacy analysis. The greatest chance for liability occurs when a person photographs or videotapes another while in the seclusion of his home. While technology has increasingly shrunk other spheres of privacy in the digital age, the home is still accorded significant legal protection. Using a drone to peer inside the home of anotherwhether looking through a window or utilizing extra-sensory technology such as thermal imagingwould likely constitute an intrusion upon seclusion. Moving from the home to a public space, or even a space on private property where one can be seen from a public vantage point, significantly reduces the chance of tort liability. However, certain instances of highly offensive surveillance in public may be actionable. This leads to the second factor that will inform a reviewing court's analysis: the degree of offensiveness of the surveillance. The Ninth Circuit Court of Appeals, applying California law, observed that, in determining offensiveness, "common law courts consider, among other things: 'the degree of intrusion, the context, conduct and circumstances surrounding the intrusion as well as the intruder's motives and objectives, the setting into which he intrudes, and the expectations of those whose privacy is invaded.'" Several of these factorsespecially, the context of the intrusion and the motive of the intruderare fact intensive and require application in a particular case to fully understand. However, some generalizations can be made. The cases discussed above that did find an intrusion upon seclusion in a public place required highly offensive activity, such as closely following another person for an extended period or photographing another in a highly embarrassing shot. Likewise, a court might recognize liability if one were to use a drone to follow another for an extended period of time, particularly at a close distance. It is not clear, however, whether knowledge of being surveilled makes the monitoring more or less offensive. For example, one court seemed to rely on the fact that the defendant was unaware that her house was being photographed to hold that she did not have a viable privacy claim. A drone flying at several thousand feet may not significantly disturb the target of the surveillance and could fall within this rationale. Nevertheless, filming someone in a compromising or embarrassing situation without his knowledge can be equally offensive. Here, the facts of the particular case would determine liability. Congress could also create a privacy statute tailored to drone use similar to the anti-voyeurism statutes, or "Peeping Tom" laws, enacted in many states. These laws prohibit persons from surreptitiously filming others in various circumstances and places. Some states prohibit surreptitious surveillance of a person while on private property, usually a private residence. Nevada employs this model, prohibiting a person from entering the property of another with the intent to peep through a window of the building. Likewise, New Jersey prohibits a person from peering into the window of the dwelling of another "under circumstances in which a reasonable person in the dwelling would not expect to be observed." Other states require a prurient intent when conducting the surveillance. Under Washington State's statute, a person commits the crime of voyeurism if, for the purpose of arousing or gratifying his sexual desire, he films or photographs (1) a person in a place where he or she would expect privacy; or (2) the intimate areas of another person, whether he or she is in a public or private place. Similarly, Congress could adopt an "anti-paparazzi" statute, like that enacted in California, to prevent intrusive drone surveillance. In fact, Congress considered a similar measure in the 105 th Congress. The Privacy Protection Act of 1998 and the Personal Intrusion Act of 1998 would have made it unlawful to persistently follow or chase another person for the purpose of obtaining a visual image of that person if the plaintiff met the following elements: (1) the image was transferred in interstate commerce or the person taking the photograph traveled in interstate commerce; (2) the person had a reasonable expectation of privacy from such intrusion; (3) the person feared death or bodily injury from being chased; and (4) the taking of the image was for commercial purposes. Also, these bills would have created a civil remedy for an individual whose privacy was intruded upon. Congress could use this model to make it unlawful to persistently monitor another person using drone surveillance. FAA Regulation of Privacy Some observers have questioned whether the FAA has the legal authority to create privacy protections as it begins to integrate drones in the national airspace. This section will explore the FAA's legal authority to establish privacy protections when it engages in rulemaking and establishes the six drone test ranges as required under FMRA. It is well settled that agencies do not wield inherent powers, and that any authority they do have must be delegated by Congress. Thus, when engaging in rulemaking or any other administrative action, the agency must be able to identify a specific statutory source of authority. In Chevron v. Natural Resources Defense Council , the Supreme Court established a two-part test (now known as the Chevron two step) that assesses whether a federal agency should be accorded deference in interpreting and implementing its authorizing statute or a statute it administers. First, this test asks "whether Congress has directly spoken to the precise question at issue." If so, the analysis ends there and the court and the agency "must give effect to the unambiguously expressed intent of Congress." If, however, "the statute is silent or ambiguous" the court must then determine if the agency's interpretation is a "permissible construction of the statute." This type of Chevron analysis may be applied by a reviewing court if the FAA promulgated rules governing privacy, as part of the FMRA directed rulemaking and those rules were challenged. Rulemaking Required by FMRA FMRA directs the FAA to engage in two sets of rulemaking. The first rulemaking requires that by August 14, 2014, the FAA issue a final rule on integrating "small unmanned aircraft systems" into the national airspace system. The second rulemaking requires the FAA to develop a "comprehensive plan to safely accelerate the integration of civil unmanned aircraft systems into the national airspace system[;]" provide notice on proposed rulemaking to implement this comprehensive plan not later than August 14, 2014; and publish a final rule by December 14, 2015. As to the small drone rulemaking, FMRA provides little guidance on what factors should inform the agency's rulemaking. The act merely requires that the FAA issue a final rule "on small unmanned aircraft systems that will allow for civil operation of such systems in the national airspace system.... " Applying the first step of Chevron , it is clear that Congress did not address the precise issue at questionthat is, Congress did not expressly provide FAA authority to regulate privacy. Accordingly, a reviewing court would then have to assess under step two whether addressing privacy as part of rulemaking would be a reasonable interpretation of FMRA. There are plausible arguments on both sides of this question. The Court asserted in Chevron that "the power of an administrative agency to administer a congressionally created ... program necessarily requires the formulation of policy and the making of rules to fill any gap left, implicitly or explicitly, by Congress." Given that privacy has been a paramount concern of both the public and various Members of Congress, it would seem odd if Congress delegated the FAA rulemaking authority to integrate drones into the national airspace, but withheld the authority to regulate one of the most prominent and controversial issues surrounding this integration. Rather, one could argue that Congress would have inferred that the FAA would fill in these gaps with reasonable regulations, including those regulating privacy and data collection issues. Conversely, those who contend that the FAA has neither the legal authority nor the expertise to regulate privacy issues concerning drone use may point to the FAA's organic statute. This law provides the FAA authority to ensure the safety and efficiency of air travel, but appears to contain no express authority to regulate privacy. They may further argue that the FAA has not historically regulated privacy as it pertains to persons or things on the ground in relation to traditional air flight, and currently does not have the technical expertise to undertake such regulations. These arguments could support the theory that Congress intentionally omitted privacy regulation from the FAA's purview when conducting this required rulemaking. Next, as to the comprehensive plan rulemaking, Congress has provided some guidance as to the factors the FAA should take into consideration, but none of the factors discuss privacy concerns. Thus, like the rulemaking for small drones, under the Chevron first step, Congress has not spoken directly to the issue in question. Moving to the second step, would it be reasonable for the FAA to include privacy regulations in its rulemaking implementing this comprehensive plan? First, the use of the term "at a minimum" as a preface to the list of factors to be considered in this comprehensive plan and rulemaking make it illustrative, not exhaustive. This phrasing arguably suggests that Congress understood that the FAA might address other factors, perhaps including privacy, beyond those enumerated in Section 332. Second, Section 332 provides that the FAA must "define the acceptable standards for operation and certification of civil unmanned aircraft systems." Viewing this language in light of Chevron deference, a court could find that regulating requirements that protect privacy fall within the "acceptable standards for operation" of drones in the national airspace. In sum, it appears that the open-ended nature of Congress's instructions to the FAA, coupled with the prominence of privacy concerns, would likely persuade a court that the FAA's potential regulation of privacy as part of formal rulemaking is a reasonable interpretation of FMRA that should be accorded deference under a Chevron analysis. Test Ranges and Privacy In addition to the rulemaking described above, Section 332(c) of FMRA requires the FAA Administrator to "establish a program to integrate unmanned aircraft systems into the national airspace system at 6 test ranges." On February 22, 2013, the FAA issued a request for comment on the privacy rules that will apply to test range operators. In its request for comment, the FAA proposed several requirements that might apply to the operation of these test ranges. Once the FAA selects the site operators, each must enter into an Other Transaction Agreement (OTA) with the FAAa legally binding agreement setting out the terms and conditions under which the site will be operated. This request for comment is intended to provide the public the ability to comment on "potential privacy considerations, associated reporting requirements, and how the FAA can help ensure privacy considerations are addressed through mechanisms put in place as a result of the OTA." This FAA announcement raises another legal question: does the FAA have the authority to regulate privacy via OTA agreements entered into with the test range operators? As a threshold issue, it is not clear what level of deference a court would apply to this administrative action. In certain instances, agency actions that do not amount to formal rulemaking have not been accorded Chevron deference. In Christensen v. Harris County , the Supreme Court held that a Department of Labor opinion letter interpreting the Family Medical Leave Act was not entitled to deference under Chevron . The Court observed that "[i]nterpretations such as those in opinion letters—like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law—do not warrant Chevron -style deference." Instead, interpretations contained in administrative pronouncements such as opinion letters are entitled to some deference under the rule pronounced in Skidmore v. Swift & Co. , "but only to the extent that those interpretations have the 'power to persuade.'" In United States v. Mead , the Court again ruled that Skidmore , not Chevron , deference applied to a United States Custom Service opinion letter setting tariff levels on certain imports. A reviewing court could apply the Christensen-Mead line of cases to hold that the lower level deference accorded under Skidmore should apply to the FAA's use of the OTAs in establishing the test ranges. As in those cases, the OTAs would not have the force of law and would not be the product of formal agency adjudication or rulemaking. These factors weigh against applying Chevron 's deferential approach. However, Mead suggested that Chevron deference may be due when the agency conducts notice and comment procedures as part of its interpretive process, which were not utilized in either Christensen or Mead . Here, the FAA has issued a notice for comment on the proposed privacy regulations that will be included in the OTAs. This fact might persuade a court into applying the more deferential Chevron test. Under either level of scrutiny, it is not at all clear whether the FAA would have the authority to regulate privacy as part of the OTAs. Congress did not speak to this issue in FMRA. Thus, a reviewing court would have to determine if the agency's regulation of privacy is either a reasonable interpretation of the statute under Chevron or has the "power to persuade" under Skidmore . Some of the same factors that arguably support the inclusion of privacy in the formal rulemaking could apply equally to the test ranges The idea that Congress left it to the FAA to fill in the gaps in establishing the test ranges, and that privacy is one of the primary concerns surrounding the integration of drones into U.S. airspace, could be offered as an argument to uphold the FAA's regulation of privacy. On the other side of the ledger, the act's enumerated list of factors to be addressed at these test ranges is primarily focused on safety issues and does not expressly permit the FAA to regulate privacy. One could argue that this formulation evinces Congress's intent for the FAA to focus on safetythe FAA's stock and traderather than privacy, an area in which the FAA appears to have little experience. Related Legal Issues In addition to the legal issues described above, there are a host of other issues that may arise when introducing drones into the U.S. national airspace system. Preemption of State and Local Regulations . The increased presence of drones in domestic airspace raises the question of potential federal preemption of state or local efforts to regulate different aspects of drone use. The doctrine of preemption derives from the Supremacy Clause of the Constitution, which states that federal law, treaties, and the Constitution are the "supreme Law of the Land." A federal law may preempt state or local action in one of three ways: if the statute expressly states its intent to preempt state or local action (express preemption); if a court concludes that Congress intended to occupy the regulatory field, implicitly preventing state or local action in that area (field preemption); or if the state or local action directly conflicts with or frustrates the purpose of the federal provisions (conflict preemption). With regard to traditional aviation laws, generally, state regulations of aviation safety, airspace management, and aviation noise are preempted by federal laws and regulations. Congress vested sole responsibility for the aviation industry and domestic airspace with the federal government in the Federal Aviation Act of 1958. According to the legislative history, the FAA was to have "full responsibility and authority for the advancement and promulgation of civil aeronautics generally, including promulgation and enforcement of safety regulations." In City of Burbank v. Lockheed Air Terminal, Inc. , the Supreme Court struck down a local city ordinance that prohibited planes from taking off during certain hours of the day as preempted by the federal regulatory scheme. Expressing its fear regarding local control of airspace, the Court stated, "If we were to uphold the Burbank ordinance and a significant number of municipalities followed suit, it is obvious that fractionalized control of the timing of takeoffs and landings would severely limit the flexibility of the FAA in controlling air traffic flow." The Supreme Court has, however, upheld state regulations imposing taxes on aircraft equipment located within the state. State proposals seeking to regulate the use of drones are currently pending in many state legislatures throughout the country. The Virginia General Assembly has passed a two-year moratorium on the use of drones by state and local law enforcement. The bill prohibits the use of drones by agencies with jurisdiction over criminal law enforcement or regulatory violations, but includes exceptions for emergency situations. Following passage of the bill, the Governor neither signed nor vetoed the bill, but rather sent it back to the General Assembly with amendments, where it now awaits further action. Several other states have introduced bills similarly targeting the use of drones for surveillance. Other states, like Texas, have introduced bills attempting to address privacy concerns related to widespread drone use. The Texas proposal would create a new state misdemeanor when a person uses a drone to capture an image without the consent of the landowner who owns the property captured in the image. If these proposals were implemented, questions about federal preemption may be raised. It appears that field preemption or conflict preemption would be the most likely grounds for finding preemption of such state regulations based on current federal law, if at all, since FMRA does not contain an express preemption clause. The extent to which the state can regulate drone use without being preempted by federal law may depend on the scope of the forthcoming federal regulations, the nature of the state regulations, and a reviewing court's analysis of whether Congress intended to "occupy the field" of regulation on that issue. The Court has determined that field preemption can be inferred when "the pervasiveness of the federal regulation precludes supplementation by the States, where the federal interest in the field is sufficiently dominant, or where the object sought to be obtained by the federal law and the character of obligations imposed by it reveal the same purpose." Righ t to Protect Property f rom Trespassing Drones . There may be instances where a landowner is entitled to protect his property from intrusion by a drone. Under Restatement (Second) of Torts Section 260, "one is privileged to commit an act which would otherwise be a trespass to a chattel or a conversion if the act is, or is reasonably believed to be, necessary to protect the actor's land or chattels or his possession of them, and the harm inflicted is not unreasonable as compared with the harm threatened." What this means is, in certain instances, a landowner would not be liable to the owner of a drone for damage necessarily or accidentally resulting from removing it from his property. However, there appear to be no cases where a landowner was permitted to use force to prevent or remove an aircraft from his property. Additionally, as discussed above, determining whether a drone in flight is trespassing upon one's property may be unusually challenging. Stalking, Harassment, and Other Crimes. Traditional crimes such as stalking, harassment, voyeurism, and wiretapping may all be committed through the operation of a drone. As drones are further introduced into the national airspace, courts will have to work this new form of technology into their jurisprudence, and legislatures might amend these various statutes to expressly include crimes committed with a drone. Wiretap Laws. Under the federal wiretap statute, it is unlawful to intentionally intercept an "oral communication" by a person "exhibiting an expectation that such communication is not subject to interception under circumstances justifying such expectation.... " Currently, commercial microphones can record sounds upwards of 300 feet. Use of such a microphone on a drone to record private conversations could implicate the federal wiretap statute. Conclusion The legal issues discussed in this report will likely remain unresolved until the civilian use of drones becomes more widespread. To that end, the FAA has been tasked with developing "a comprehensive plan to safely accelerate the integration" of drones into the national airspace, which focuses on the safety of the drone technology and operator certification. While the deadline for development of the plan has already elapsed, the FAA has until the end of FY2015 to implement such a plan. Additionally, the FAA must identify six test ranges where it will integrate drones into the national airspace. This deadline, 180 days after enactment of the act, has also elapsed without FAA compliance. Once these regulations are tested and promulgated, the unique legal challenges that could arise based on the operational differences between drones and already ubiquitous fixed-wing aircraft and helicopters may come into sharper focus.

Under the FAA Modernization and Reform Act of 2012, P.L. 112-95, Congress has tasked the Federal Aviation Administration (FAA) with integrating unmanned aircraft systems (UASs), sometimes referred to as unmanned aerial vehicles (UAVs) or drones, into the national airspace system by September 2015. Although the text of this act places safety as a predominant concern, it fails to address significant, and up to this point, largely unanswered legal questions. For instance, several legal interests are implicated by drone flight over or near private property. Might such a flight constitute a trespass? A nuisance? If conducted by the government, a constitutional taking? In the past, the Latin maxim cujus est solum ejus est usque ad coelum (for whoever owns the soil owns to the heavens) was sufficient to resolve many of these types of questions, but the proliferation of air flight in the 20th century has made this proposition untenable. Instead, modern jurisprudence concerning air travel is significantly more nuanced, and often more confusing. Some courts have relied on the federal definition of "navigable airspace" to determine which flights could constitute a trespass. Others employ a nuisance theory to ask whether an overhead flight causes a substantial impairment of the use and enjoyment of one's property. Additionally, courts have struggled to determine when a government-operated overhead flight constitutes a taking under the Fifth and Fourteenth Amendments. With the ability to house surveillance sensors such as high-powered cameras and thermal-imaging devices, some argue that drone surveillance poses a significant threat to the privacy of American citizens. Because the Fourth Amendment's prohibition against unreasonable searches and seizures applies only to acts by government officials, surveillance by private actors such as the paparazzi, a commercial enterprise, or one's neighbor is instead regulated, if at all, by state and federal statutes and judicial decisions. Yet, however strong this interest in privacy may be, there are instances where the public's First Amendment rights to gather and receive news might outweigh an individual's interest in being let alone. Additionally, there are a host of related legal issues that may arise with this introduction of drones in U.S. skies. These include whether a property owner may protect his property from a trespassing drone; how stalking, harassment, and other criminal laws should be applied to acts committed with the use of drones; and to what extent federal aviation law could preempt future state law. Because drone use will occur largely in federal airspace, Congress has the authority or can permit various federal agencies to set federal policy on drone use in American skies. This may include the appropriate level of individual privacy protection, the balancing of property interests with the economic needs of private entities, and the appropriate safety standards required.

Introduction The prevention and control of domestic crime has traditionally been a responsibility of state and local governments, with the federal government playing more of a supportive role. The federal government increased its involvement in domestic law enforcement through a series of grant programs to encourage and assist states and communities in their efforts to control crime and in the expansion in the number of offenses that could be prosecuted in the federal criminal justice system. Over a 10-year period (1984-1994), Congress enacted five major anti-crime bills and increased appropriations for federal assistance to state and local law enforcement agencies. As a result, the Federal Bureau of Investigation (FBI) had seen an expansion of its role in fighting domestic crime as Congress began to add more crimes to the federal criminal code that were previously under the sole jurisdiction of state and local governments. Within the past several years, however, some federal assistance to state and local law enforcement has declined, and the FBI refocused its resources on countering terrorism as federal post-9/11 law enforcement efforts have focused primarily on protecting the nation against terrorist attacks. The policy question facing Congress is what is the role of the federal government in crime control? Specific questions related to this issue include the following: Should federal jurisdiction over hate crimes be broadened? Should the Department of Justice's (DOJ) Community Oriented Policing Services (COPS) program be restructured? Should the federal government provide additional and new funding for court security and states' victim/witness protection programs? Should the federal government play a larger role in reintegrating ex-offenders into the community? Should the federal government play a larger role in prosecuting identity theft, and how should it treat restitution for victims? Should the federal mandatory minimum penalties for crack and powder cocaine be equitable? Should the federal government play a larger role in combating the abuse and illicit manufacture of methamphetamine? Should the federal government play a role in stemming gang-related violence? Should the federal government weigh in on what should be the proper treatment of juvenile offenders? Should the federal government provide additional and new funding for programs that support mentally ill offenders? Should federal jurisdiction over crimes related to child pornography and the sexual exploitation of children be broadened? Should the federal government expand grant funding to aid state and local governments analyze and decrease the backlog in DNA evidence? Should certain products produced and services provided by federal inmates be opened to a competitive bidding process? Should the federal sentencing scheme be reformed in light of the 2005 U.S. Supreme Court case U.S. v. Booker (125 S.Ct. 738 (2005))? Should the federal government provide funding to aid state, local, and tribal governments maintain the fugitive database? Should Congress exercise its oversight role of several Department of Justice grant programs, including the Edward Byrne Memorial Justice Assistance Grant (JAG) and the Community Oriented Policing Services (COPS) grant program? This report focuses on the aforementioned crime-related issues and legislation that have been acted upon in the 110 th Congress. This report, however, does not cover issues related to homeland security, terrorism, abortion, and gun control. Crime Statistics3 As previously mentioned, the prevention and control of domestic crime has traditionally been a responsibility of state and local governments, with the federal government playing a more supportive role. The federal government began to take a more direct role in crime control, however, as the violent crime rate increased and some questioned the ability of state and local law enforcement to combat the growing problem with limited resources at their disposal. The Federal Bureau of Investigation's (FBI) Uniform Crime Report (UCR) program compiles data from monthly reports transmitted directly to the FBI from approximately 17,000 local police departments or state agencies. Of interest to lawmakers are the two indices of crimes that are the basis of the UCR. The Part I index includes the four major violent crimes of homicide and non-negligent manslaughter, forcible rape, robbery, and aggravated assault. The Part II index includes the property crimes of burglary, larceny-theft, motor vehicle theft, and arson. The UCR collects crime data from the various state and local law enforcement agencies and presents it in a variety of formats in the UCR. The data on which the crime rates are derived are crime incidents reported to the police (as opposed to arrests made by police or cases cleared by the police). Although the UCR is most commonly referenced when discussing crime rates, another measurement is worth noting. The National Crime Victim Survey (NCVS), which is administered by the Department of Justice (DOJ) Bureau of Justice Statistics (BJS), is a comprehensive, nation-wide survey of victimization in the United States. Since not all crimes are reported to local law enforcement, NCVS data attempts to address under-reporting issues in the UCR by asking respondents if they have been victimized any time in the past year. Each year, data are obtained from a nationally representative sample of 77,200 households comprising nearly 134,000 persons on the frequency, characteristics and consequences of criminal victimization in the United States. The NCVS asks respondents if they have been the victim of rape, sexual assault, robbery, assault, theft, household burglary, and motor vehicle theft. NCVS data allows DOJ Bureau of Justice Statistics (BJS) to estimate the likelihood of victimization for the population as a whole as well as for segments of the population such as women, the elderly, members of various racial groups, city dwellers, or other groups. For the most part, the NCVS generally trends similar to the UCR. For the purpose of this report, however, we will be presenting and analyzing crime rates as reported by the UCR program. Violent Crime Rate According to the UCR, the violent crime rate began to increase sharply in the 1960s. The increase continued throughout the 1970s and into the early 1990s. By the mid-1990s, however, the violent crime rate began to decline (see Figure 1 ). While the violent crime rate continued to decline overall into the new millennium, it increased slightly in 2005 and 2006, however began to decline once again in 2007. Despite the slight increases in the violent crime rate in 2005 and 2006, the rate remained at a 30-year low. The decline in the crime rate has led recent Congresses, in part, to take another look at federal funding for state and local law enforcement. Despite the declining crime rate, however, Congress continued to pass "get tough" measures for certain categories of offenders by increasing existing penalties or creating new categories of penalties (i.e., mandatory minimum sentences). Following is a discussion of legislation that has seen legislative action in the 110 th Congress and selected crime-related issues that could warrant congressional consideration. Hate Crimes6 Under current federal law, hate crimes are limited to certain civil rights offenses. The issue facing Congress is whether it should consider legislation to broaden federal jurisdiction over hate crimes by establishing additional categories of hate crime offenses that could be prosecuted in a federal court. In 2006, there were 7,722 reported incidents of hate crimes. Before a crime is labeled a hate crime, law enforcement must reveal sufficient evidence to lead a reasonable person to conclude that the offender's actions were motivated, in whole or in part, by his or her bias. There is little disagreement that some criminal acts are motivated due to a bias based on race, religion, sexual orientation or ethnicity. There is , however, disagreement with respect to the level of federal intervention. While some argue that greater federal involvement would ensure that such crimes are systematically addressed, others contend that federal involvement would be redundant to the legal prohibitions for these crimes (in their traditional form) that already exist under either federal or state law. For several Congresses, attempts had been made to stiffen penalties for crimes of violence motivated by bias. The 110 th Congress is considering such legislation, and on May 3, 2007, the House passed the Local Law Enforcement Hate Crimes Prevention Act of 2007 ( H.R. 1592 ). Community Oriented Policing Services (COPS)7 The COPS program, created by Title I of the Violent Crime Control and Law Enforcement Act of 1994, aims to increase community policing in part by awarding grants to state, local, and tribal law enforcement agencies for hiring and training new officers as well as for several non-hiring purposes, including developing crime-prevention technology and strategy. The 109 th Congress passed legislation that reauthorized the COPS program through FY2009. In addition to reauthorizing the program, the act consolidated the COPS program into a single grant program. Prior to this, the COPS program consisted of several different subgrant programs. The 110 th Congress, however, is considering legislation that would restructure and further reauthorize the COPS program. Two bills have seen legislative action thus far. On May 15, 2007, the House passed the COPS Improvement Act of 2007 ( H.R. 1700 ) and on May 24, 2007, the Senate passed a different version of the COPS Improvement Act of 2007 ( S. 368 ). In general, both bills would, among other things, expand the scope of the COPS grant programs, make COPS an exclusive component of DOJ, and authorize appropriations for COPS. The Bulletproof Vest Partnership Grant Program The Bulletproof Vest Partnership Grant Program receives its appropriations under the COPS program but is administered by DOJ's Bureau of Justice Assistance. The program provides benefits to eligible state and local law enforcement entities to be used for the purchase of body armor. The House considered legislation to reauthorize the program, H.R. 6045 , under suspension of the rules on September 25, 2008; however, after limited debate, the motion to suspend the rules was objected to due to a lack of a quorum. Court Security9 The 2005 Atlanta court shooting that killed several court personnel, including a judge, brought national attention to the issue of court security. While legislation was introduced and passed in one Chamber in the 109 th Congress, legislation was not enacted. In the 110 th Congress, however, legislation was enacted on January 7, 2008 (the Court Security Improvement Act of 2007; P.L. 110-177 ). Among other provisions, the Act increases penalties for certain crimes committed against specific categories of federal employees and their family members, including federal judges. The Act also increases penalties for certain illegal acts that are committed against jurors, witnesses, victims and informants, as discussed below. States' Victim/Witness Protection Program Witness intimidation reduces the likelihood that citizens will engage with the criminal justice system, which could deprive police and prosecutors of critical evidence. It can also reduce public confidence in the criminal justice system and create the perception that the criminal justice system cannot protect citizens. Witness intimidation can be the result of actual or perceived threats from an offender or his associates, but it can also be the result of more general community norms that discourage residents from cooperating with the police or prosecutors. P.L. 110-177 , enacted on January 7, 2008, provides incentives for states to enhance their victim/witness protection programs. For example, the Act expands an existing grant program so funds could be used for states and local governments' victim/witness protection programs. Offender Reentry13 Each year nearly 650,000 offenders are released from prison, and the Bureau of Justice Statistics estimates that over 60% of all released prisoners will commit new offences within three years of their release. The issue facing Congress is how to manage this population once they have been released from custody. There has been recent discussion of reinstating parole at the federal level (for non-violent, drug offenders) and creating and enhancing existing programs that are designed to provide assistance for offenders to prepare them for reentry into their communities. Many studies have shown that reentry initiatives that combine work training and placement with counseling and housing assistance can significantly reduce recidivism rates. Within the federal government and the academic community, a broad consensus exists that offender reentry can typically be divided into three phases: programs that prepare offenders to reenter society while they are in prison, programs that connect ex-offenders with services immediately after they are released from prison, and programs that provide long-term support and supervision for ex-offenders as they settle into communities permanently. Both the President's Serious and Violent Offender Reentry initiative and recent congressional appropriations in this area have focused primarily on programs for offenders once they have been released from prison. On April 9, 2008, the Second Chance Act of 2007 ( P.L. 110-199 ) was enacted. This Act expands the current offender reentry grant program at DOJ. It also authorizes funding for pilot programs for a wide range of services for offenders reentering the community. These programs fall under five broad categories: grants for state and local reentry courts, substance abuse treatment and counseling, health care-related services, family unification programs, and education programs. Identity Theft According to the Federal Trade Commission's (FTC's) most recent survey on identity theft, approximately 8.3% of the U.S. adult population may have fallen victim to identity theft in 2005. Furthermore, FTC complaint data from 2006 indicate that the most common complaint received (36% of complaints) was that of identity theft. Policymakers continue to be tasked with strengthening the criminal statues to allow for effective prosecution of identity thieves and to provide restitution for victims. In April, 2007, The President's Identity Theft Task Force authored a strategic plan for combating identity theft in which it recommended that Congress close gaps in the federal criminal statues to more effectively prosecute identity theft-related offenses. Legislation enacted in the 110 th Congress addresses several of these recommendations. The Identity Theft Enforcement and Restitution Act of 2008 (Title II of P.L. 110-326 ) was signed into law on September 26, 2008; it authorizes restitution to ID theft victims and expands prosecution of identity thieves. Elements of this Act include eliminating provisions in the U.S. Code that required identity theft to involve interstate or foreign communication and eliminating those provisions that required that damage to a victim's computer amass to $5,000. This Act also expands the definition of "cyber-extortion" and expands interstate and foreign jurisdiction for prosecuting computer fraud offenses. The 110 th Congress introduced several other bills related to identity theft, suggesting that policymakers continue to be concerned with safeguarding individuals' and organizations' data. Specifically, the House passed H.R. 6600 , H.R. 4791 , H.R. 3461 , and H.R. 1525 , which are aimed at eliminating the inclusion of Social Security numbers on Medicare cards, securing personal information held by federal agencies, advancing public education regarding Internet safety threats, and advancing the prosecution of identity theft committed with the aid of Internet spyware, respectively. Mandatory Minimum Sentences and Crack/Powder Cocaine Sentencing Disparities Mandatory minimum sentencing laws require offenders to be imprisoned for a specified period of time for committing certain types of crimes. While the intent of mandatory minimum sentencing and other similar measures is to punish the most serious offenders by incarcerating them for long periods, critics contend that the laws are disproportionately applied to nonviolent, minority offenders. While this debate tends to focus on non-violent, drug offenses, it is especially apparent, they argue, with the crack versus powder cocaine sentencing disparities. Proponents, however, contend that mandatory minimums decrease crime and ensure certainty in the criminal justice system. In addition to serving as a specific deterrent, proponents argue that these measures serve as a general deterrent to potential criminals. The 1986 and 1988 Anti-Drug Abuse Acts ( P.L. 99-570 and P.L. 100-690 , respectively) played pivotal roles in the current mandatory minimum sentencing structure applicable to federal drug offenses. The 1986 Act created mandatory minimum sentences for certain illicit drugs that are based on the quantity and type of drug involved in trafficking offenses. The Act, however, is most notable for its establishment of what has come to be known as the 100-to-1 quantity ratio between powder and crack cocaine. The 1988 Act required a mandatory minimum sentence for a first time offense of simple possession of crack cocaine. Possession of more than 5 grams of crack cocaine is punishable under the act by a minimum of five years. Congress, through the Violent Crime Control and Law Enforcement Act of 1994, directed the U.S. Sentencing Commission (Commission) to study the difference in penalties for powder and crack cocaine offenses. Congress was concerned that the penalties for crack and powder cocaine were having a disproportionate effect on minority offenders. In 1995, 1997, 2002 and 2007, the Commission reported to Congress on the disparity in penalties for crack and powder cocaine offenses. In the first report, the Commission called for Congress to equalize the quantities between crack and powder cocaine that trigger a mandatory minimum penalty. However, in their 2002 and 2007 reports, the Commission recommended that the 5-year and 10-year "trigger" quantities for crack cocaine be raised, but not to the level of powder cocaine. While the penalties remain in place at the federal level, some states have begun to take measures to ameliorate the discrepancies in state law. In May 2007, the Commission proposed an amendment to the federal sentencing guidelines that would amend the guidelines by lowering the recommended penalties for crack cocaine offenses in an effort to alleviate some of the issues associated with the sentencing disparity in current law between crack and powder cocaine. In November 2007, the amendment went into effect and the Commission voted in favor of making the amendment retroactive. The amendment, however, does not impact the mandatory minimum penalties that are in current law. Meanwhile, several bills have been introduced in the 110 th Congress that would, in some manner, reduce the mandatory minimum penalty triggers for crack and powder cocaine. Methamphetamine21 Illicit methamphetamine (MA) manufacture and abuse are longstanding problems in some states and regions of the country. The problem of illicit MA manufacture and use has been particularly acute in the West, Midwest, and Southeast. In recent years, concerns were raised that this drug problem was spreading nationwide, and MA issues reemerged as an important national concern and topped the congressional agenda. The illicit manufacture and abuse of MA have implications for public health, child welfare, crime and public safety, and international relations. According to the 2007 National Survey on Drug Use and Health (NSDUH), there were approximately 529,000 current users of MA aged 12 or older (0.2% of the population). Over the past 30 years, Congress has enacted legislation designed to address the problem of illicit MA abuse and its manufacture in clandestine labs. These measures have included more stringent federal regulation of MA precursor chemicals, enhanced criminal penalties for trafficking in the drug, and authorizing additional funding for grants providing MA-specific law enforcement assistance. During the 109 th Congress, the enactment of the USA PATRIOT Improvement and Reauthorization Act of 2005 ( P.L. 109-177 ) included a number of provisions designed to address various aspects of the MA problem. Title VII of P.L. 109-177 , the Combat Methamphetamine Epidemic Act (CMEA), which included provisions designed to curb MA use, trafficking, and production, was signed into law on March 9, 2006. Among other things, P.L. 109-177 further limited the diversion of MA precursor chemicals by requiring retailers to track purchases of over-the-counter medications containing these substances; authorized stricter limits on the bulk importation of MA precursor chemicals; provided increased MA-related criminal penalties; authorized measures related to the clean up of illicit MA laboratory sites; and authorized a grant program to prevent and treat MA abuse among pregnant and parenting women. Congress continues to be concerned about the abuse and illicit manufacture of MA. More recently, legislation was introduced during the 110 th Congress on a broad range of issues related to MA abuse, illicit manufacture, treatment, and drug trafficking offenses. Two more targeted measures were enacted that build on some of the provisions enacted in the CMEA ( P.L. 109-177 ). S. 1276 , the Methamphetamine Production Prevention Act of 2008 ( P.L. 110-415 ), passed by the House and Senate on September 29, 2008, further specifies the procedures retailers must follow for tracking the retail purchases of over-the-counter (OTC) medications containing MA precursor chemicals. H.R. 1199 , the Drug-Endangered Children Act of 2007 ( P.L. 110-345 ), passed by the House and Senate on September 24, 2008, extends the authority of the Drug-Endangered Children grant program through FY2009. Gangs22 Gangs continue to be a problem throughout America. According to a survey of law enforcement agencies on the characteristics of youth gangs conducted by the National Youth Gang Center (NYGC), gang activity is pervasive in both urban and rural America. Of cities with populations of 50,000 or more, 86% reported youth gang problems in 2006. Among responding suburban county agencies, 51% reported gang activity, as did 33% of responding smaller city agencies, and 15% of responding rural county agencies. The NYGC estimates that in 2006, 785,000 gang members and 26,500 gangs were active across the United States. Policymakers have long considered solutions to youth gang violence that include a combination of prevention, intervention, and suppression efforts. However, as gang violence increases, some are calling for different approaches to the issue. For example, should the tools used by law enforcement for certain crime-related activities (i.e., interception of wire, oral, and electronic communications) be expanded to cover violations committed by criminal street gang members? Should provisions in the Racketeer Influenced and Corrupt Organization (RICO) Act be extended to members of criminal street gangs? Should federal authority to prosecute juvenile gang members as adults be expanded to younger juveniles? Over the years, Congress has passed legislation that enhanced criminal penalties for gang-related crimes and created programs designed to prevent youths from joining gangs. Several bills targeting the gang problem have been introduced in the 110 th Congress. Among other provisions, some of the bills would broaden the scope of the federal government's role in prosecuting violent crimes committed by members of gangs. Some of the bills would include provisions for prosecuting criminal street gang enterprises similar to the existing Racketeer Influenced and Corrupt Organization (RICO) statutes for prosecuting cases involving federal racketeering. One of the more controversial provisions in at least one of the bills pertains to the age at which a juvenile could be transferred for criminal prosecution, which would provide for the transfer of juveniles to adult criminal prosecution at the age of 16. Some of the bills would provide for increased mandatory minimum penalties for gang-related offenses. In at least one of the bills, the death penalty would provide for certain gang-related crimes. Some of the bills would create and authorize designated high-intensity interstate gang activity areas (HIIGAAs). Some of the bills would reauthorize the Gang Resistance Education and Training (G.R.E.A.T) program and authorize appropriations for state and local reentry courts. Additionally, some of the bills would also authorize grant programs that would increase prosecutorial resources to more effectively prosecute gang violence, among other things. Of the various pieces of legislation that have been introduced in the 110 th Congress, only one has received congressional action. The Senate passed the Gang Abatement and Prevention Act of 2007 ( S. 456 ) on September 21, 2007. Juvenile Justice and Delinquency Prevention Act (JJDPA) Reauthorization24 As more focus is being placed on young offenders, some have questioned the way in which the United States treats this population in the nation's criminal justice systems. Over the past thirty years, the federal juvenile justice system has generally moved from a focus on rehabilitation to a focus on holding juveniles accountable for their actions. In a larger sense, this is the underlying tension that drives the national debate surrounding the juvenile justice system: rehabilitation versus retribution. This debate may come into focus again because the authorization for the Juvenile Justice Delinquency and Prevention Act (JJDPA) expired in 2007. It has not been reauthorized thus far in the 110 th Congress, although its major programs have continued to receive appropriations. The last time the JJDPA was reauthorized, during the 107 th Congress in 2002, P.L. 107-273 restructured many of the grant programs aimed at preventing juvenile delinquency, repealed a large number of smaller grant programs, and consolidated most of their purpose areas into one large block grant that included accountability and graduated sanctions. Many of the programs that were repealed, however, continued to receive annual appropriations even as the overall juvenile justice appropriation has decreased by over 50%. The theme of holding juveniles accountable for the crimes they commit continued into the 108 th and 109 th Congresses as several pieces of legislation attempted to lower the age of culpability for certain gang-related offenses. The core issues in the larger juvenile justice debate will remain the same during the 110 th Congress: whether rehabilitation should be the driving theme in the handling and processing of young offenders through the criminal justice system or whether a more punitive approach that emphasizes young offenders' responsibility for the crimes they commit should be the focus. Another issue that may arise involves the apparent dichotomy between the legislation, which features three broad overarching grant programs, and the appropriations that continue to fund the smaller grant programs that were repealed in 2002. S. 3155 , as reported by the Senate Committee on the Judiciary, would reauthorize the major provisions of the JJDPA from FY2009 through FY2013. The bill would make slight modifications to the existing grant programs and would create a new grant program, the Incentive Grants for State and Local Programs, that would channel funding into evidence-based prevention and intervention programs, and would aim to expand the use of mental health and substance abuse screening, assessment, referral, treatment, diversion, and aftercare services for juveniles. Mentally Ill Offenders In recent years, policymakers have become increasingly interested in the issue of mentally ill offenders and the strain their illnesses place on the criminal justice system. According to the Centers for Disease Control and Prevention (CDC), "health, mental health and substance abuse problems often are more apparent in jails and prisons than in the community." Furthermore, inmates are often diagnosed with health, mental health, and substance abuse problems only after receiving care while incarcerated. A 2006 Bureau of Justice Statistics (BJS) report found that in 2004 over half of inmates in state prisons (56%) and local jails (64%), and nearly half of all federal prisoners (45%), had a mental health problem. Data collected for the report indicated that mentally ill inmates in state prisons and local jails were more likely than inmates without mental illness to have been convicted of a violent offense or to have had three or more prior incarcerations. Policymakers have focused on how to provide treatment and services to mentally ill offenders both while they are incarcerated and after they are released, as well as how to prevent mentally ill offenders from entering the criminal justice system, especially for minor non-violent offenses. Currently, the Bureau of Justice Assistance (BJA) awards grants under the Justice and Mental Health Collaboration Program for programs that increase public safety by facilitating collaboration among the criminal justice, juvenile justice, mental health treatment, and substance abuse systems to increase access to treatment. One of the goals of the program is to maximize the use of diversion from prosecution, the use of alternative sentences through community supervision, and the use of graduated sanctions, as appropriate, in cases involving nonviolent offenders with mental illness. The Mentally Ill Offender Treatment and Crime Reduction Reauthorization and Improvement Act of 2008 ( P.L. 110-416 ), signed into law on October 14, 2008, reauthorizes funding for the Adult and Juvenile Collaborations Program grants. The Act authorizes $50 million for each fiscal year for FY2009 through FY2014. The Adult and Juvenile Collaborations Program authorizes the Attorney General to award grants to state, local, and tribal governments to prepare a plan for and implement a program (which is overseen cooperatively by a criminal or juvenile justice agency or mental health court and a mental health agency) to ensure access to adequate mental health and other treatment services for non-violent, mentally ill adult or juvenile offenders who have been diagnosed with a mental illness, or who are manifesting signs of mental illness, and who are facing criminal charges for a misdemeanor or non-violent offense and are deemed to have committed the crime as a result of mental illness. Additionally, the Act authorizes a new grant program that provides grants to state, local, and tribal governments to provide for (1) programs that offer law enforcement personnel specialized and comprehensive training in procedures to identify and respond appropriately to incidents involving individuals with mental illness; (2) the development of specialized receiving centers to assess individuals in the custody of law enforcement for suicide risk and mental health and substance abuse treatment needs; (3) computerized information systems (or to improve existing systems) to provide timely information to improve the response to mentally ill offenders; (4) the establishment and expansion of cooperative efforts by criminal and juvenile justice agencies and mental health agencies to promote public safety through the use of effective intervention with respect to mentally ill offenders; and (5) programs that offer campus security personnel training in procedures to identify and respond appropriately to incidents involving individuals with mental illness. Child Pornography and the Sexual Exploitation of Children Growing access to, and increasing use of, the Internet has facilitated the proliferation of child pornography. According to the Department of Justice's Child Exploitation and Obscenity Section (CEOS), by the mid-1980s trafficking of child pornography had been almost eliminated through a series of successful law enforcement initiatives. Producing child pornography was both difficult and expensive, and purchasing and trading such images was risky. CEOS reports that the Internet now allows images and digitized movies to be easily reproduced and disseminated to tens of thousands of people. In addition, the distribution and receipt of such images can be done almost anonymously. According to a 2007 BJS report, child pornography cases accounted for approximately 69% of all federal sexual exploitation cases and 82% of the growth in sex exploitation cases referred to U.S. Attorneys offices between 1994 and 2006. Congress has focused on reducing child pornography through a combination of increased penalties for producing and/or possessing child pornography and by funding initiatives to catch and prosecute child pornographers. Most notably, the Prosecutorial Remedies and Other Tools to End the Exploitation of Children Today (PROTECT) Act of 2003 ( P.L. 108-66 ) increased penalties related to the production and/or possession of child pornography. The Federal Bureau of Investigation (FBI) investigates cases of child pornography through its Innocent Images National Initiative (IINI). According to the FBI, the mission of IINI is to "reduce the vulnerability of children to acts of sexual exploitation and abuse which are facilitated through the use of computers; to identify and rescue child victims; to investigate and prosecute sexual predators who use the Internet and other online services to sexually exploit children for personal or financial gain; and to strengthen the capabilities of federal, state, local, and international law enforcement through training programs and investigative assistance." Currently, the Office of Juvenile Justice and Delinquency Prevention (OJJDP) provides funding for Internet Crimes Against Children (ICAC) task forces across the country. The ICAC program was created to help state and local law enforcement agencies enhance their investigative response to offenders who use the Internet or other computer technology to sexually exploit children. There are currently 59 regional ICAC task forces. Title I of P.L. 110-358 does expand and Subtitle D of Title II of S. 3297 would expand the authority of the federal government to prosecute crimes relating to child pornography and the sexual exploitation of children. Subtitle D would, among other things, amend current law so that anyone who uses any means or facility of interstate or foreign commerce to commit an act that is a crime under 18 U.S.C. §§2251 (Sexual Exploitation of Children), 2251A (Selling or Buying of Children), 2252 (Certain Activities Relating to Material Involving the Sexual Exploitation of Minors), or 2252A (Certain Activities Relating to Material Constituting or Containing Child Pornography) could be prosecuted for offenses under those sections. Both bills would also amend current law so that for someone to be prosecuted for a crime under 18 U.S.C. §§2251, 2251A, 2252, or 2252A the prohibited act(s) could either be conducted in interstate or foreign commerce or the act(s) could affect interstate and foreign commerce. Title II of P.L. 110-358 amends current law, and Subtitle E of Title II of S. 3297 and Title II of S. 3344 would amend current law so that offenses under 18 U.S.C. §2252A (relating to child pornography), where the child pornography contains a visual depiction of an actual minor engaging in sexually explicit conduct and 18 U.S.C §2260 (production of certain child pornography for importation into the United States) are predicate crimes for a prosecution for money laundering under 18 U.S.C. §1956. All three bills amend current law to expand the federal government's ability to prosecute crimes related to knowingly accessing child pornography with the intent to view child pornography. Title I of S. 1738 , Part I of Subtitle H of Title II of S. 3297 , and Subtitle A of Title I of S. 3344 would expand the federal government's efforts to prevent child exploitation, online child predators, and child pornography. All three bills would require the Attorney General to create and implement a national strategy for child exploitation prevention and interdiction. This subtitle would, among other things, authorize a national Internet Crimes Against Children (ICAC) task force program, which would consist of state and local law enforcement task forces dedicated to developing effective responses to online enticement of children by sexual predators, child exploitation, and child obscenity and pornography cases. All three bills would also authorize $60 million for each of FY2009 through FY2013 for grants to support ICAC task forces. Title III of S. 1738 , Part III of Subtitle H of Title II of S. 3297 , and Subtitle C of Title I of S. 3344 expand the authority of the federal government to prosecute crimes related to broadcasting live images of child abuse. All three bills would also amend current law to allow the federal government to prosecute individuals who modify or alter an image of an identifiable minor in order to produce child pornography. P.L. 110-358 was enacted on October 8, 2008. S. 1738 was cleared for the President on September 27, 2008. S. 3344 was placed on the Senate legislative calendar on July 28, 2008. S. 3297 was introduced on July 22, 2008. The bill was not referred to committee, and the Senate started to debate the bill on July 26, 2008. As of September 26, 2008, the Senate has not invoked cloture on the motion to proceed to consideration of the measure. DNA Testing The analysis of DNA evidence has had a profound effect on how law enforcement investigates crime. For many years, the collection of DNA evidence grew quickly, outstripping the resources available to analyze it and resulting in a backlog of requests. Many publicly funded laboratories across the country have been experiencing difficulty meeting the demand for these tests and reducing their DNA backlogs. At the same time, federal and state laws were enacted requiring the collection of DNA samples from those convicted of certain offenses, thus adding to the backlog. In response, Congress enacted the DNA Analysis Backlog Elimination Act of 2000 ( P.L. 106-546 ), authorizing grants to states to carry out DNA analyses. Over the years since its original authorization, this grant program has been reauthorized, amended, and renamed the Debbie Smith DNA Backlog Grant program. Debbie Smith DNA Backlog Grant Program43 The Debbie Smith DNA Backlog program was first authorized under the DNA Analysis Backlog Elimination Act of 2000 ( P.L. 106-546 ) and subsequently reauthorized and expanded under the Justice for All Act ( P.L. 108-405 ). Under the current program, grants are awarded to state and local governments to help them collect and analyze DNA evidence from backlogged crime scenes. More specifically, the program grants can be used to analyze samples collected under applicable legal authority for inclusion in the national DNA database, the Combined DNA Index System (CODIS) of the Federal Bureau of Investigation (FBI); analyze samples from crime scenes, including samples from rape kits, samples from other sexual assault evidence, and samples taken in cases without an identified suspect for inclusion in the national DNA database; increase the capacity of laboratories owned by states or units of local government to carry out DNA analyses of collected samples; collect DNA samples from individuals who are required to submit samples under applicable legal authority; and ensure that DNA testing and analysis of samples from crimes, including sexual assault and other serious violent crimes, are carried out in a timely manner. The Debbie Smith Reauthorization Act of 2008 ( P.L. 110-360 ), signed into law on October 8, 2008, authorizes appropriations of $151 million for each fiscal year. In addition, the Act requires that for each of the fiscal years 2009-2014, at least 40% of the grant amounts awarded must be for the purpose of analyzing DNA samples from crime scenes taken in cases without an identified suspect for inclusion in CODIS. Federal Prison Industries45 UNICOR, the trade name for Federal Prison Industries, Inc., is a government-owned corporation that employs offenders incarcerated in correctional facilities under the Federal Bureau of Prisons. FPI manufactures products and provides services that are sold to executive agencies in the federal government. The question of whether FPI is unfairly competing with private businesses, particularly small businesses, in the federal market has been and continues to be an issue of debate. At the core of the debate is FPI's preferential treatment over the private sector. FPI's enabling legislation and the Federal Acquisition Regulation require federal agencies, with the exception of the Department of Defense, to procure products offered by FPI, unless authorized by FPI to solicit bids from the private sector. It is this "mandatory source clause" that has drawn controversy over the years and is the subject of current legislation. Although federal agencies are not required to procure services provided by FPI, they are encouraged to do so. Although the Administration made several efforts to mitigate the competitive advantage FPI has over the private sector, Congress has taken legislative action to lessen such impact on the private sector. For example, in 2002 and 2003, Congress passed legislation that modified FPI's mandatory source clause with respect to procurements made by the Department of Defense and the Central Intelligence Agency; and in recent years, Congress passed legislation limiting federal agencies use of appropriated funds for the purchase of products or services manufactured by FPI unless the agency determines that the products or services provide "... the best value to the buying agency pursuant to government-wide procurement regulations...." Legislation has been introduced in the 110 th Congress that would, in essence, eliminate FPI's mandatory source clause. For example, the Federal Prison Industries Competition in Contracting Act of 2005 ( H.R. 2965 ) and S. 749 would have phased out over five years FPIs' mandatory source clause with respect to products produced by FPI and would have ceased treating FPI as a preferential provider for services . Other Issues In addition to the aforementioned legislation, other crime-related issues have surfaced during the 110 th Congress, as discussed below. Federal Sentencing Structure48 In 1984, Congress passed legislation that led to the creation of federal sentencing guidelines. The Sentencing Reform Act of 1984 (Chapter II of the Comprehensive Crime Control Act of 1984; P.L. 98-473 ), in essence, eliminated indeterminate sentencing at the federal level. The act created the United States Sentencing Commission (Commission), an independent body within the judicial branch of the federal government and charged it with promulgating guidelines for federal sentencing. The purpose of the Commission was to examine unwarranted disparity in federal sentencing policy, among other things. In establishing sentencing guidelines for federal judges, the Commission took into consideration factors such as (1) the nature and degree of harm caused by the offense; (2) the offender's prior record; (3) public views of the gravity of the offense; (4) the deterrent effect of a particular sentence; and (5) aggravating or mitigating circumstances. In addition to these factors, the Commission also considered characteristics of the offender, such as age, education, vocational skills, and mental or emotional state, among other things. Prior to the recent Supreme Court ruling ( U.S. v. Booker , see discussion below), the guidelines were binding, and they were also subject to statutory directives, including mandatory minimum penalties for specific offenses set by Congress. On January 12, 2005, the U.S. Supreme Court ruled that the Sixth Amendment right to a trial by jury requires that the current federal sentencing guidelines be advisory, rather than mandatory. In doing so, the Court struck down a provision in law that made the federal sentencing guidelines mandatory, as well as a provision that governed the standards of appellate review of departures from the guidelines. In essence, the Court's ruling gives federal judges discretion in sentencing offenders by not requiring them to adhere to the guidelines unless the offense carried a mandatory sentence; rather the guidelines can be used by judges on an advisory basis. As a result of the ruling, judges now have discretion in sentencing defendants unless the offense carries a mandatory sentence (as specified in the law). While some view the ruling as an opportunity for federal judges to take into consideration the circumstances unique to each individual offender, thus handing down a sentence that better fits the offender, others fear that such discretion may result in unwarranted disparity and inconsistencies in sentencing across jurisdictions that led to the enactment of the guidelines in 1984. As a result of the ruling, many questioned whether Congress should amend current law to require federal judges to follow guided sentences, or permit federal judges to use their discretion in sentencing under certain circumstances. Possible congressional options include (1) amend the sentencing ranges by increasing the top of each guideline range to the statutory maximum for each given offense; (2) require jury trial or defendant waiver for any enhancement factor that would increase the sentence for which the defendant did not waive his rights; or (3) take no action, thus permitting judicial discretion in sentencing in cases where Congress has not specified mandatory sentences. Maintaining the Fugitive Database On September 18, 2008, the Senate Judiciary Committee amended and favorably reported (without a written report) the Fugitive Information Networked Database Act of 2008 (or the FIND Act; S. 3136 ). This bill would authorize $518 million in additional appropriations to improve state-federal information sharing on fugitives from justice, increase U.S. Marshals Service (USMS) regional fugitive task forces (RFTFs) and related activities, and provide extradition assistance to state, local, and tribal governments. According to the bill's findings, approximately half of the nation's outstanding felony warrants (between 1.4 and 1.6 million warrants) have not been entered into the Federal Bureau of Investigation National Crime Information Center (NCIC). These circumstances result in several public safety issues. One, fugitives who flee to other states are not being apprehended. Two, often times those fugitives go on to commit serious crimes in other states. And, three, law enforcement officers who encounter these fugitives are not informed about the potential danger these fugitives may pose to themselves or the general public. According to the bill's findings, state, local, and tribal governments often fail to enter such warrants into NCIC because of insufficient funding to upload those records into NCIC. To remedy that circumstance, S. 3136 would authorize the Attorney General to provide grants to state, local, and tribal governments, in a manner consistent with the National Criminal History Improvement Program (NCHIP), to upgrade their computer systems to more easily enter outstanding warrants into NCIC and to validate those warrants. For those purposes, the bill would authorize yearly appropriations of $15 million for FY2009 and FY2010, and $20 million for FY2011. State, local, and tribal governments, moreover, do not always have the resources to extradite fugitives to stand trial in the jurisdiction where they were charged with a crime. To increase resources for the USMS and its RFTFs, S. 3136 would authorize an additional $50 million in annual appropriations for FY2009 and FY2012, and an additional $25 million for FY2013-FY2015. The bill would also authorize an additional $3 million for the USMS and its Justice Prisoner and Alien Transport System for each fiscal year FY2009-FY2014. Additionally, the bill would authorize the Attorney General to provide grants to state, local, and tribal governments to increase fugitive extraditions. For those purposes, the bill would authorize appropriations of $50 million for each fiscal year FY2009-FY2015. To gauge the problem of missing felony warrants nationally, S. 3136 includes a provision that would require the Government Accountability Office to report to Congress on the issue of missing felony warrants and apprehended fugitives who were not extradited within 270 days of enactment. The bill would also require states to report to the Attorney General, and for the Attorney General to report to Congress on the implementation of the provisions in this bill. Oversight of DOJ Grant Programs58 DOJ grant programs and appropriations is a perennial issue of oversight for Congress. In the 109 th Congress, the Edward Byrne Memorial State and Local Law Enforcement Assistance (Byrne Formula) and the Local Law Enforcement Block Grant (LLEBG) programs were combined to create the Edward Byrne Memorial Justice Assistance Grant (JAG) program. Funding under the JAG program in FYs 2005-2006 was less than the total amount of funding appropriated to the Byrne Formula program and LLEBG in FYs 1996-2004. Congress has also reduced appropriations for the Community Oriented Policing Services (COPS) since FY2002. The JAG and COPS programs are the primary programs for providing federal assistance to state and local law enforcement and many officials in the law enforcement communities have expressed concern over the decrease in grant monies made available to them through the programs. Critics contend, however, that while these programs have seen a reduction in funding, grant programs geared towards countering terrorism have seen an increase in funding and state and local law enforcement agencies are often the recipients of these grants. The Violence Against Women Act (VAWA) was also reauthorized in the 109 th Congress, however, funding for most of the new VAWA programs created in the reauthorization act did not receive appropriations. Some critics have expressed concern that the decrease in federal funding that some of these programs have seen in recent years has made it harder for state and local law enforcement to combat violent crime. Moreover, they argue, that the recent increase in the national violent crime rate is evidence that the federal government should place more focus on providing assistance to state and local law enforcement. Appendix. Selected Crime-Related Legislation Enacted in the 109th Congress The Adam Walsh Child Protection and Safety Act of 2006 (P.L. 109-248)60 Legislation was enacted in the 109 th Congress that examines more closely registration and notification law and federal funding for state registration enforcement. The Adam Walsh Child Protection and Safety Act of 2006 ( H.R. 4472 , as amended; P.L. 109-248 ) was signed into law on July 27, 2006. The act provides a comprehensive national approach to addressing the issue of sex offenders by requiring the establishment of a national public registry with information on individuals convicted of a criminal offense against a minor or on violent predators who victimize children. The act also tightens registration requirements; provides for additional mandatory minimum penalties for sex offenders in certain instances; creates grant programs for states to enhance, operate, or create a civil commitment program; and creates a civil commitment program at the federal level. The Violence Against Women and Department of Justice Reauthorization Act of 2005 (P.L. 109-162)61 Department of Justice Reauthorization The 109 th Congress passed legislation that reauthorizes many of the agencies and programs under DOJ's jurisdiction. The Violence Against Women and Department of Justice Reauthorization Act of 2005 ( P.L. 109-162 ) authorizes appropriations for DOJ for FY2006 through FY2009. Among other provisions, the act codifies the existing Edward Byrne Memorial Justice Assistance Grant (JAG) program, the Executive Office of Weed and Seed, and the Community Capacity Development Office (CCDO). Moreover, the act reauthorizes and restructures grant programs under the Community Oriented Policing Service (COPS) and the Violence Against Women offices and creates an Office of Audit, Assessment and Management. Consolidation of Certain Office of Justice Programs62 The structure of federal funding for state and local law enforcement assistance received congressional attention during the 109 th Congress. While the Administration had proposed decreasing the funding amounts and reorganizing some of these programs for several years, it wasn't until the 108 th Congress that two federal grant programs were consolidated into a newly created program, as discussed briefly below. For several years, the Administration had proposed consolidating the Edward Byrne Memorial Formula and Local Law Enforcement Block Grant (LLEBG) programs into a new Edward Byrne Memorial Justice Assistance Grant (JAG) program. Congress, however, first considered consolidating the two grant programs in the 108 th Congress. Through an appropriations act (the Consolidated Appropriations Act, FY2005; P.L. 108-447 ), the 108 th Congress consolidated the grant programs into a newly created JAG program, and in January 2006, legislation was enacted that authorizes appropriations for the program through FY2009. Overall funding for both programs in the FY2005 appropriations decreased 12% (or $268 million) from FY2004, and in FY2006, Congress again decreased funding by $121 million from FY2005. Community Oriented Policing Services (COPS)65 During the 103 rd Congress, legislation was passed that encouraged community policing approaches (i.e., placing more police officers "on the beat") for state and local law enforcement agencies by creating a federal grant program for community policing. Funding for the newly created Cops on the Beat program (now more commonly known as the COPS program) was authorized through FY2000. The COPS program provides assistance to eligible police departments to help improve community policing efforts and law enforcement support activities. The program requires that at least 85% of the grant money be used for the following: (1) to hire or rehire police officers; (2) procure equipment; (3) pay overtime; or (4) build support systems. The authority for the COPS grant program lapsed at the end of FY2000. Congress, however, has continued to appropriate funding for the program. The 109 th Congress passed legislation that reauthorizes the program and realigns some of the COPS activities to other accounts. Violence Against Women Act (VAWA)67 The original Violence Against Women Act (VAWA), enacted as Title IV of the Violent Crime Control and Law Enforcement Act ( P.L. 103-322 ), became law in 1994. To address violence against women, VAWA established within DOJ and the Department of Health and Human Services a number of discretionary grant programs for state, local and Indian tribal governments. The 109 th Congress passed legislation that reauthorizes VAWA ( P.L. 109-162 ). Among other provisions, the act encourages collaboration among law enforcement, judicial personnel, and public and private sector providers to victims of domestic and sexual violence. It also addresses the special needs of victims of domestic and sexual violence who are elderly, disabled, children, youth, and individuals of ethnic and racial communities, including Native Americans. The act provides emergency leave and long-term transitional housing for victims. The act makes these provisions gender neutral and requires studies and reports on the effectiveness of approaches used for certain grants in combating domestic and sexual violence. The DNA Fingerprinting Act of 2005 (P.L. 109-162) Title X of P.L. 109-162 , the DNA Fingerprinting Act of 2005, made several changes to current law. Among other provisions, the act authorizes federal authorities to take DNA samples from larger categories of individuals, including those who are arrested and detained, and include the DNA analysis in the FBI's Combined DNA Index System (CODIS). The act, however, requires the Director of the Federal Bureau of Investigation to expunge the DNA analysis from CODIS of arrestees for whom the Attorney General receives a certified copy of a final court order that establishes the charge has been dismissed, resulted in an acquittal, or that no charge was filed within the applicable time period. The act also requires the Director of the Federal Bureau of Investigation to expunge the DNA analysis from CODIS of individuals whose convictions have been overturned.

States and localities have the primary responsibility for prevention and control of domestic crime. As crime became more rampant, the federal government increased its involvement in crime control efforts. Over a period of 10 years, Congress passed five major anti-crime bills and increased appropriations for federal assistance to state and local law enforcement agencies. Since the 9/11 terrorist attacks, however, federal law enforcement efforts have been focused more on countering terrorism and maintaining homeland security. Amid these efforts, however, Congress continues to address many crime-related issues. Many have attributed the increased attention the federal government gave to crime issues in the 1980s and 1990s to the rising crime rate. The violent crime rate, for example, began to increase in the 1960s, continuing to rise in the mid-1990s before starting to decline in the late-1990s. The continued decline in the violent crime rate in the early 2000's coincided with national attention being focused away from domestic crimes and more on securing the homeland against terrorism. During this period, Congress began to increase federal funding to homeland security-related activities. In 2005, however, the violent crime rate began to increase and continued to increase in 2006, before declining again in 2007. The increase in the violent crime rate in 2005 and 2006, however, continues to remain at an over 30 year low. The 110th Congress is considering a variety of crime-related legislation, some of which has either been enacted, reported out of committee, and/or passed one or the other Chamber. For example, the following Acts were enacted during the 110th Congress: the Court Security Improvement Act of 2007 (P.L. 110-177); the Second Chance Act of 2007 (P.L. 110-199); the Identity Theft Enforcement and Restitution Act of 2008 (P.L. 110-326); the Effective Child Pornography Prosecution Act of 2007 (P.L. 110-358); the Drug-Endangered Children Act of 2007 (P.L. 110-345); the Debbie Smith Reauthorization Act of 2008 (P.L. 110-360); the Methamphetamine Production Prevention Act of 2008 (P.L. 110-415); and the Mentally Ill Offender Treatment and Crime Reauthorization and Improvement Act of 2008 (P.L. 110-416). The House passed the Local Law Enforcement Hate Crimes Prevention Act of 2007 (H.R. 1592) and the COPS Improvement Act of 2007 (H.R. 1700). The Senate passed the Gang Abatement and Prevention Act of 2007 (S. 456), and the Senate Judiciary Committee favorably reported the COPS Improvement Act of 2007 (S. 368), the Juvenile Justice and Delinquency Prevention Reauthorization Act of 2008 (S. 3155), and the Fugitive Information Networked Database Act of 2008 (S. 3136). In addition to the aforementioned legislation, other crime-related issues have surfaced during the 110th Congress that could warrant congressional action, such as the U.S. Sentencing Commission amending the federal sentencing guidelines by lowering the recommended penalties for crack cocaine offenses in an effort to alleviate some of the issues associated with the sentencing disparity in current law between crack and powder cocaine; reforming the Federal Prison Industries; reforming the federal sentencing system; and providing oversight of the various Department of Justice grant programs. This report will be updated as warranted.

Introduction This report provides background information and considers issues for Congress related to the worldwide proliferation of "precision strike" capabilities. Precision strike systems utilize projectiles, bombs, missiles, torpedoes, and other weapons that can actively correct for initial-aiming or subsequent errors by homing on their targets or aim-points after being fired, released, or launched. Some analysts state that "the United States took an early lead in exploiting the promise of precision-strike systems and the use of precision weaponry has given the United States a battlefield edge for twenty years. However, these weapons are now spreading: other countries, and non-state actors, are acquiring them and developing countermeasures against them." As precision-strike capabilities spread, will the United States see its edge erode? The fact that this ability of the United States to project power could also diminish, possibly leaving U.S. forces—and eventually the United States itself—increasingly vulnerable to precision weapons in the hands of its adversaries, will raise a number of serious considerations for Members of Congress. Such proliferation could lead to events such as the following: U.S. ground forces having to fight without the inherent safety of air superiority/supremacy, leaving them vulnerable to attack by enemy air forces for the first time in nearly 70 years. U.S. naval forces being restricted from protecting the world's waterways by anti-access/area denial measures, such as those under development in China, which could directly affect the U.S. ability to support key allies and greatly affect international trade and commerce. Use of Guided Rockets, Artillery, Mortars and other Missiles (G-RAMM) against a U.S. expeditionary force's Forward Operating Bases (FOBs). The proliferation of precision strike creates potential issues for Congress. Oversight issues include whether the Department of Defense (DOD) is properly taking adversary precision strike weapons into account in its own plans and programs. Authorization and appropriations issues include whether Congress should approve, reject, or modify proposed DOD programs for responding to those weapons. Congress's decisions regarding combating the proliferation of precision strike in its oversight role could be wide-ranging, substantially affecting a variety of key factors, including capabilities and funding requirements; service force levels and missions; technology proliferation strategy; forward-deployed basing considerations; level of support given to allies; strength of U.S. influence around the globe; and the defense industrial base. Finally, should Congress legislate requirements for DOD to develop precision strike countermeasures and then provide funding for that research and development? Background Definitions Precision Strike —Precision strike is the striking of an adversary while utilizing guided munitions. Long- Range Strike —"The capability to achieve a desired effect(s) rapidly and/or persistently, on any target, in any environment, anywhere, at any time." For example, bomber aircraft such as the B-52, B-1, and B-2 are long-range strike aircraft capable of taking off from the continental United States (CONUS) and striking targets anywhere in the world. Precision Guided Munition (PGM) —A weapon that uses a seeker to detect electromagnetic energy reflected from a target or reference point and, through processing, provides guidance commands to a control system that guides the weapon to the target. For definition's sake, the "term guided munitions will hereafter refer to projectiles, bombs, missiles, torpedoes and other weapons that can actively correct for initial-aiming or subsequent errors by homing on their targets or aim-points after being fired, released or launched. Prominent examples of guided munitions in U.S. combat experience during the past six decades include naval surface-to-air missiles (SAMs) such as the American Talos, the Soviet built SA-2 SAM, laser guided bombs (LGBs), the Sidewinder and Sparrow III air-intercept missiles (AIMs), the Tomahawk Land Attack Missile (TLAM), the Conventional Air Launched Cruise Missile (CALCM) and the Joint Direct Attack Munition (JDAM)." Smart Bomb —A steerable, radio-controlled, laser- or satellite-guided bomb designed to precisely hit a target and minimize collateral damage. A member of the PGM family. Dumb Bomb —"A bomb that is neither powered nor guided and depends on accurate dropping on the target for its effectiveness." Air Superiority —"That degree of dominance in the air battle of one force over another that permits the conduct of operations by the former and its related land, maritime, and air forces at a given time and place without prohibitive interference by the opposing force." Air Supremacy —"That degree of air superiority wherein the opposing air force is incapable of effective interference." Anti-Access —"any action by an opponent that has the effect of slowing the deployment of friendly forces into theater, preventing them from operating from certain locations within that theater, or causing them to operate from distances farther from the locus of conflict than they would normally prefer." Area Denial —"activities that seek to deny freedom of action within areas under the enemy's control." Brief History of Precision Strike Guided weapons, including the V-1 cruise missile and V-2 ballistic missile, but also the Fritz X air-to-surface weapon, were first used in combat by Germany during World War II. However, the United States took the lead in developing the precision weapons in the decades that followed. Indeed, many of the weapon systems associated with the information revolution—precision-guided munitions (PGMs), unmanned air vehicles (UAVs) and sensors—date back to the 1960s and 1970s, and many saw their debut in the Vietnam War. Between 1968 and 1973, for example, the Air Force and Navy expended more than 28,000 laser guided bombs (LGBs) in Southeast Asia, mainly against bridges and transportation chokepoints. These quotes highlight the fact that precision weapons are not a new idea, even though they have gained prominence in relatively recent years. In 2007, Center for Strategic and Budgetary Assessments (CSBA) analyst Barry Watts released a report detailing the history of precision-guided weapons starting at the end of World War II (WWII) covering the past six decades. He notes, "The fact that early trials of weapons conceptually recognizable as guided munitions occurred so many decades ago suggest how long, uneven, and troubled an emergence many of these weapons have had, notwithstanding some early successes in actual combat." Only recently, starting with the successful use by the United States during Operation Desert Storm, has the world seen the kind of impact precision guided weapons can have. The military services have accepted the development and employment of precision-guided weapons at both different rates and to different degrees. For example, the U.S. Navy began employing guided torpedoes during World War II and, during the Cold War that followed, the only unguided torpedo the USN's submarine community accepted into operational service had a nuclear warhead. The U.S. Army's tank community, on the other hand, relies to this day primarily on aimed fire from a high-velocity main gun for tank-on-tank engagements. The fundamental reason for the wide variation in when different Services and communities within those Services embraced guided munitions appears to lie in the complexity of engagement dynamics. The more dimensions in which the delivery platform, the target platform, or both, can maneuver, the stronger the tactical imperative to move to guided munitions. In addition, the Navy historically has faced a greater number of asymmetric threats requiring PGM technology in order to counter. Examples include the German U-boats, as well as the Japanese kamikazes, which explains, to a certain extent, the fondness the Navy has shown over the years for PGMs and their associated technology. Effective PGMs took some time to "arrive." "For the most part, the conventional guided weapons of the 1940s, 1950s, 1960s and early 1970s were too few, too inaccurate, too unreliable, or too susceptible to simple countermeasures to precipitate anything approaching a revolution of military affairs (RMA) comparable to the rise of armored warfare (Blitzkrieg) or carrier aviation during the interwar years 1918-1939." It was not until the 1991 Gulf War that PGMs as known today really came into their own. U.S. Use of Precision Guided Munitions (PGMs) Desert Storm The unparalleled accuracy of PGMs has increased the effectiveness of the air campaign exponentially, and the Gulf War showed how radically precision attack had transformed the traditional notion of running a military campaign and, especially, an air campaign. On opening night of the war, attacks by strike aircraft and cruise missiles against air defense and command and control facilities essentially opened up Iraq for subsequent conventional attackers. Precision attacks against the Iraqi Air Force destroyed it in its hangars, and precipitated an attempted mass exodus of aircraft to Iran. Key precision weapon attacks against bridges served to 'channelize' the movement of Iraqi forces and create fatal bottlenecks, and many Iraqis, in frustration, simply abandoned their vehicles and walked away. The results were striking: "this destruction had taken place in an astonishingly short time; whereas, in previous non-precision interdiction campaigns, it often took hundreds of sorties to destroy a bridge, in the Gulf War precision weapons destroyed 41 of 54 key Iraqi bridges, as well as 31 pontoon bridges hastily constructed by the Iraqis in response to the anti-bridge strikes, in approximately four weeks." The Gulf War also illustrated the improved efficiency and effectiveness precision strike can yield: the combination of the stealthy F-117 Nighthawk aircraft and PGMs gave U.S. forces extremely high effectiveness. A typical non-stealth strike formation in the Gulf War required thirty-eight aircraft, including electronic warfare and defense suppression aircraft, to allow eight planes to deliver bombs on three targets. By contrast, only twenty F-117s armed with 2,000 lb LGBs were able simultaneously to attack thirty-seven targets in the face of more challenging defenses. As a result, although F-117s flew only 2 percent of the total attack sorties in the war, they struck nearly 40 percent of strategic targets, such as leadership and command and control facilities. Additionally, "on one night alone, 46 F-111F attack aircraft dropped 184 LGBs, which destroyed 132 Iraqi armored vehicles." Kosovo Operations in Kosovo in 1999 represented a step forward in the use of precision strike. The 1999 war over Kosovo saw the introduction of a new generation of PGMs guided by data from the Global Positioning System (GPS) satellite constellation, most notably the GBU-31 Joint Direct Attack Munition (JDAM). The weapon consists of a $20,000 kit, including a GPS receiver, sensors, and tailfins, that converts an unguided bomb into a guided weapon. In contrast with the laser-guided bombs used in Vietnam and the Gulf War, such weapons allow aircraft to strike at night and through inclement weather. The B-2 bomber was instrumental in the successful air campaign, as it "delivered 652 2,000-pound (lb) JDAMs and four 4,700-lb Global Positioning System (GPS)-Aided Munitions (GAMs) against Serbian targets during NATO's 78-day air campaign" with an accuracy rate over 90% within 13 meters (42.7 feet). As precise as the PGMs guided by GPS are, they are still only as good as the coordinates/data placed into their guidance systems. An example of an error in the use of PGMs was the accidental bombing of the Chinese Embassy on May 7, 1999. On this date, a B-2 bomber dropped two JDAMs onto the Chinese Embassy by mistake due to faulty targeting and maps. The bombs accurately struck their targets consistent with their programming; their programming was wrong. Operations Enduring Freedom/Iraqi Freedom By the time the United States initiated operations in Iraq and Afghanistan in the early 2000s, the situation with respect to precision strike had changed dramatically. Between 1991 and 2003, PGMs grew from a niche capability to represent a new standard of warfare. Whereas 8 percent of the munitions employed during the Gulf War were guided, 29 percent of those used over Kosovo eight years later, 60 percent of those used in Afghanistan ten years later, and 68 percent of those used in Iraq twelve years later were guided. In Afghanistan, the JDAM became the weapon of choice for U.S. forces. Between October 2001 and February 2002, U.S. forces dropped 6,600 of the munitions; during just one ten-minute period on October 18, 2001, the Air Force dropped a hundred of the bombs. Two years later in Iraq, U.S. forces dropped more than 6,500 JDAMs in the march on Baghdad. PGMs from Unmanned Aerial Vehicles (UAVs) JDAMs were not the only new technology to be used during the Kosovo war. Modern UAVs, such as the Air Force RQ-1A Predator, were used for the first time for reconnaissance and surveillance. Today, as technology and tactics have evolved, those same UAV platforms armed with such weapons as Hellfire missiles are being used extensively in the war on terror. Hellfire missiles have multi-mission, multi-target precision-strike capability, and can be launched from multiple air, sea, and ground platforms. "In November 2002, an AGM-114A Hellfire air-to-surface missile launched by a Predator destroyed a car carrying six terrorists, including Salim Sinan al-Harethi, Al Qaeda's chief operative in Yemen and a suspect in the October 2000 bombing of the destroyer USS Cole." More recently in September 2011, armed drones reportedly operated by the CIA successfully unleashed a barrage of Hellfire missiles at a car carrying Anwar al-Awlaki, an American-born Muslim cleric, and other top operatives of Al Qaeda's branch in Yemen, killing Mr. Awlaki after a two-year manhunt. The use of precision strike has influenced warfare to such an extent that military forces now have the capability of accurately targeting specific individuals. There is also the inherent ability to limit collateral damage by picking the right-sized weapon for the respective target. A further example of this capability is provided by a DOD press release related to U.S. operations in Afghanistan: Coalition forces conducted a precision air strike August 21, 2010, targeting a Taliban subcommander in charge of about 10 fighters and facilitation of foreign fighters from Pakistan to Nangarhar. Afghan and coalition forces tracked the commander as he met with at least 25 insurgents armed with assault rifles and rocket-propelled grenades in Deh Bala district to plan an upcoming attack. The commander and a group of 15 insurgents eventually broke from the group and began walking toward an insurgent camp. After positively identifying the commander and ensuring no women or children were present, coalition forces conducted the precision air strike against the commander.... The security force estimated the strike killed 12 insurgents, possibly including multiple Pakistani fighters from Waziristan as well as Taliban fighters. No civilians were wounded or killed. Beginnings of Global PGM Use: Non-State Actors Hezbollah/Israel—2006 Previous examples have shown how the United States, a major state actor, has used precision strike technology since World War II. However, these weapons are also becoming more available to non-state actors. In the July 2006 war between Israel and Hezbollah, elements of both conventional and irregular warfare were present. According to a study prepared for DOD, During the 33-day war Hezbollah not only used unguided surface-to-surface rockets, improvised explosive devices (IEDs), and rocket-propelled grenades (RPGs), it also employed a number of guided weapons against Israeli forces, in particular anti-tank missiles and, in one instance, an anti-ship cruise missile (ASCM). With the assistance of its patrons in Tehran and Damascus, Hezbollah was therefore able to acquire the weapons, C4ISR capabilities, and training necessary to develop an effective, "low-end" reconnaissance-strike complex designed to impose heavy costs on an invading ground force. There are also reports that Hezbollah has not only restocked its arsenal of rockets and missiles, but that it has also expanded and improved its capabilities by acquiring systems of greater range and accuracy. Some analysts argue that Hezbollah's successful use of a Chinese-designed C-802 ASCM against an Israeli corvette off the coast of Lebanon should be viewed as "a warning ... for other advanced naval forces: they cannot afford to overlook force protection and defensive requirements against maritime armed groups or hybrid threats that possess state-like capabilities despite their relative small size or non-state status." Others note that this hybrid tactic used by Hezbollah, which included a large-scale use of laser-guided anti-tank missiles, as well as mines, made it difficult for the Israeli ground troops to maneuver their tanks and armored personnel carriers: "The Israelis were forced to move slowly and carefully. Deprived of their traditional advantage of being able to move fast, the Anti-Access/Area Denial (A2/AD) tactics of Hezbollah, at least in the early stages of the war, was a success." They were able to show how a non-state actor could impose significant costs against a superior military force given sufficient resources and training. Some of these same costs can also be seen with China's emerging A2/AD network, although it has not been tested in combat, which nevertheless highlights a number of potential vulnerabilities in the United States military's posture in the western Pacific such as lengthy supply lines, reliance on foreign ports and airbases that could be held vulnerable, and as support for regional allies. Results of U.S. Superiority/Near Monopoly of Precision Strike Over time, the United States has come to rely on some key elements in prosecuting its global responsibilities that are facilitated by its dominance in precision strike. The first is unfettered access in protecting the global commons. An appreciation that extends back as far as Mackinder and Mahan, "the ability to protect and control the maritime commons gives unparalleled influence and underpins global systems of trade and commerce." A second key advantage stemming from U.S. success with precision strike is air superiority. Precision strike is not the only reason the United States has enjoyed air superiority over the years, but it does play a key role. U.S. ground forces have enjoyed the freedom of not having to fight under enemy attacks from the air for nearly 70 years. The Iraqi Air Force was all but destroyed by PGMs as its planes remained in their shelters. The outcome of Desert Storm may have been different had the United States not had air superiority/air supremacy from the beginning of the war. The ground forces could have been left to face a battle-hardened Iraqi force that, at the time, was the fourth-largest army in the world. U.S. casualties could have been significantly higher and could have extended the overall length of the war. A final key element of the U.S. monopoly of precision strike ties in with the previous two. It is freedom of movement. Freedom of movement is an essential element to warfare, whether on the ground as the sweeping, famed "left hook" the XVIII Airborne Corps performed during the Gulf War showed, or on the sea as was demonstrated in 1996 when President Clinton ordered two U.S. aircraft carrier battle groups into the waters near Taiwan in response to aggressive actions by the Chinese. Global Positioning Systems The Global Positioning System (GPS) is a space-based satellite navigation system that provides location and time information in all weather, anywhere on or near the Earth, where there is an unobstructed line of sight to four or more GPS satellites. It is maintained by the U.S. government and is freely accessible by anyone with a GPS receiver. Some civilian receivers are controlled by the U.S. government via export controls. All GPS receivers capable of functioning above 18kms (11 miles) and speeds in excess of 515 meters per second (1,000 nautical miles per hour) are classified as weapons or munitions capable for which State Department-approved export licenses are required. The restrictions attempt to prevent use of the receiver in a ballistic missile, but the restrictions would not prevent the use in a cruise missile, which travels at much lower altitudes and slower speeds. Precision Strike and GPS Equivalent Systems Effective use of precision strike weapons goes beyond that of the weapon itself. The weapon is one part of an elaborate system or complex. To launch a precision strike, the actor would need to possess the weapon, some sort of guidance system (whether it is a Global Positioning System [GPS] or something different), sensors to locate the target, command and control of the weapon system, effective doctrine on implementation, and, finally, organization to bring all the components together. Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) plays a critical role in precision strike. Being able to develop and successfully implement the entire spectrum of these systems has given the United States the advantage in the precision strike arena. In addition, the United States has outspent everyone else for decades. However, some analysts state that we should not be surprised by the spread of precision-strike capabilities. Some suggest it was historically inevitable, even if the process has been accelerated by the commercial availability of key supporting capabilities, such as imagery and command and control. Of greatest significance, however, is the universal free access to precision navigation and timing data, such as that from the U.S. GPS satellite constellation. Whereas the development of the precision guidance cost the United States billions of dollars over the course of decades, both state and non-state actors can now strike accurately with minimum investment. Cost of U.S. Global Positioning System One factor contributing to the long-term U.S. dominance in precision strike capabilities may be the cost of building and maintaining GPS: Rockwell Collins International manufactured the original NAVSTAR satellites that comprise the current United States GPS system. This system was originally developed by the U.S. Department of Defense with an estimated cost of over $12 billion. The U.S. Navy and the U.S. Air Force combined to form NAVSTAR in 1973, and they launched the first satellite in 1974. Subsequent launchings, with satellites produced by Boeing and Lockheed Martin, have produced the current constellation of 24 operating satellites that became fully operational on December 8, 1993. The estimated annual cost to operate and maintain the GPS satellite system is $750 million. Russian Global Orbiting Navigation System Russia's Global Orbiting Navigation Satellite System (GLONASS) is a global positioning system like the American and European GPS networks. GLONASS is operated by the Russian Space Forces and uses radio time signals to locate people and vehicles on and above the surface of the Earth. In 1982, the former USSR matched America's NAVSTARs with a new generation of high-flying navigation satellites when it launched the test satellites Cosmos-1413, Cosmos-1414 and Cosmos-1415 on one rocket to start GLONASS. The first operational satellites went into service in December 1983. Russia continued building the GLONASS system after the old Soviet Union dissolved in the early 1990s. The system was in full operation by December 1995. A poor economic situation after the fall of the Soviet Union left Russia with only eight GLONASS satellites in operation by 2002. Economic conditions improved and 11 satellites were in operation in 2004. A total of 14 were in orbit at the end of 2005.... Like the U.S. and European GPS networks, the complete GLONASS constellation was, and again in the future is to be, 24 satellites. That would include 21 operating in three circular orbital planes, and three satellites standing by on orbit as backup spares. On December 8, 2011, GLONASS regained full operational capability. Today, GLONASS is still primarily a Russian military system but is being pushed more and more into the civilian marketplace by the Russian government. "Russian Federation Presidential Decree from 17 May 2007 granted the international community unrestricted access to GLONASS navigation services free of charge." As such, GLONASS will continue to be pushed as a dual use (military and civilian) global navigation system. Chinese Regional System On December 27, 2011, China started its own regional global positioning system. A regional system, as the name implies, focuses on a specific area or region of the globe. This differs from a global system, which requires many more satellites for worldwide capability. The Chinese regional system, called Beidou, or Big Dipper, is composed of "10 orbiting satellites, covers an area from Australia in the south to Russia in the north. Signals can reach the Xinjiang Uygur autonomous region in the west and the Pacific Ocean in the east. With six more satellites to be launched next year, the system will cover a wider area and eventually the entire globe by 2020 with a constellation of 35 satellites." This new global positioning system capability will enable China to control its own precision strike weapons without reliance on any other country's system such as the U.S. GPS or Russian GLONASS. An independent global navigation system could give China a considerable strategic military advantage in the event hostilities should break out in the Asia Pacific Region. Most notably, such an advantage would be useful in countering foreign naval forces and with particularity those of the United States. Of late, China has been posturing its desire to obtain the ability to eliminate United States' aircraft carriers through the use of its DF-21D ballistic missile. With an active GPS such as Beidou in place, China could theoretically use that capability in combination with drones to accurately guide these anti-ship missiles to their targets. Such an advantage could prove useful in deterring or hindering the ability of the United States or even India to project air power to intervene with any military operation China decides to take against Taiwan, the Philippines or any other interests China has in the South China Sea. Some analysts say China is accelerating its military space program to target U.S. aircraft carriers. The surge in development and launch activities has also caught the attention of the U.S. Secretary of Defense and has begun to affect DOD planning. Little U.S. or political and media attention has focused on this trend, which some are calling a new space race with only one participant. During 2010, China launched 12 military satellites, more than doubling its previous rates of three to five launches each year between 2006 and 2009. Since 2006, China has launched about 30 military-related spacecraft. Its total of 15 launches in 2010 set a new record for China and for the first time equaled the U.S. flight rate for a given year. At least three or four different Chinese military satellite systems are being networked to support China's 1,500 km plus range DF-21D Anti-Ship Ballistic Missile (ASBM) program, say U.S. analysts. The DF-21D is being designed to force U.S. Navy aircraft carrier battle groups and other large U.S. allied warships to operate hundreds of miles farther away from China or North Korea than they do today. Yaogan spacecraft form the core of Chinese military space operations. But this designation is a cover to maintain secrecy for at least four different military designs, including satellites with electro-optical digital imaging cameras, a totally different spacecraft with synthetic aperture radar imaging, a third type with signal intercept and a fourth with electronic eavesdropping capability. A fifth version is for formation flight and has ocean surveillance sensors. Thirteen Yaogan satellites launched since 2006 are engaged in military space activity and most remain operational. In written testimony to the Senate Armed Services Committee on February 16, 2012, Defense Intelligence Agency Director Lieutenant General Ronald Burgass Jr. stated that China operates many satellites for research, weather monitoring, communications, and reconnaissance purposes. He continued that it is tough to know exactly what China is getting out of these spacecraft, as Beijing rarely acknowledges direct military applications of its space program and refers to nearly all satellite launches as scientific or civil in nature. Andrew S. Erickson, a Naval War College expert on China's naval and space forces, has written a number of articles on China's emerging space capabilities. He opines that China appears to have very advanced capabilities in both electro-optical and radar imaging, with very high resolution. These are capabilities that could be used to further develop space-based information, surveillance, and reconnaissance to support precision strike. Some see Chinese space launches as essential to an increased ASBM capability. Ian Easton, for example, a research fellow at the Project 2049 Institute, based in Arlington, VA, recently wrote in the "Asia Eye" blog, that "unlike previous electro-optical and radar imagery satellites deployed in the series, the Yaogan 9 launch positioned three satellites (A/B/C) orbiting in a highly choreographed triangular formation, suggesting that China had deployed a dedicated Naval Ocean Surveillance Satellite system to bolster the ASBM program. Space-based surveillance and cueing capabilities represent an essential (and previously underdeveloped) element of the ASBM program." Some experts believe the September 2010 launch of the Yaogan-11A/B/C are radar imagery satellites with all weather, day/night capability and could be used to help track carrier strike groups. Current/Developing Precision Strike Threats Many experts believe the proliferation of precision strike has already begun and will continue to accelerate as more and more countries continue to develop and purchase precision strike weaponry. The chart below was developed by James Howe in association with the Office of the Secretary of Defense Net Assessment Summer Study in 2010 titled "The Growth and Spread of the Precision Strike Regime." The chart displays a snapshot of estimated worldwide precision strike capabilities between 2020 and 2040. According to the study, "this map offers a first-order estimate of the geography of the mature precision-strike regime. It shows that the growth and spread of the precision strike regime is likely to be quite uneven. Category I countries are those that are capable of fielding all elements of a precision strike system. Category II countries are those that are capable of fielding some elements of a precision strike system and purchase the rest. Category III countries are those that will be forced to purchase most elements of a precision strike system. Category IV countries are those that will have commercial access to some precision strike munitions, particularly short range systems." In addition, some countries are developing capabilities aimed at countering U.S. precision strike dominance. The following is a sampling of a few countries actively developing and/or purchasing precision strike weapons and/or countermeasures. These three countries are a sampling and by no means a comprehensive worldwide overview. China Some analysts believe an increasing effectiveness and reach of both piracy and the proliferation of long-range and sophisticated anti-ship weapons could alter today's unrestricted access to the global commons. China's Anti-Access/Area Denial (A2/AD) strategy in particular may highlight some of the potential challenges of the future. Many defense experts argue that China's A2/AD build-up is designed to disrupt potential U.S. power projection in the western Pacific, as well as project power within and beyond the South China Sea: "The PLA's aggressive posture in the South China Sea and its increasing military edge over Taiwan are sources of concern—as are its investments in nuclear submarines, which suggest China is seeking to support operations well beyond Taiwan." Chinese use of PGM technology may allow China to effectively block U.S. forces from strategic areas such as the South China Sea and the defense of Taiwan. Precision strike capabilities are central to Chinese military modernization, especially in development of its anti-access doctrine. According to CRS Naval Specialist Ron O'Rourke, DOD and other observers believe that the near-term focus of China's military modernization effort, including its naval modernization effort, has been to develop military options for addressing the situation with Taiwan. Consistent with this goal, observers believe that China wants its military to be capable of acting as a so-called anti-access force—a force that can deter U.S. intervention in a conflict involving Taiwan, or failing that, delay the arrival or reduce the effectiveness of intervening U.S. naval and air forces. Anti-Ship Ballistic Missiles (ASBMs), attack submarines, and supporting C4ISR systems are viewed as key elements of China's emerging anti-access force, though other force elements—such as Anti-Ship Cruise Missiles (ASCMs), Land Attack Cruise Missiles (LACMs) (for attacking U.S. air bases and other facilities in the Western Pacific), and mines—are also of significance. The elements of China's new strategy (with the exception of mines) are heavily composed of precision guided weapons (ASBMs, ASCMs, LACMs, torpedoes). As mentioned previously, the developing Beidou satellite positioning system will eventually help serve as the guidance enabler for these PGMs. Some analysts state that precision strike is part of China's asymmetric response to U.S. air and naval superiority. One argues, for example, that when the cold war ended, the Pacific Ocean became, in effect, an American lake. With its air and naval forces operating through bases in friendly countries like Japan and South Korea, the United States could defend and reassure its allies, deter potential aggressors and insure safe passage for commercial shipping throughout the Western Pacific and into the Indian Ocean. Its forces could operate everywhere with impunity. China has shown, and many in the Defense Department agree, that Beijing is not trying to match American power plane for plane or ship for ship. Rather, it is using this A2/AD strategy to prepare asymmetrically for any future potential clash with the United States. DF-21D In September 2010, then U.S. Secretary of Defense Robert Gates warned of anti-access and precision strike threats to the United States during an Air Force Association Convention. "When considering the military-modernization programs of countries like China, we should be concerned less with their potential ability to challenge the U.S. symmetrically—fighter to fighter or ship to ship—and more with their ability to disrupt our freedom of movement and narrow our strategic options," he said. Gates went on to say that China's investment in cyber and anti-satellite warfare, anti-air and anti-ship weaponry, and ballistic missiles could also threaten America's primary power projection instruments of forward air bases and carrier strike groups. Some analysts believe the DF-21D is exactly this type of weapon. The Chinese-designated DF-21 (East Wind-21) intermediate-range ballistic missile has the NATO designation CSS-5, and is a variant of the CSS-N-3 (JL-1) submarine-launched ballistic missile developed from the mid-1960s and first test launched in 1982. The road mobile DF-21 was first successfully test flown in 1985, and the missile is a replacement tactical nuclear missile for the liquid-fueled DF-2 (CSS-1). Continued program upgrades and versions appeared in the decades that followed, leading to the present version known as the DF-21D. Some analysts have stated it could be a game changer. The DF-21D version is believed to be for use against ship targets, with a maximum range of 1,450 to 1,550 km. The Re-entry Vehicle (RV) reportedly is maneuverable, which suggests that it could also fly at a low altitude (below 100 m). The target ship location would presumably be supplied by other sensors such as submarines, Unmanned Aerial Vehicles (UAVs), satellites, or even fishing boats, and then the target would be located by the terminal phase sensor in the RV as it approaches the selected ship. It is assumed that the Circular Error Probability (CEP) would be below 20 m, but no figure has been reported. Late maneuverability at such high speeds gives the DF-21D a very dangerous precision strike capability. A 2010 CRS report captured observers' concerns about the DF-21D. Such missiles, it argued, "in combination with broad-area maritime surveillance and targeting systems, would permit China to attack aircraft carriers, other U.S. Navy ships, or ships of allied or partner navies operating in the Western Pacific. The U.S. Navy has not previously faced a threat from highly accurate ballistic missiles capable of hitting moving ships at sea. Due to their ability to change course, the maneuverable re-entry vehicles on the anti-ship ballistic missile would be more difficult to intercept than non-maneuvering ballistic missile re-entry vehicles." The DF-21D's 1,500+ km range could result in a large and strategically important denial area that stretches into the Western Pacific, going well beyond Taiwan and the first island chain, which "stretches from the southern tip of Japan, south past Taiwan on the west and the Philippines and Malaysia on the east, curving around the South China Sea. The second island chain stretches from the middle of Japan far out in to the western Pacific curving southward to Guam and then to Indonesia." Some analysts worry that the DF-21D ... could be the definitive threat to the surface warship, which has so far survived a century-long struggle against submarines, aircraft and more recently, cruise missiles. In the view of some analysts, surface warships—above all, aircraft carriers—are fundamentally too vulnerable to such a weapon, because their signatures are so large, while the missile is so hard to intercept. Skeptics respond that the DF-21D's kill chain can be broken in several places—for example, in target detection and tracking before launch or in the final homing descent. Still given the stakes, it seems that a navy facing DF-21Ds would have to be confident of breaking that kill chain every time. In addition, it should be noted that the concept of using ballistic missiles to attack ships at sea has been raised on a number of occasions ... unfortunately for the proponents of such systems, the command loops involved and the difficulty in maintaining real-time targeting data with sufficient accuracy to make the concept viable have always conspired to defeat the successful implementation of the idea. There is no indication that the People's Republic of China has overcome these basic problems and, until more detailed data are forthcoming, these reports must be treated with reserve. Anti-Satellite (ASAT) Weapons In addition to precision strike capabilities, China has also demonstrated an important countermeasure to U.S. precision strike in its anti-satellite weapons development. The first successful satellite intercept was made by China in January 2007 from the Xichang satellite launch center, demonstrating to the world its ability to take down elements of systems such as the U.S. Global Positioning System (GPS) or satellite communications networks without warning. The 2007 intercept was a kinetic weapon; however, high energy-directed weapons can also pose a threat to satellites: "Given China's current level of interest in laser technology, Beijing probably could develop a weapon that could destroy satellites in the future. Although specific Chinese programs for laser ASAT have not been identified, press articles indicate an interest in developing this capability and Beijing may be working on appropriate technologies." U.S. military space capabilities remain critically important to the effectiveness of its precision strike weapons and systems. According to analysts, Access to space—which has long been 'militarized' much to the advantage of the United States—is no longer a sure thing. And even where access might be retained, military dominance and supremacy are uncertain. This is a critical vulnerability for U.S. forces, whose weapons, operations, communications and more depend on it.... Intelligence satellites are essential in even the smallest, most irregular operations against the tiniest terrorist groups, but the loss of larger networks in a conflict against a more sophisticated foe—and China is at the forefront in developing and recently testing anti-satellite systems—would be catastrophic. According to the Director of the Defense Intelligence Agency, The space program, including ostensible civil projects, supports China's growing ability to deny or degrade the space assets of potential adversaries. China operates satellites for communications, navigation, earth resources and intelligence, surveillance and reconnaissance. It has successfully tested a direct ascent ASAT and is developing jammers and kinetic and directed-energy weapons for ASAT missions. Technologies from its manned and lunar space programs enhance China's ability to track and identify satellites, a prerequisite for ASAT attacks. Beijing is also increasing the quantity and quality of its satellite constellations, enabling space-based intelligence, surveillance, and reconnaissance, in addition to navigation and communication services. Some Chinese military commentary heavily promotes the importance of controlling space, noting the role of space in long-distance targeting and other battlefield domains. Beijing, however, rarely acknowledges direct military applications of its space program and refers to nearly all satellite launches as scientific or civil in nature. Some analysts believe that ASAT weapons pose a substantial risk to both civilian and military systems: Commercial man-made satellites, for instance, offer little, if any, protection against the growing threat of anti-satellite systems, whether ground-based lasers or direct-ascent kinetic-kill vehicles. The Internet was similarly constructed with a benign environment in mind, and the progression toward potential sources of single-point system failure, in the forms of both common software and data repositories like the "cloud," cannot be discounted. In this manner, ASAT weapons could be thought of as counter precision strike in their ability to take down satellites either by kinetic action or jamming of the guidance networks associated with precision strike weapons. J-20 Stealth Fighter When they say they are going to build 300 J-20s in the next five years, they will build 300 J-20s in the next five years.—Vice Chairman of the U.S. Air Force, General Breedlove, testifying before the House Armed Services Subcommittee on Readiness—July 26, 2011 Another part of China's ability to deliver precision strike weapons depends on its ability to develop an effective stealth fighter aircraft. Reports note that China conducted its first flight test of the Chengdu J-20 Black Eagle Stealth Fighter during an official visit to Beijing by U.S. Secretary of Defense Robert Gates in January 2011. The J-20 is China's first stealth fighter jet. This flight test surprised many experts as it signaled that China was making faster-than-expected progress in developing advanced generation fighter jet technology. While the J-20 remains in the testing phase, an effective stealth fighter could enhance China's capability to implement an anti-access/area denial strategy to restrict U.S. military access to the region." This capability would enable China to deliver precision strike weapons close to a wide range of U.S. targets, even in a robust anti-aircraft environment. The J-20 aircraft appears to share Russian technology: Experts say the fifth-generation J-20 fighter ... could have its origins in the Mikoyan 1.44 stealth jet that never made it to the production line.... Similarities between the new Chinese fighter jet and a prototype Russian plane have brought suggestions that Moscow may be quietly helping Beijing compete with the world's military powers.... Only the United States has an operational fifth-generation fighter, which is nearly impossible to track on radar. Russia is working to start serial production of its prototype craft in the next five to six years. Some observers believe that the appearance of the J-20 shows significant investment by the Chinese in stealth technology, as well as a very formidable platform to employ precision strike weapons. It is also believed that the fighter is not expected to be operational at a "significant level until 2018, as China grapples with production hurdles, in particular engine technology." In the Department of Defense's (DOD's) latest annual public threat assessment of China's military and security developments, DOD analysts appear to have concluded that the Chengdu J-20 fighter is optimized for air-to-ground missions. "Systems such as the J-20 stealth fighter and longer-range conventional ballistic missiles could improve the PLA's ability to strike regional air bases, logistical facilities and other ground-based infrastructure," the report says, adding that "the J-20 will eventually give the PLA Air Force a platform capable of long-range, penetrating strikes into complex air defense environments." These evolving PLAAF precision-strike capabilities add another layer of anti-access competencies to deter, disrupt, or deny regional bases, as well as naval surface and carrier operations. These include upgraded or new fifth generation aircraft, such as the J-20, that can employ modern precision ordnance, including anti-radiation missiles, air-launched land attack and anti-ship cruise missiles, and a variety of other munitions using laser and Global Positioning System/Global Navigation Satellite System guidance. These last can include "bunker buster" munitions that can be employed in long-range attacks on hardened targets such as aircraft shelters and command and control bunkers at regional bases beyond China's periphery. These bases could include Kadena Air Base in Okinawa, Yokota Air Base outside of Tokyo, Japan, and Guam Air Base, potentially making staging, logistical supply/resupply, and force employment difficult. Proliferation to Libya As major state actors such as China continue to modernize and build their defensive arsenals, they also have the potential to provide these new, modern weapons and technologies to smaller, non-state actors. As an example, during what began as part of the Arab Spring uprising and ended ultimately in the death of embattled Libyan leader Moammar Gadhafi, Chinese arms brokers held negotiations with the Libyan government about sales of precision strike weapons: China's Foreign Ministry acknowledged ... that state-run arms companies had met Libyan officials this summer to broker arms sales to Col. Moammar Gadhafi's besieged regime, apparently confirming information in Libyan government documents found by a Canadian journalist in Tripoli.... Officials of Libya's transitional government had expressed outrage over the documents, which were first reported by The Globe and Mail of Toronto. The records indicate that, during the meeting in Beijing in mid-July, Chinese arms merchants sought to sell Gadhafi representatives $200 million worth of sophisticated weapons, including portable surface-to-air missiles similar to the American made Stinger that potentially could bring down certain military aircraft. Chinese arms brokers suggested that the weapons be delivered via South Africa or Algeria, and said that Algeria's existing stock of Chinese arms could be immediately transferred to Libya and replenished by fresh shipments from China. This "attempted" sale garnered so much attention due to the passing of United Nations Security Council Resolution (UNSCR) 1970, Libya Sanctions, which banned military assistance to the Gadhafi government. Ultimately there was no evidence that the sale was completed, and Chinese officials remain insistent that no weapons or funds changed hands. In volatile situations such as Libya, the spread of precision weapons can take very uncertain forms. As the Libyan rebels were making progress against pro-Gadhafi forces, reports surfaced in the media that numerous surface-to-air missiles went missing. The Christian Science Monitor reported that thousands of shoulder-held surface-to-air missiles (SAMs) are unaccounted for. At one unguarded facility, empty packing crates and documents reveal that 482 sophisticated Russian SA-24 missiles were shipped to Libya in 2004, and now are gone. With a range of 19,000 feet, the SA-24 is Moscow's modern version of the American "Stinger," which in the 1980s helped the U.S.-backed Afghan mujahedeen turn their war against the Soviet Union. This is but one example of how high tech weaponry can spread from a major state actor (Russia) to a minor state actor (Libya) to possibly the black market and terrorist entities. Iran Given current tensions with Iran and its perceived intent to develop a wide range of sophisticated weapons, Iranian precision strike and counter precision strike capabilities are of concern to the United States. One analyst notes, The second concern is Iran, which, like Beijing, is buying into the precision-guided weapons revolution. Its "poor man's" version of China's arsenal includes long-range ballistic missiles, supersonic anti-ship cruise missiles, smart anti-ship mines and fast attack boats to "swarm" enemy ships. The apparent goal is to turn the Persian Gulf's constricted waters, through which 40 percent of the world's oil shipping passes, into an Iranian lake. This challenge is compounded by Iran's efforts to acquire a nuclear capability, which may encourage it to become more aggressive in its efforts to undermine regional security. In addition, according to the Director of the Defense Intelligence Agency, Iran is making progress in developing ballistic missiles that can strike regional adversaries and central Europe. In addition to its growing missile and rocket inventories, Iran is boosting the lethality and effectiveness of existing systems with accuracy improvement, new munitions, and salvo launches. Iran's Simorgh space launch vehicle shows the country's progress toward developing an intercontinental ballistic missile. High Precision Anti-Tank Rockets In August 2011, Iran's Defense Minister, Brigadier General Ahmad Vahidi, reported that Iran's defense industry has begun producing a line of anti-tank rockets with the capacity to destroy tanks, armor, and enemy ammunition depots. "The rocket strong warhead enables objects to be destroyed at a distance of 1,300 meters—it is light-weight with high precision to strike. It plays an important role in close combat and distant strikes," he said. The precision strike capability of this new anti-tank weapon sets it apart from Iran's other anti-tank rockets, which are primarily simple aimed projectiles. Moreover, Iran has a history of proliferating weapons to both state and nonstate actors such as Hezbollah, Hamas, and the Palestinian Islamic Jihad. Iranian-Made Cruise Missile Iran claims to have developed a precision strike cruise missile. According to the Associated Press, Tehran ... put on display a new Iranian-made cruise missile, which it says has a range of 124 miles and is capable of destroying a warship. The cruise missile, designed for sea-based targets, is the latest addition to Iran's growing arsenal. President Mahmoud Ahmadinejad attended a ceremony ... that showed off the weapon, dubbed "Ghader," or "Capable" in Farsi. Iranian state TV says it can travel at low altitudes and has a lighter weight and smaller dimensions. Iran has an array of short and medium-range ballistic missiles capable of hitting targets in the region, including Israel and U.S. military bases in the Gulf. In 2010, Tehran displayed other Iranian-made cruise missiles but with a shorter range. On January 2, 2012, Iran successfully test fired the new missile during a naval exercise practicing closing the Strait of Hormuz. Strait of Hormuz73 The strategic importance of keeping the Strait of Hormuz open cannot be overstated. The Strait of Hormuz is a narrow passageway connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea and separating Iran from the Arabian Peninsula. It is one of the world's vital oil transit chokepoints. The northern tip of the United Arab Emirates (UAE) forms the southern shoreline of the strait. The UAE, officially created in 1971, is a constitutional federation made up of Abu Dhabi, Dubai, Sharjah, Ajman, Umm al-Quaiwain, Ras al-Khaimah, and Fujairah. The Strait consists of 2-mile wide channels for inbound and outbound tanker traffic, as well as a 2-mile wide buffer zone. Two-thirds of the world's oil is transported by ocean; straits and canals are therefore vital in reducing the time and costs of transporting oil, as well as other goods, globally. Any political disturbances or upheavals can cause the "choking" of the few important straits for world oil transit and thus disrupt world oil prices. Roughly 17 million barrels, or 40% of the world's oil, passes through the Strait of Hormuz daily. UPI reported in February 2011 that Iran announced it is mass-producing ballistic missiles that can travel three times the speed of sound and hit naval targets on the high seas. The head of Iran's elite military force, the Revolutionary Guard, said the missile has a range of 186 miles, is able to hit targets using high precision, and cannot be tracked. "The announcement of the new missile comes as Iran had celebrations to mark the 32 nd anniversary of its Islamic revolution, which toppled the U.S.-backed Shah ... and the announcements sound a day after the chief of Iran's Revolutionary Guard warned it would close the Strait of Hormuz if Iran were to be threatened." U.S. defense analysts have said that Iran's Navy does not have the size for a sustained physical blockade of the Strait, but does have mine-laying and precision strike missile capability to temporarily close the Strait. The U.S. Fifth Fleet is based in nearby Bahrain reportedly keeping a close eye on Iranian activity and stated in a press conference that "any disruption will not be tolerated." Iran's development of a precision strike guided missile could potentially increase the difficulty of keeping the Strait open. Russia Drones The use of unmanned aerial vehicles (UAVs) by the United States has demonstrated the capabilities and battlefield advantages that can be had by the use of such technology. From giving commanders aerial footage of the battlefield to launching precision strikes killing terrorists, their role has been ever expanding. Russia joined the armed UAV capable nations on September 2, 2011, when it introduced its first armed UAV, named "Lutch." The aircraft can carry over 350 pounds of "guided weapons on fuselage pylons including missiles. The pilotless aircraft is designed for optical reconnaissance, radar, radio-relay and electronic reconnaissance missions." Based on the Sigma 5 aircraft, it has a 250-350 kms surveillance range, which can be augmented to 500 kms. It can stay in the air for up to 18 hours and can be extended to 30 hours with additional fuel tanks attached. Once operational, these drones could be exported to both state and non-state actors unfriendly toward the United States and its allies. Even so, in order for these systems to fire precision weapons they would need to be utilized as part of a much larger, more complex informational battle space to fully exploit their capabilities. Club K Cruise Missile A Russian defense company is currently marketing a new cruise missile system that can be hidden inside a standard shipping container. The housing of the system blends in with the hundreds of thousands of shipping containers used every day in carrying the world's commerce. Some defense experts have expressed fear that a weapon with such camouflage capability could give any merchant vessel the capability to wipe out an aircraft carrier. A Reuters story on the new system reports, "Potential customers for the formidable Club-K system include Kremlin allies Iran and Venezuela ... and countries could pass on the satellite-guided missiles, which are very hard to detect, to terrorist groups." The complete Club-K system is thought still to be primarily a marketing concept, although the basic components of the system all exist as individual items and a full-size, articulated mock-up was on display at the MAKS 2011 air show in Moscow. The system's maker, "Concern Morinformsystem-Agat, is clearly looking for a customer willing to pay the sums needed to complete development and integration of the finished system." It is estimated the cost for the Club-K system is between $10 million and $20 million. For this reason, proliferation to non-state actors "is unlikely as the manufacturer needs a serious paying customer—at state level—to complete the Club-K." In terms of the system's elements, Each Club-K CMS incorporates four missile tubes, elevated as a single unit to launch vertically from their transport container (dubbed the Universal Launching Module, ULM). The complete system requires a combat-management module (CMM) and energy-supply and life-support module (ES & LSM). All these components are housed in similar standardized container modules. According to Concern Morinformsystem-Agat's own information the Club-K ULM can be carried by and launched from commercial ships, flatbed railway trucks and regular articulated road haulage vehicles. If true, for anyone with the money to buy one, the Club-K has the potential to give long-range precision strike capability to ordinary vehicles that can be moved around without attracting attention. On the other hand, the Club-K system requires a relatively sophisticated level of targeting data to be used effectively. A user needs precise geo-location data and/or the ability to conduct some level of over-the-horizon targeting to fully exploit the weapon. For use against large infrastructure targets this requirement is less demanding. For use against moving targets at sea, missiles require accurate positional data on targets before launch and then they must rely on the radar seeker to pick out the final target in the terminal phase. The seeker has the ability to assess target size and, therefore, (approximate) target type. Ideally, however, the anti-ship weapon would receive some form of mid-course guidance update support to improve its precision strike capability. SA-24 "Grinch" Surface to Air Missiles to Venezuela The potential sale of up to 2,400 Russian SA-24 "Igla-S" or "Grinch" missiles to Venezuela has created concern. The Igla-S (Igla-Super or Special) "has been designed to engage front-line aircraft, helicopter, cruise missiles, and Unmanned Aerial Vehicles (UAVs) under direct visibility conditions both day and night. The system can take a target from both the head-on and tail chase in background clutter and thermal countermeasures environments." Media reports have described the Grinch: The Igla-S system (SA-24) became available in the mid-2000s. The missile itself ... is claimed to outperform its predecessors in effectiveness, reliability, service life and survivability. In addition, the system retains all merits of the previous Russian Man-Portable Surface-to-Air Missile Systems (MANPADs); shoulder firing by a single gunner, "fire-and-forget" concept, high resistance to background clutter and thermal countermeasures, easy aiming and launching, easy maintenance and training, high covertness of use, retained operability in extreme operational environments. In 2010, U.S. Air Force General Douglas Fraser expressed concern that Venezuela was purchasing as many as 2,400 SA-24 MANPADs, which are considered to be some of the most sophisticated systems in the world and can down aircraft up to 19,000 feet above the ground. "It's the largest recorded transfer in the U.N. arms registry database in five years, at least. There's no state in Latin America of greater concern regarding leakage that has purchased so many missiles ... referring to reports of Venezuelan arms flowing to Colombian guerrillas.... The Chavez regime also has close ties with Hezbollah and Iran." Potential Implications for Enemy Precision Strike Capabilities Against U.S. Forces Pentagon planners have considered the potential impact of the loss of U.S. precision strike dominance on future military operations. The observation that U.S. opponents will employ asymmetric capabilities and strategies to counter American conventional military superiority has been made frequently over the past decade. This phenomenon is not new, however, nor is it limited to land warfare. Throughout the 19 th and early 20 th centuries rival nations sought to compete with British naval power while conserving their own resources by developing new weapons platforms, utilizing the inherent advantages of land-based firepower, and exploiting Britain's dependence on overseas resources and extended lines of communication. Although these efforts often failed due to technological and political constraints, in several cases they are being revived today by existing and prospective U.S. opponents, many of whom have a greater incentive to compete asymmetrically than their predecessors given the scale of U.S. dominance, in addition to having access to capabilities far superior in range, accuracy, and endurance than those employed a century ago. Most importantly, however, although it appears increasingly clear that nations such as China and Iran are pursuing these asymmetric capabilities and strategies, they are unlikely to be the only ones. Many observers believe that future adversaries are developing sophisticated new anti-access networks with long-range targeting capabilities, as well as advanced conventional missiles of greater range and precision that can attack both fixed land targets and ships at sea. In future crises, these developments could put some of the U.S.'s most prized Navy and joint-force assets at risk from far greater ranges than before. In other words, these developments threaten to eliminate the virtual operational sanctuaries the U.S. Navy-Marine Corps and joint team has enjoyed since the end of World War II. The following are a few theoretical examples of the impacts on U.S. expeditionary warfighting that can potentially occur as precision strike capabilities grow and proliferate. Forward Operating Bases (FOBs) Setting up and using FOBs in Afghanistan over the past decade, coupled with the increased proliferation in precision guided weapons, has led some military experts to contend that forward-deployed troops could be much more vulnerable in the future to enemy munitions such as rockets and mortars. To address this issue, in the fall of 2011, the Naval Research Advisory Committee—which advises the Office of Naval Research on how to apply science, research, and development to the Navy and Marine Corps—was tasked with conducting a study for countering precision weapons. Reportedly, the draft terms of reference for the study on Marine Corps capabilities for countering precision weapon threats warns of an emerging potential for U.S. adversaries to adopt and employ precision weapons and munitions to improve their lethality. The goal of the study is to identify challenges for countering precision munitions and recommend opportunities to address this potential challenge. The Naval Research Advisory Committee continues stating, We saw the emergence of Forward Operating Bases (FOBs) during operations in Afghanistan, from which the Marine Corps sustains, deploys from, and accomplishes missions against the enemy with small units (squads to companies).... Should these FOBs become subject to precision enemy fire, the Afghanistan mission risk will increase. The Intel [sic] community is seeing greater proliferation of relatively inexpensive Guided Rockets, Artillery, Mortars and Missiles (G-RAMM), which can pose a great threat to future Marine operations. This threat is yet another example of cheap technologies with the potential to have a huge impact on future missions, much like the [improvised explosive devices] have had on recent ones. An example of how this could drastically affect operations occurred approximately five years ago: During its war with Israel in 2006, Hezbollah fired more than 4,000 relatively inaccurate RAMM projectiles—rockets, artillery, mortars and missiles—into Israel, leading to the evacuation of at least 300,000 Israelis from their homes and causing significant disruption to that country's economy. Out of these thousands of munitions, only a few drones and anti-ship cruise missiles were guided. But as the proliferation of guided munitions—G-RAMM weapons—continues, irregular warfare will be transformed to the point that the roadside bomb threats that the United States has spent tens of billions of dollars defending against in Iraq and Afghanistan may seem trivial by comparison. If a greater percentage of the 4,000 projectiles had been guided, the amount of damage and suffering they caused would have undoubtedly been significantly higher. The same relationship holds true for U.S. forward deployed troops. Some of the larger FOBs in Afghanistan also have airfields from which USAF, USA, and USMC aviation platforms operate. The threat to operations would likely be much greater if the Taliban or another adversary fired a barrage of G-RAMM toward the personnel and equipment. A trained and experienced adversary would have the capability to target specific aircraft or troop facilities with impunity. The resulting casualty rate has the potential to be harmful and may require counter-assets that are capable of successfully targeting and defending against such a threat. Carrier Operations The growing threat to carrier operations has been mentioned earlier in this report. It is a potential threat to U.S. Navy operations that many experts believe cannot be ignored. One main aim of carrier operations is the U.S. ability to project power anywhere in the world: Power projection, broadly defined to include amphibious operations, has numerous strategic benefits. It can serve to deter many forms of aggression, because aggressors will realize that we can respond appropriately if they try to take a preemptive action. It assures allies of U.S. capability to intervene decisively on their behalf, with forces that can regain ground or compel compliance. It provides the ability to gain and exploit operational access into theaters at a time and place of U.S. choosing, regardless of political or geographical limitation. Finally, it serves as a key element of a cost-imposing strategy to make expensive demands on any potential adversary's plan. Some experts believe that given the very clear technology trends toward precision long-range strike and increasingly sophisticated anti-access and area-denial capabilities, high-signature, limited-range combatants like the current aircraft carrier will not meet the requirements of tomorrow's Fleet. In short, the march of technology is bringing the super carrier era to an end, just as the new long-range strike capabilities of carrier aviation brought on the demise of the battleship era in the 1940s. Factors both internal and external are hastening the carrier's curtain call. Competitors abroad have focused their attention on the United States' ability to go anywhere on the global maritime commons and strike targets ashore with pin-point accuracy. That focus has resulted in the development of a series of sensors and weapons that combine range and strike profiles to deny carrier strike groups the access necessary to launch squadrons of aircraft against shore installations. Others believe carriers will not disappear so quickly, but changing enemy capabilities must still be addressed. As such, in the future the United States may not have the luxury of being able to position forces forward for a period of time so they can commence fighting at a time and in a manner of their choosing. Quite possibly forces will be more vulnerable to attack, forcing U.S. maritime forces to be positioned farther away from shore. If this is the case, then new systems would be needed to help U.S. forces fight through a precision strike network en route to the battlefield. Amphibious Assault The U.S. Marine Corps' amphibious assault capability has been a key mission for many years. With the advent of precision weaponry, some analysts believe this capability is in question: For example, land-based anti-ship cruise missiles could pose a significant danger to amphibious ships operating over-the-horizon, assuming that initial targeting data could be gathered by UAVs, spotters on civilian vessels, or coastal radars (if amphibious ships were operating relatively close to shore). This situation could grow even more dangerous if advanced Anti-Ship Cruise Missiles (ASCMs) such as the Russian-designed Sizzler—which is capable of supersonic closing speeds and terminal maneuvers, making point defenses against them extremely difficult—become more widely available. Closer to shore, elements of an amphibious assault force could be vulnerable to shorter-range precision weapons. Landing Craft Air Cushions (LCACs), for instance, could be targeted by Anti-Tank Guided Missiles (ATGMs) or short-range missiles located on land near the shoreline, while guided mortars would present an anti-personnel threat that would be difficult to counter, particularly if enemy units were dispersed, highly mobile, and camouflaged by complex terrain. Airborne insertion as well as aerial reconnaissance and fire support could prove equally difficult when adversaries possess even rudimentary reconnaissance-strike complexes. An opposing force equipped with Man-Portable Surface-to-Air Missile Systems (MANPADs) and a basic radar system could pose a major threat to rotary-wing platforms, particularly if it employed swarming tactics to attack from multiple angles and utilized the cover of a dense urban environment. More advanced systems, such as truck mounted medium range anti-air missiles, could pose an even greater threat, even against low-to-medium altitude fixed-wing aircraft. Adversary precision strike capability against an amphibious assault presents several challenges to current U.S. Navy and Marine Corps operational concepts. An analysis prepared for DOD by the Center for Strategic and Budgetary Assessment says, First, when facing an opponent that is equipped with ATGMs and precision-guided mortars, efforts to establish a secure beachhead may become prohibitively costly because any large concentration of forces could be the target of extremely accurate attacks that will be difficult to prevent. Second ... the proliferation of land-based ASCMs could enable an opponent to target high signature amphibious assault ships at even greater distances, forcing those ships to make a difficult choice: accept the risk of an attack or operate from beyond the maximum range of their assault vehicles. For these reasons, some analysts criticize the Navy's amphibious assault requirements against this new precision strike challenge. However, some analysts believe that as precision-guided weapons proliferate more widely, a very good case can be made that a forcible entry capability is more valuable than it has been during the recent past: For example, if staging areas for ground troops grow increasingly vulnerable to both short- and long-range guided munitions, then deploying forces over an extended period of time and massing them at a small number of locations close to a theater of operations—both of which are hallmarks of post-Cold War American power-projection—may no longer be tenable. Commanders, for example, may be unable to adequately defend forward staging areas and reluctant to put troops in harm's way before an operation even begins, while host nations may be unwilling to accept the possibility of retaliation against their territory. In theory, troops could be dispersed to a greater number of locations to complicate an enemy's targeting problem, but this would exacerbate political problems (by relying on access from additional countries) and introduce new operational and logistical challenges, in particular supplying and coordinating more widely-dispersed forces. An amphibious assault force, by contrast, could assemble quickly and would not be dependent on the consent of U.S. allies. Alternatively, against an opponent equipped with only a modest Guided Rockets, Artillery, Mortars and Missiles (G-RAMM) inventory, an amphibious assault force could compel the adversary to expand its target set, thus limiting the overall impact of its guided weapons. In a 2011 House Armed Services Committee joint hearing on Seapower and Projection Forces Outlook, Lieutenant General Richard Mills, Deputy Commander for Combat Development and Integration at the Marine Corps Combat Development Command, reiterated his staunch support for the relevance of USMC amphibious assault capabilities. Part of his testimony follows: The Marine Corps and amphibious warfare go back, as you know, quite a while. The initial question we had to answer was: Was amphibious warfare even feasible back in the 1930s as we began to look at an expanding Japanese threat in the Pacific? There were many people back there who said no, it was not a feasible military strategy and was foolish for us to pursue and try to train and equip our forces to do so. I think the success, obviously, in World War II as it evolved and as our tactics changed and our equipment changed, in proven fact, that was a very feasible strategy. In the years since World War II, time and time again, the feasibility of amphibious operations has been questioned, whether it be in 1949 when it was General Bradley who questioned the very idea that an amphibious attack were ever to take place again, followed very shortly thereafter, of course, by the Inchon landing and what many people would describe as the decisive stroke of the Korean War. Each time, things have changed. The threat's been more. People have questioned whether or not that was still a feasible military operation. Each time, I think, the Navy and Marine Corps team, backed by the entire joint community, has proven in fact not only is it feasible, but it's extraordinarily valuable as you pursue operations whether across the entire spectrum of military operations, everything from humanitarian relief to full combat operations. So, I would say that those who question the ability of amphibious forces to conduct operations today just don't understand the way that we constantly study, that we constantly adapt, that we constantly change. And we face a threat and we believe that we can overcome it. Issues for Congress Congressional Oversight of Plans and Programs—Technology This report highlights a growing number of precision strike weapons and threats that are becoming available to both state and non-state actors, as well as the increasing potential for proliferation. These developments pose a number of potential issues for Congress that could have a direct impact on U.S. national security. One issue for Congress in its oversight role is whether DOD is properly preparing for potential future conflicts by taking adversary precision strike weapons into account. Doing so requires both acquiring the appropriate capabilities to counter these challenges and developing effective doctrine for exploiting them. Congressional oversight could focus on both aspects. The following are a few potential U.S. military technologies that could be used to combat the growing precision strike threat. This list is a sampling and not meant to be all-encompassing. Fifth Generation Fighter The United States is the only country that currently possesses an operational fifth generation fighter—the F-22 Raptor. According to the F-22 Raptor Team (Boeing and Lockheed Martin) website, the "F-22 Raptor is the world's first stealthy air dominance fighter and is capable of multiple missions. Deadly and unseen at long range, unmatched at close-in dogfighting and with superb, precision-strike ground attack capabilities, the F-22 will establish absolute control." The Air Force originally planned to procure 750 F-22s to replace the aging F-15A-D fleet. Due to budgetary constraints and cost overruns, the program eventually ended with a final production target of 187 aircraft, well below the original 750 planned. Both China and Russia are currently producing their version of a fifth generation fighter with precision strike capabilities, some analysts argue, that could potentially challenge the F-22 and U.S. air superiority/supremacy dominance. Congress may wish to look at the costs and possibilities of restarting the production line should these new threats bear fruit. In addition, it also may look to the Air Force to begin research and development of a sixth generation fighter to ensure technological dominance from the air in terms of precision strike, as well as the ability to fight in any anti-access/area denial environment. Both of these options would be expensive. For example, a study completed in 2009 showed "the production of an additional 75 F-22s beyond the ... 187 units would increase per-unit cost by an estimated $70 million if the production line were ... to be re-opened." Aegis Combat System The Aegis combat system has served the United States well for a number of years. Many observers speculate, though, that the current Aegis system might not be able to protect adequately against anti-ship missiles such as China's DF-21D. They state the Aegis system was not designed for this type of threat and is vulnerable. A description of the Aegis combat system follows: Aegis, which means shield, is the Navy's most modern surface combat system. Aegis was designed and developed as a complete system, integrating state-of-the-art radar and missile systems. The Aegis Combat System is highly integrated and capable of simultaneous warfare on several fronts—air, surface, subsurface, and strike. Shipboard torpedo and naval gunnery systems are also integrated. Anti-Air Warfare elements of the Aegis Weapon System MK-7, a component of the Aegis Combat System, include the Radar System AN/SPY-1B/D, Command and Decision System, and Weapons Control System. This makes the Aegis system the first fully integrated combat system built to defend against advanced air, surface, and subsurface threats. The Aegis Combat System (ACS), which is the center of the Arleigh Burke-class destroyers and Ticonderoga-class cruisers, relies on a separate sonar system to track undersea threats like mines, torpedoes, and submarines. The complete package can simultaneously follow land, air, and undersea threats and attacks. The SPY-1A and -1B radar classes are designed for the cruisers, while the -1D class is for the destroyers. The letter "V" in SPY-1D(V) means variant. The complete integration of all these systems serves to enhance the capability of a ship to engage and defeat numerous multi-warfare threats simultaneously. The computer-based command-and-decision element is the core of the Aegis combat system. This interface makes the Aegis combat system capable of simultaneous operation against almost all kinds of threats. The Aegis system is being enhanced to act in a Theater Missile Defense role, to counter short- and medium-range ballistic missiles of the variety typically employed by rogue states. An oversight issue for Congress is to verify with the U.S. Navy the current capabilities of the Aegis Combat System. Does it currently allow for adequate protection against missiles such as the DF-21D? Does this protection also include a barrage attack and how effective is the system against this threat every time? Some experts believe that the current Aegis system will require a significant logistical train to support kinetic action against incoming projectiles. Naval Research Advisory Committee's Counter G-RAMM Study As mentioned earlier, the Naval Research Advisory Committee plans to study U.S. Marine Corps capabilities for countering precision weapons. The study is slated to characterize known and potential precision weapons and munitions types that could be potentially exploited by hostile governments and non-state actors, to include relatively inexpensive, home-made weapons. In addition, according to one source, the panel will review and assess the current and planned Marine Corps policies, strategies, approaches (including training), and capabilities for responding to these potential precision weapons and munitions. Further, the panel must identify promising science and technology areas for Marine Corps capabilities that could help detect, track, identify, and engage precision weapons while countering damage caused by the weapons. The study would also recommend any other steps the Marine Corps should take to address the threat posed by precision weapons. All services are affected by this technology, however, with the greatest impact being on the Army and Marine Corps. An issue for Congress is whether or not the entire DOD is taking the proliferation of G-RAMM technology and weapons into account in its programming of future weapon systems? In addition, Congress could ask the services for a briefing detailing work that has been, is being, or is projected to be done on countering precision G-RAMM weapons. Strategic Precision Strike Plans and Programs The following examples have received attention in various defense publications as well as among think tanks. A related issue for Congress is whether DOD is adequately preparing for current and future containment strategies, such as China's rising anti-access/area denial efforts, which incorporate numerous precision strike platforms and weapons. AirSea Battle102 Appreciating the need to address the growing challenge posed by the emerging A2/AD environment, the Secretary of Defense directed the Department of the Air Force and the Department of the Navy to develop an AirSea Battle concept as announced in the 2010 Quadrennial Defense Review (QDR). (Very little in terms of specificity has been released regarding AirSea Battle, as it still remains a highly classified program.) In response, the services designed an operational concept, focused on the ways and means necessary to neutralize current and anticipated A2/AD threats, to ensure our Joint force maintains the ability to project power and protect U.S. national interests. The AirSea Battle Concept centers on networked, integrated, attack-in-depth to disrupt, destroy and defeat (NIA-D3) A2/AD threats. This approach exploits and improves upon the advantage U.S. forces have across the air, maritime, land, space and cyberspace domains, and is essential to defeat increasingly capable intelligence gathering systems and sophisticated weapons systems used by adversaries employing A2/AD systems. Offensive and defensive tasks in AirSea Battle are tightly coordinated in real time by networks able to command and control air and naval forces in a contested environment. The air and naval forces are organized by mission and networked to conduct integrated operations across all domains. The concept organizes these integrated tasks into three lines of effort: 1. Air and naval forces attack-in-depth to disrupt the adversary's intelligence collection and command and control used to employ A2/AD weapons systems; 2. To destroy or neutralize A2/AD weapons systems within effective range of U.S. forces; 3. To defeat an adversary's employed weapons to preserve essential U.S. Joint forces and their enablers. "Through NIA-D3, air and naval forces achieve integrated effects across multiple domains, using multiple paths to increase the resilience, agility, speed and effectiveness of the force." DOD announced at the beginning of November 2011 the establishment of a new AirSea Battle office, which will "coordinate military and interagency efforts related to AirSea Battle; supervise how the concept is implemented in terms of organizing, training, and equipping forces; and guide, facilitate and monitor the execution of AirSea Battle force development." Proponents of the concept say it promotes interoperability between the Services, stressing the importance of incorporating this interoperability into the acquisition cycle of new weapon systems, thus improving tactical results/competency and cost effectiveness. Even though a Taiwan scenario against China is the obvious example, the concept has supposedly been developed to work in any generic A2/AD situation. Finally, the AirSea Battle concept combined with the effective use of high-tech weaponry should allow the United States to break the enemy precision strike kill chain in a number of areas, helping to preserve U.S. power projection and freedom of access capabilities. Critics, on the other hand, raise a potential negative issue with the concept that deals with escalation. Many question how China, a nuclear power, would react to strikes on its mainland. AirSea Battle is intended to inject significant uncertainty into the calculations of adversaries, ideally so that conflict doesn't occur in the first place. This objective of deterring the enemy from initiating acts of aggression in the first place is laudable, but it's also worth considering escalation control. While the AirSea Battle concept is still not presented in detail publicly and its future is unclear, some have noted the escalatory dynamics that lurk within the concept itself. Should deterrence collapse, it is important to keep the conflict as limited as possible, so starting a conflict at the upper end of the escalation ladder would seem to be flawed strategic thinking. A potential issue for Congress could be the risk to the United States associated with the aforementioned escalation dynamics. A second potential issue for Congress stemming from the AirSea Battle concept is whether DOD is focusing the concept in a broad strategic context or responding solely to a Taiwan-China scenario. Although a Taiwan scenario is probably the most complex, should the final concept be applicable world-wide since substantial funding and weapon acquisition decisions may be based upon it? Thirdly, Congress may consider the implications of how AirSea Battle accounts for "geostrategic factors, such as U.S. treaty and legal obligations to defend formal allies and friends in the region. Even more importantly, AirSea Battle is not a U.S. only concept. Allies such as Japan and Australia, and possibly others, must play important enabling roles in sustaining a stable military balance." Finally, a potential oversight issue for Congress is the effectiveness of the AirSea Battle concept in countering developing military vulnerabilities in the region: "U.S. ground, air and naval forces have long been accustomed to operating from sanctuary.... The growing Chinese A2/AD capabilities, to include its cyber weapons, threaten to violate these long-standing sanctuaries." Many experts believe that future U.S. weapon systems must be able to fight through a precision strike network and not rely on the aforementioned sanctuaries of old. Long-Range Strike System Experts opine that adversary precision strike weapons such as ASBMs and ASCMs may drive the need for an advanced, stealthy, long-range precision strike system as a counter: "As the U.S. military focuses on fighting in a world where it can no longer count on unfettered access to the airspace over hostile territories, the Pentagon is looking at developing a new generation of precision weapons that can penetrate 21 st -century air defenses and hit targets from thousands of miles away." "Long-range strike is the American javelin that can leapfrog A2/AD defenses and destroy targets on the ... mainland at minimal risk to U.S. forces." The U.S. Air Force's next-generation bomber is one such long-range strike program that proponents say can penetrate "no go" zones and destroy key enemy defenses, opening the door for non-stealthy platforms which currently make up a majority of DOD's arsenal. The 2010 Quadrennial Defense Review (QDR) states: Enhanced long-range strike capabilities are one means of countering growing threats to forward-deployed forces and bases and ensuring U.S. power projection capabilities. The Secretary of Defense has ordered a follow-on study to determine what combination of joint persistent surveillance, electronic warfare and precision-attack capabilities, including both penetrating platforms and stand-off weapons, will best support [U.S. power projection until 2040]. These long-range strike systems are also intended to play a significant role in the new AirSea Battle concept. Air Force Vice Chief of Staff General Philip Breedlove stated, Long-range strike is the heart of AirSea Battle. Whether that's from a carrier, a bomber, a sub, a flying jammer, or all of them working together, the point is that the Navy and the Air Force have to come from anywhere in the world to overwhelm weapons systems that would otherwise keep the United States at bay. It allows us to penetrate from lightly contested to severely contested airspace and networks. There has been high-level support for the next-generation bomber. When then Secretary of Defense Robert Gates addressed cadets at the United States Air Force Academy on March 4, 2011, he stated that "a new, optionally-manned, nuclear-capable, penetrating Air Force bomber ... remains a core element of this nation's power projection capability." Additional proponents stated the new bomber is the Air Force's biggest new program and is "a must-have as anti-access/area denial threats improve and proliferate. Such threats are emerging even in what were once considered 'low end' conflicts, which means the service must buy weapons, like the bomber, that can be used across the spectrum of war." A new bomber would have the stealth capability to fly long distances, penetrate congested airspace, and destroy adversary precision strike area denial weapons, allowing for U.S. conventional forces to quickly follow. Further, using China as an example, some argue that given the dispersal of China's bases and its bomber fleet, the U.S. must develop a credible long-range strike bomber, in part as a way to ensure escalation control in any conflict with China. Relying solely on land- or sea-launched missiles for mainland strikes may prove to be destabilizing in a crisis, whereas stealthy manned bombers that can be recalled can serve to hold major targets at risk while preserving operational flexibility. The ability to strike targets worldwide is still an important deterrent for DOD. A criticism of the USAF long-range bomber program deals with the next-generation bomber in terms of manned vs. unmanned configuration as well as the complexity of the aircraft. The recall capability has been one argument proponents have used for keeping the bomber manned, while critics argue that neither an SLBM nor an ICBM is manned. Why, they ask, should the bomber be any different? In addition, it has been argued that the next-generation bomber should be programmed for the acquisition of hundreds at a lower cost vs. a few at an extremely expensive price, as was the case with the B-2. In an age of austerity and budget cuts, some say, these "exquisite systems" may no longer be viable. A potential authorization and appropriation issue for Congress is whether to approve, reject, or modify the proposed long-range strike system such as the next-generation bomber. Further Inquiry This report focuses primarily on proliferating precision strike weapons systems and not the myriad issues associated with the ramifications of such proliferation or strategies to defend against them. The following is a short list of possible further questions for Congress to consider: 1. What are some asymmetric examples of combating the proliferation of precision strike? What are the benefits and risks associated with targeted technology proliferation to U.S. friends and allies? Should the United States increase its building of allied/partner defense capabilities in countries near or surrounding aggressor state and non-state actors? If so, what type of equipment, capabilities and to what extent? 2. In areas that exploit precision strike capabilities to build sophisticated anti-access/area denial capabilities, does the United States have enough surface and sub-surface ships to economically cripple the aggressor state through a naval blockade? If not, what additional assets need to be acquired? What is the cost of these additional assets? What type of timeline is required? 3. What are the ramifications to current DOD overseas and forward-deployed basing considerations due to the proliferation of precision strike? During the build up to Operation Desert Storm, the United States had access to numerous key foreign bases with little threat from Iraq. Would that type of dynamic still be possible today? What about 10, 20, or 30 years into the future? If not, then what is DOD doing to mitigate these threats? Does the DOD need to readjust and develop a new strategy to conduct U.S. expeditionary warfare? 4. In regard to the developed and developing precision strike weapons possessed by China, how does that affect U.S. ability to support democratic Taiwan? What is the impact to the region if the United States appears inattentive to China's rapid military buildup? Conversely, what are the risks and implications to a bold and aggressive U.S. posture toward China? How does the United States maintain the freedom of movement, trade routes, and global commerce that are key to the United States and world economies, as well as to U.S. national security?

Iron emerged in the eighth century B.C., helping to usher in the use of cavalry instead of chariots. Today's new technologies, including the development of precision-guided weaponry, have given rise to new methods of war fighting, thus bringing dramatic change to the operational battlefield. As will other decision makers, Members of Congress will confront significant challenges in making their choices about how to adapt to the continually evolving environment, particularly with respect to what are called "precision strike" capabilities. The United States took the early lead in the development of precision strike and has enjoyed a monopoly on these systems for over 20 years. However, many experts agree that the U.S. advantage is eroding as these systems spread. A demonstration of this proliferation occurred in 2006, when Hezbollah successfully used a Chinese-designed C-802 Anti-Ship Cruise Missile (ASCM) against an Israeli corvette off the coast of Lebanon. This event demonstrated a non-state terrorist organization's successful use of precision strike technology. In addition, access to the global commons is fundamental to global commerce and security—the proliferation of technology could threaten U.S. unfettered access. Effective use of precision strike weapons goes beyond that of the weapon itself. The weapon is one part of a much greater, elaborate system of capabilities the actor must either possess or to which it must have access. Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR), in particular, plays a critical role in precision strike. Many experts believe the proliferation of precision strike has already begun and will continue to accelerate as more and more countries continue to develop and purchase precision strike weaponry. Three such countries include China, Iran, and Russia. China's recent military buildup and its strategy with an apparent focus on anti-access/area denial capabilities entails a number of precision strike weapon systems to include the DF-21D anti-ship ballistic missile, which some defense analysts have labeled a "game changer." Iran, although at a much smaller and less elaborate scale, has also entered the precision-guided munitions regime with an outward belligerence toward closing the economically vital Strait of Hormuz, where 40% of the world's oil passes daily. Russia continues to supply arms to the international community and is focusing on developing its own fifth generation fighter comparable to the U.S. F-22 Raptor. Finally, a Russian defense company is currently marketing a new cruise missile system that can be hidden inside a standard shipping container. The housing of the system blends in with the hundreds of thousands of shipping containers used every day in carrying the world's commerce. Some defense experts have expressed fear that a weapon with such camouflage capability could give any merchant vessel the capability to wipe out an aircraft carrier. The proliferation of precision strike creates potential issues for Congress. These issues include whether the Department of Defense (DOD) is properly taking adversary precision strike weapons into account in its own plans and programs, and whether Congress should approve, reject, or modify proposed DOD programs for responding to those weapons.

Background For well over a year, the economy of the United States has been in significant distress. The Business Cycle Dating Committee of the National Bureau of Economic Research, whose determinations regarding the timing of recessions are widely accepted, announced on December 1, 2008, that the economy had entered recession in December 2007. The recession deepened substantially during 2008 and there is considerable uncertainty regarding how long it will last. The federal government has responded (and continues to respond) to the economic situation by employing many different tools, encompassing both monetary policy, conducted by the Federal Reserve, and budgetary policy, under existing law and new legislation. With respect to new legislative activity, Congress and the President initially responded with the Economic Stimulus Act of 2008, which President George W. Bush signed into law on February 13, 2008 ( P.L. 110-185 ). The act, which consisted mainly of "recovery rebates" for individuals and investment incentives for businesses, reduced revenues by $152 billion in FY2008 and $16 billion in FY2009. As the economic crisis worsened, Congress and the President enacted additional legislative responses, including extensions of unemployment compensation and the Emergency Economic Stabilization Act (EESA) of 2008 (Division A of P.L. 110-343 ), which President Bush signed into law on October 3, 2008. The EESA created the Troubled Assets Relief Program (TARP), which authorized the Treasury Department to buy up to $700 billion in troubled assets from financial institutions. Toward the end of the 110 th Congress, congressional attention turned to action on a supplemental appropriations act as another legislative response to the economic situation. The House passed such a measure, the Job Creation and Unemployment Relief Act of 2008 ( H.R. 7110 ), on September 26, 2008. President Bush threatened to veto the bill, and the Senate did not consider comparable legislation before the session ended. In 2009, at the beginning of the 111 th Congress, President Barack Obama and congressional leaders made action on an economic recovery bill a top priority. The legislative vehicle, it was determined, would be a supplemental appropriations act with substantial mandatory spending and revenue components. The supplemental appropriations act addressing economic recovery is one of three major appropriations acts for FY2009 considered by Congress thus far (at least one additional appropriations act, providing supplemental appropriations for overseas military operations and other purposes, is expected to be considered during the session). On September 30, 2008, the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009 ( P.L. 110-329 ) was signed into law by President George W. Bush. Three of the 12 regular appropriations acts for FY2009 were funded by the act for the full fiscal year, and continuing appropriations were provided through March 6, 2009, for activities covered by the nine remaining appropriations acts. Consideration of an omnibus appropriations measure addressing the status of the nine remaining appropriations acts for the remainder of FY2009 was postponed until action on the supplemental appropriations measure pertaining to economic recovery (ARRA) was completed. Following the enactment of ARRA on February 17, 2009, the House and Senate then finished consideration of the FY2009 regular appropriations acts in the form of a single, omnibus measure; President Obama signed H.R. 1105 , the Omnibus Appropriations Act, 2009, into law on March 11, 2009, as P.L. 111-8 . Legislative History House and Senate action on ARRA occurred relatively quickly in the opening weeks of the 111 th Congress, from the introduction of legislation in late January 2009 to its enactment into law several weeks later. The House passed the bill on January 28, the Senate passed it on February 10, and both chambers agreed to the conference report on February 13. Earlier Action on Stimulus Legislation The quick action on ARRA in 2009 was aided in part by the development of similar legislation (although much smaller in scope) during the previous session, as the 110 th Congress drew to a close. On September 26, 2008, the House passed an economic stimulus bill, the Job Creation and Unemployment Relief Act of 2008 ( H.R. 7110 ), by a vote of 264-158. On the same day, the Senate rejected a motion to proceed to the consideration of a similar measure, the Economic Recovery Act, 2008 ( S. 3604 ), by a vote of 52-42 (under a unanimous consent agreement, the motion required 60 votes to be successful). These measures, which originated in the Appropriations Committees, entailed appropriations of roughly $60 billion for such matters as infrastructure projects, energy development, unemployment compensation, job training, and Medicaid and food stamps assistance. During two lame-duck sessions, held between November 17 and December 11, 2008, an expanded economic stimulus proposal, the Economic Recovery Act of 2008 ( S. 3689 ), was introduced by Senate Majority Leader Harry Reid and Senator Robert C. Byrd, the then-chairman of the Appropriations Committee. According to the sponsors, the measure provided $100.3 billion in infrastructure spending and a wide range of other stimulus and recovery activities. The 110 th Congress ended without the House or Senate taking any further action on economic stimulus legislation. Action on ARRA in 2009 The American Recovery and Reinvestment Act of 2009, H.R. 1 , was introduced on January 26, 2009, by Representative David Obey, chairman of the House Appropriations Committee. The measure was an amalgamation of separate legislative components approved by several House committees: H.R. 598 , the American Recovery and Reinvestment Tax Act of 2009, a measure containing revenue and other provisions, was marked up by the House Ways and Means Committee on January 22 and approved by voice vote ( H.Rept. 111-8 , Part I (January 27, 2009) and Part II (January 28, 2009)). The bill also was referred to the House Energy and Commerce Committee, Education and Labor Committee, Financial Services Committee, and Science and Technology Committee, but they were discharged from further consideration of the measure; H.R. 629 , the Energy and Commerce Recovery and Reinvestment Act, a measure containing broadband communications, energy, and health-related provisions, was marked up by the House Energy and Commerce Committee on January 22 and approved by unanimous consent ( H.Rept. 111-7 , Part I; January 26, 2009). The bill also was referred to the House Education and Labor Committee, Science and Technology Committee, and Ways and Means Committee, but they were discharged from further consideration of the measure; and H.R. 679 , the American Recovery and Reinvestment Act of 2009, a measure containing the appropriations-related provisions, was marked up by the House Appropriations Committee on January 21 and approved by a vote of 35-22 ( H.Rept. 111-4 ; January 26, 2009). The House began consideration of H.R. 1 on January 27, under the terms of a special rule, H.Res. 88 , reported by the House Rules Committee. In initial action, the House agreed to a "question of consideration," by a vote of 224-199; this action was necessitated by a requirement in Clause 10(c)(3) of House Rule XXI (the "PAYGO Rule") that the question of consideration be approved before consideration can occur on a measure including a waiver of the PAYGO rule. On January 28, the House adopted a second special rule, H.Res. 92 , which made several changes to the underlying bill automatically under a "self-executing" feature and prohibited the offering of further amendments except for 11 specified ones. According to the Rules Committee, the self-executing amendment changed provisions in the bill dealing with state certification of the intent to request and use funds provided in the act; the COPS program; the renovation and preservation of buildings on Historically Black Colleges and Universities campuses; funding for the National Mall Revitalization Fund; and family planning. The House then accepted eight of the 11 amendments (offered by Representatives Oberstar, Markey, Shuster, Nadler, Waters, Kissell, Platts, and Teague) and rejected the other three (offered by Representatives Neugebauer, Flake, and Camp), as well as a motion to recommit with instructions offered by Representative Jerry Lewis, the ranking member of the Appropriations Committee, by a vote of 159-270. The House passed H.R. 1 on January 28, as amended, by a vote of 244-188. Senate consideration of H.R. 1 occurred over eight days, beginning on February 2 and concluding on February 10 (the Senate was not in session on Sunday, February 8). The first amendment offered to the bill, Reid (for Inouye and Baucus) amendment 98, was a substitute amendment incorporating legislative proposals that had been approved previously by the Senate Appropriations Committee and the Senate Finance Committee: S. 336 , a measure containing the appropriations-related provisions, was marked up by the Senate Appropriations Committee on January 27 and approved by a vote of 21-9 ( S.Rept. 111-3 ; January 27, 2009); and S. 350 , the American Recovery and Reinvestment Act of 2009, a measure containing the revenue provisions, was marked up by the Senate Finance Committee on January 27 and approved by a vote of 14-9 (no written report). The Senate considered 42 amendments, adopting 22 and rejecting 13; seven were withdrawn. The final resolution of issues was addressed by Reid (for Collins and Nelson (NE)) amendment 570, which was a substitute for the entire bill. On February 9, cloture was invoked on the amendment, by a vote of 61-36. The next day, following a successful waiver of enforcement procedures under the Congressional Budget Act of 1974, by a vote of 61-37, Senate amendment 570 was adopted. The Senate passed H.R. 1 on February 10, as amended, by a vote of 61-37. On February 10, the House and Senate agreed to hold a conference on the bill and appointed conferees (Senators Inouye, Baucus, Reid, Cochran, and Grassley for the Senate, and Representatives Obey, Rangel, Waxman, Lewis (CA), and Camp for the House). The House agreed that day, by a vote of 403-0, to a motion to instruct conferees, offered by Representative Lewis (CA). The motion moved to instruct the managers on the part of the House that they shall not record their approval of the final conference agreement (as such term is used in clause 12(a)(4) of rule XXII of the Rules of the House of Representatives) unless the text of such agreement has been available to the managers in an electronic, searchable, and downloadable form for at least 48 hours prior to the time described in such clause. While the House-passed and Senate-passed versions of H.R. 1 were roughly comparable in scope, significant differences in the two versions had to be resolved. According to the Congressional Budget Office, the House-passed version would have increased the deficit by nearly $820 billion over FY2009-FY2019 (reflecting $359 billion in discretionary outlay increases, $279 billion in mandatory outlay increases, and $182 billion in revenue reduction), while the Senate-passed version would have increased the deficit by about $838 billion for the same period (reflecting $287 billion in discretionary outlay increases, $259 billion in mandatory outlay increases, and $292 billion in revenue reduction). Thus, the net increase in the deficit over FY2009-FY2019 was about $19 billion higher in the Senate version compared to the House version: The Senate-passed version includes $72 billion less in spending from discretionary appropriations in Division A (mostly the result of less funding for education, including the proposed State Stabilization Fund) and about $20 billion less in direct spending in Division B. Those spending decreases would be more than offset by revenue reductions in Division B totaling about $110 billion (mostly because the Senate-passed version would raise the exemption amount allowed against an individual's income for the alternative minimum tax for tax year 2009). The conference report on H.R. 1 ( H.Rept. 111-16 ) was filed on February 12. The conferees developed compromise levels between the House and Senate positions on each major component ($308 billion in discretionary outlay increases, $267 billion in mandatory outlay increases, and $211 in revenue reduction) in a way that lessened the overall impact of the bill on the deficit to $787 billion, well below the House and Senate levels (see Table 1 in the next section). On February 13, the House took up the conference report after agreeing to the question of consideration required by the PAYGO rule, by a vote of 232-195. Consideration of the conference report occurred pursuant to the terms of a special rule, H.Res. 168 . Following the defeat of a motion to recommit with instructions offered by Representative Miller (MI), by a vote of 186-244, the House agreed to the conference report, by a vote of 246-183. Later on February 13, the Senate considered the conference report. By identical votes of 60-38, the Senate waived enforcement procedures under the Congressional Budget Act of 1974 and then agreed to the conference report. President Obama signed H.R. 1 into law on February 17, 2009, as P.L. 111-5 . Overview of the Act ARRA is a relatively lengthy and complex act, amounting to just over 400 pages (in slip law form) and melding together hundreds of billions of dollars in discretionary spending, mandatory spending, and revenue provisions encompassing the jurisdiction of several House and Senate committees. Discretionary spending is provided in, and controlled by, annual appropriations acts under the jurisdiction of the House and Senate Appropriations Committees. Spending in this category typically funds the routine operations of federal agencies and many grant programs. Mandatory spending (sometimes referred to as direct spending) generally is provided in, and controlled by, substantive legislation under the jurisdiction of the various authorizing committees in the House and Senate. Mandatory spending, for the most part, funds entitlement programs such as Social Security, Medicare, and unemployment compensation. Revenue laws are under the jurisdiction of the House Ways and Means Committee and the Senate Finance Committee. ARRA provides almost $800 billion through extensive discretionary spending, mandatory spending, and revenue provisions that the Administration estimates will save or create some 3.5 million jobs. Funding is provided for existing and some new programs in the 15 Cabinet-level departments and 11 independent agencies. Some of the funds are distributed to states, localities, other entities, and individuals through a combination of formula and competitive grants and direct assistance. In addition to new spending and tax provisions, new policies are created regarding unemployment compensation, health insurance, health information technology, broadband communications, and energy, among others. With regard to its specific impact on the budget, the act is expected to increase the deficit by $787.2 billion over the 11-year period covering FY2009-FY2019; the cost estimate prepared by the Congressional Budget Office (CBO) is presented in Table 1 . The estimated deficit impact reflects spending increases of $575.3 billion (in outlays) and revenue reductions of $211.8 billion. The total spending increases consist of $311.2 billion in discretionary new budget authority (yielding $308.3 billion in outlays) and $269.5 billion in mandatory new budget authority (yielding $267.0 billion in outlays). Table 2 provides information on the rate at which spending under the act is expected to occur. As Table 2 shows, 20.9% of total outlays ($120.1 billion) are estimated to occur by the end of FY2009. By the end of FY2010, 59.0% of total outlays ($339.4 billion) are expected to occur, and by the end of FY2011, 80.9% of total outlays ($465.6 billion) are expected to occur. The cumulative rate of mandatory spending compared to discretionary spending over the first several fiscal years differs, with mandatory spending occurring more quickly. By the end of FY2011, for example, 91.3% of mandatory outlays ($243.8 billion) are expected to occur, compared to 71.9% of discretionary outlays ($221.8 billion). Revenue reductions (as shown in Table 1 ) occur more quickly, with reductions of $64.8 billion in FY2009 and $180.1 billion in FY2010. The combined revenue reduction for these two years ($244.9 billion) exceeds the net revenue reduction of $211.8 billion over the 11-year period ending in FY2019; a modest revenue reduction occurs in FY2011, followed by modest revenue increases in all subsequent years. CBO also prepared a year-by-year assessment of the macroeconomic effects of ARRA. With regard to its structure, the act consists of several opening sections (e.g., short title) and two major divisions. Division A (Appropriations Provisions) includes supplemental appropriations for FY2009 (and later fiscal years) covering all 12 of the parallel regular appropriations acts. The supplemental appropriations corresponding to each regular appropriations act are presented separately in Titles I-XII of the division. Four additional titles, dealing with health information technology, a state fiscal stabilization fund, accountability and transparency, and general provisions complete the division. Division B (Tax, Unemployment, Health, State Fiscal Relief, and Other Provisions) consists of seven separate titles. Division A includes the discretionary spending provisions, but some significant substantive provisions as well. Division B includes the mandatory spending and revenue provisions, with some exceptions. In addition, Division B includes two titles that are not budgetary in nature: Title VI (Broadband Technology Opportunities Program) and Title VII (Limits on Executive Compensation). In the summary sections that follow, related provisions are discussed together, regardless of the division in which they were placed. Table 3 provides a contents listing of ARRA, by opening section and division and title, with page references to the text of the public law. In addition, the table provides page references to the legislative text and explanatory statements in the conference report—as printed as a separate document ( H.Rept. 111-16 ) and as inserted into the Congressional Record of February 12, 2009. Summary of Discretionary Spending Provisions Division A of ARRA provides $311.20 billion in appropriations for a broad array of agencies, programs, and activities. The funds are provided in twelve titles corresponding with the twelve annual appropriations bills, and also an additional title for the State Fiscal Stabilization Fund. Not every agency typically funded through the annual appropriations bills received funding in ARRA. Moreover, the agencies that were funded received widely varying dollar amounts. In turn, these amounts constitute widely varying percentages of each agency's most recent annual appropriations (FY2009). For each of the funding titles of Division A, the entries below identify the total funding provided in the title and describe the primary purposes of the funding. The entries also include percentages that indicate the extent to which the funding in ARRA is a supplement to other FY2009 funding. There are 12 entries each corresponding to one title of Division A. However, the entry for Title VIII, Departments of Labor, Health and Human Services, and Education, and Related Agencies, also discusses the State Fiscal Stabilization Fund (Title XIV) which received appropriations for education programs. Table 4 indicates the total discretionary budget authority for FY2009-FY2019 provided by title in Division A. Table 5 and Table 6 , at the end of this section, provide additional information on appropriations in Division A, including funding by department and agency. Of the $311.20 billion in total funding, $288.73 billion is identified as for FY2009. The remainder is identified for future fiscal years, specifically $7.08 billion for FY2010 and $15.39 billion for FY2011 through FY2019. The ARRA states that the appropriations are in addition to amounts otherwise appropriated for the fiscal year involved, and that all funding is designated as emergency funding. The monies in the law are available for obligation until September 30, 2010 (the end of FY2010) unless otherwise specified. Most of the accounts funded in Division A of the law do not contain different periods of obligation, although there are a number of exceptions. For instance, funding for the Inspectors General of the agencies typically is provided for a longer period of obligation. By comparison, the 12 regular, annual appropriations laws typically contain varied periods of obligation for funds therein. Some funds are made available until expended, while others are provided for one or multiple fiscal years. The ARRA contains a variety of provisions requiring agencies receiving the funds to notify Congress on how the money is to be spent. For example, it requires that each agency receiving funding in the Interior, Environment, and Related Agencies title notify the House and Senate Appropriations Committees as to how the monies are to be spent. Specifically, it provides that each such agency is to submit to the House and Senate Committees on Appropriations, within 30 days of enactment, a general plan for the expenditure of the funds. Each agency also is to submit to the committees, within 90 days of enactment, a report "containing detailed project level information associated with the general plan." As another example, several of the appropriations included in the Departments of Labor, Health and Human Services, and Education, and Related Agencies title require the pertinent agency head to submit an operating plan to the Appropriations Committees prior to making any obligations of the funds provided. The timelines and requirements for the plans vary, but they generally focus on detailing activities to be supported and describing the planned allocation of resources, to be followed by subsequent reports on actual obligations and expenditures. Among the general provisions of ARRA, agencies are to begin spending the funds "as quickly as possible consistent with prudent management." With regard to funds for infrastructure, recipients are to give preference to activities "that can be started and completed expeditiously," with a goal of using at least 50% of the monies for activities that can be started within 120 days of enactment. The ARRA also requires the establishment of a website with information on how the funds in Division A are allocated. The Administration has established a website to monitor implementation of the AARA—( http://www.recovery.gov/ ). For further information on implementation and oversight provisions of ARRA, see the "Summary of General Oversight Provisions" and "Additional Resources" sections of this report. Agriculture, Rural Development, Food and Drug Administration, and Related Agencies (Division A, Title I)24 Agriculture programs—including nutrition assistance, rural development, farmer assistance, and conservation—receive $26.47 billion in ARRA. This is 24% over the $108.09 billion in the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ) for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies. Of the $26.47 billion, nutrition assistance programs receive the largest share at $20.74 billion. Increased food stamp benefits and expanded eligibility in the newly renamed Supplemental Nutrition Assistance Program (SNAP) represent the largest single increase; monthly food stamp benefits for families rise 20% on average from current levels. Second, rural development receives $4.36 billion (160% of the regular FY2009 amount), focused primarily on broadband infrastructure but also rural water and waste disposal infrastructure, community facilities, and rural housing. In particular, the rural broadband program receives $2.50 billion, allowing outlays through FY2015 that are 20-30 times more than recent annual appropriations. Third, assistance for farmers totals $744.0 million, primarily for crop insurance/disaster programs but also for the farm loan program, which is facing higher demand during the financial crisis. Fourth, conservation programs receive $348.0 million for watershed flood prevention infrastructure. Finally, USDA receives $250.0 million for its own facilities maintenance and computer infrastructure. Commerce, Justice, Science, and Related Agencies (Division A, Title II)27 The ARRA provides $15.92 billion for agencies covered under the Commerce, Justice, Science, and Related Agencies (CJS) appropriations bill. This is a 27% supplement to the $59.93 billion in other FY2009 appropriations. Commerce. The ARRA includes $7.92 billion for the Department of Commerce (DOC). Of this amount, $5.35 billion (68%) is for the National Telecommunications and Information Administration (NTIA) for activities such as broadband deployment in the United States and the conversion from analog to digital television broadcasts. (Division B, Title VI contains the authorization for the Broadband Technology Opportunities Program (BTOP) at NTIA. ) For the 2010 census, the Bureau of the Census receives $1.00 billion to hire and train additional personnel, increase targeted media purchases, and improve risk management. Up to $250.0 million of the $1.00 billion is to be used for partnership and outreach efforts to hard-to-count groups. The National Oceanic and Atmospheric Administration receives $830.0 million, with $600.0 million for facility and fleet construction and maintenance and $230.0 million for research, restoration, navigation, conservation, and management activities. The National Institute of Standards and Technology receives $580.0 million for construction and research activities (plus a $20.0 million transfer). The Economic Development Administration receives $150.0 million for Economic Development Assistance programs, and the Office of Inspector General receives $6.0 million. Justice. The Department of Justice (DOJ) receives $4.00 billion, with $2.0 million for the Inspector General and the rest for grant programs. Specifically, the Office on Violence Against Women receives $225.0 million for violence against women prevention and prosecution programs, and the Community Oriented Policing Services Office receives $1.00 billion for its hiring program. The Office of Justice Programs receives $2.77 billion, including $2.00 billion for the Edward Byrne Memorial Justice Assistance Grant program, $225.0 million for Byrne Competitive grants, $225.0 million for construction of correctional facilities on tribal lands, $125.0 million for rural law enforcement assistance, $100.0 million for victim compensation grants, $50.0 million for Internet Crimes Against Children taskforces, and $40.0 million for law enforcement assistance along the southern border and in High-intensity Drug Trafficking Areas. Science. Two science agencies receive a total of $4.00 billion. The National Aeronautics and Space Administration (NASA) receives $1.00 billion, including $400.0 million for science, to accelerate the development of the tier 1 set of Earth science climate research missions and to increase the agency's supercomputing capabilities; $400.0 million for exploration; $150.0 million for aeronautics; $50.0 million for cross-agency support, with the highest priority for restoring NASA-owned facilities damaged by natural disasters during 2008; and $2.0 million for the Inspector General. The National Science Foundation (NSF) receives $3.00 billion, comprised of $2.50 billion for research and related activities (R&RA), $400.0 million for its major research equipment and facilities construction account, $100.0 million for education and human resources (EHR), and $2.0 million for the Inspector General. Language in the joint explanatory statement provides further direction, such as to allocate $300.0 million of the R&RA funds to NSF's major research instrumentation program and $60.0 million of the EHR funds to the Robert Noyce scholarship program. Department of Defense (Division A, Title III)29 The ARRA provides $4.56 billion to DOD accounts that had been funded by the FY2009 Department of Defense Appropriations Act (Division C, P.L. 110-329 ). Apart from these stimulus funds and funds appropriated for military construction (which are provided separately), a total of $543.57 billion has been appropriated for DOD in FY2009. The funds in ARRA increase that total by 0.8%. The additional DOD funds provided by ARRA are aimed largely at programs that serve one of two goals. A total of $4.24 billion is for maintenance of DOD facilities, of which $400.0 million is for medical facilities, $153.5 million is for renovation of barracks, and $3.69 billion is for repair and maintenance of other facilities and for projects that would improve the energy efficiency of DOD facilities. An additional $300.0 million is for research and development projects that would improve DOD's energy efficiency. The law also provides an additional $15.0 million for the office of the DOD Inspector General. Energy and Water Development (Division A, Title IV)31 In total, ARRA contains $50.83 billion for Energy and Water Development programs, a 128% supplement to the $39.56 billion included in regular and supplemental appropriations for FY2009 ($33.80 billion in the omnibus appropriations law, P.L. 111-8 , and $5.76 billion in the supplemental appropriations law, P.L. 110-252 ). The three major programs in the Energy and Water Development bill support the Army Corps of Engineers (Corps) Civil Programs, the Bureau of Reclamation in the Department of the Interior, and the Department of Energy (DOE). The ARRA appropriates $4.60 billion for construction, operation, maintenance, and planning of Corps navigation, flood control, and ecosystem restoration projects and for other Corps civil works activities. This is a 41% supplement to the $11.16 billion in FY2009 appropriations for these activities—$5.40 billion in regular appropriations ( P.L. 111-8 ) and $5.76 billion in supplemental appropriations ( P.L. 110-252 ). The ARRA amount, therefore, represents 85% of the regular appropriations for the Corps. The Bureau of Reclamation receives $1.00 billion in ARRA, a 93% addition to the $1.08 billion in regular FY2009 appropriations. Reclamation funds are to be used for elements of projects, programs, or activities that can be completed within the funding amounts provided in ARRA and not create budgetary obligations in future fiscal years, and include specific appropriations for water reuse and recycling, certain restoration, rural water supply, and canal projects in the 17 western states. The Department of Energy receives $38.73 billion in ARRA, a 144% supplement to the $26.97 billion in other appropriations for FY2009. DOE has many programs, and the distribution of ARRA money varies widely among them. While some programs do not receive any appropriation from ARRA, others are funded many times over their regular budgets. Among the major recipients, Energy Efficiency and Renewable Energy programs receive $16.80 billion, more than eight times the $1.93 billion in the regular FY2009 appropriations law. Electricity Delivery and Energy Reliability, funded at $137.0 million in the FY2009 appropriations, receives $4.50 billion in ARRA, a 32-fold increase. Fossil Fuel Research and Development receives $3.40 billion in ARRA, almost four times as much as the $876.3 million in the FY2009 appropriations law. Other major DOE programs that receive ARRA money are Defense Environmental Cleanup, which receives $5.13 billion, a 91% addition to the $5.66 billion in the FY2009 appropriations law, and Science programs, which receive $2.00 billion from ARRA, a 42% addition to the $4.77 billion in the regular FY2009 appropriations law. Financial Services and General Government (Division A, Title V)33 The ARRA provides $6.86 billion for Financial Services and General Government agencies. This is a 15% supplement to the $44.58 billion in other appropriations for Financial Services and General Government agencies for FY2009. Of the $6.86 billion, $5.86 billion is provided to the General Services Administration (GSA). The large majority of GSA's appropriation, $5.55 billion, is for construction projects and "green" building initiatives. GSA receives an additional $300.0 million for the purchase of energy–efficient motor vehicles, and $7.0 million for the agency's Office of Inspector General. Of the $6.86 billion total, the Small Business Administration (SBA) receives $730.0 million. Of that amount, $630.0 million is provided for loan guarantees and loan subsidies, $69.0 million for salaries and expenses, $15.0 million for the Surety Bond Guarantee Revolving Fund, $10.0 million for the Office of Inspector General, and $6.0 million for direct loans. Another $187.0 million of the total is provided to the Department of the Treasury. Of that amount, $100.0 million is for programs funded through the Community Development Financial Institutions Fund, $80.0 million is for the Internal Revenue Service to implement the TAA Health Coverage Improvement Act of 2009, and $7.0 million is for the Treasury Inspector General for Tax Administration. The remaining $84.0 million of the total Title V funding is for the Recovery Act Accountability and Transparency Board, which was established to coordinate and conduct oversight of funds distributed under ARRA in order to prevent fraud, waste, and abuse. Department of Homeland Security (Division A, Title VI)37 The ARRA includes $2.76 billion for a number of agencies and programs within the Department of Homeland Security (DHS). Funding provided in ARRA represents a 7% supplement to the $41.33 billion in other appropriations for DHS for FY2009. Of the $2.76 billion total, ARRA provides $200.0 million to the Office of the Under Secretary for Management for various activities and costs associated with the consolidation of DHS headquarters. It contains $5.0 million for the Office of Inspector General for the oversight and audit of programs, grants, and projects funded under Title VI. The law includes $680.0 million for Customs and Border Protection, comprised as follows: $100.0 million for non-intrusive inspection technology; $60.0 million for tactical communications equipment and radios; $100.0 million to deploy SBInet technology to the border; and $420.0 million for the construction and modification of ports of entry. Further, ARRA contains $20.0 million for tactical communications equipment and radios for Immigration and Customs Enforcement. The law includes $1.00 billion for the Transportation Security Administration for checked baggage explosives detection systems and checkpoint explosives detection equipment. It contains $240.0 million for the Coast Guard, of which $142.0 million is dedicated to the Alteration of Bridges program for those bridges that are ready to proceed to construction and $98.0 million is for a variety of acquisition and maintenance activities. Finally, ARRA also provides $610.0 million to the Federal Emergency Management Agency, of which $100.0 million is for the Emergency Food and Shelter program and $510.0 million is for selected DHS assistance programs for states and localities: $150.0 million for the Transit Security Grant Program; $150.0 million for the Port Security Grant Program; and $210.0 million for the Assistance to Firefighters Program. Interior, Environment, and Related Agencies (Division A, Title VII)38 In total, ARRA contains $10.95 billion for Interior, Environment, and Related Agencies. This is a 40% supplement to the $27.59 billion in other appropriations for Interior, Environment, and Related Agencies for FY2009. Of the $10.95 billion, $7.22 billion is provided to the Environmental Protection Agency (EPA). The majority of EPA funding is for clean water ($4.00 billion) and drinking water ($2.00 billion) state revolving fund grants. The remainder of the funds is primarily for cleanup projects, specifically Superfund remediation, grants for cleanup of Brownfields and leaking underground storage tanks, and diesel emission reduction grants. Another portion of the funds is for the Office of Inspector General. EPA funding in ARRA nearly equals the agency's FY2009 regular appropriations of $7.64 billion. Another $2.50 billion of the $10.95 billion total is provided to the four federal land management agencies: the Bureau of Land Management, Fish and Wildlife Service, National Park Service, and Forest Service. These funds are provided for construction; wildfire management; and maintenance, repair, and rehabilitation of facilities and trails, among other purposes. Still another $1.00 billion of the $10.95 billion is provided to the Bureau of Indian Affairs for activities including repair and restoration of roads, construction and improvement of schools, and maintenance and repair of detention centers ($500.0 million) and to the Indian Health Service for facilities construction, deferred maintenance, sanitation projects, and equipment purchases ($500.0 million), among other activities. The remaining $230.0 million of the $10.95 billion is provided to several other agencies for purposes including deferred maintenance of the U.S. Geological Survey, salaries and expenses of the DOI Inspector General, repair of Smithsonian facilities, and grants for the arts. Departments of Labor, Health and Human Services, and Education, and Related Agencies (Division A, Title VIII) and State Fiscal Stabilization Fund (Division A, Title XIV)41 Two titles of ARRA provide funding for the Departments of Labor, Health and Human Services, and Education, and Related Agencies. Title VIII provides a total of $72.56 billion, including $4.81 billion for the Department of Labor, $21.92 billion for the Department of Health and Human Services, $44.64 billion for the Department of Education, and $1.20 billion for related agencies. Title XIV provides $53.60 billion to the Department of Education for a new State Fiscal Stabilization Fund, bringing ARRA Education total to $98.24 billion. The ARRA total from the two titles is $126.16 billion, a 20% supplement to the $638.47 billion in other appropriations for Labor, Health and Human Services, and Education, and Related Agencies for FY2009. For discretionary programs, however, ARRA total of $124.15 billion is a 78% supplement to the $160.08 billion in regular FY2009 appropriations for the agencies. In contrast, the much smaller ARRA total of $2.01 billion for mandatory programs (provided through Division A) is a 0.4% supplement to the $478.39 billion in regular FY2009 appropriations. Department of Labor (DOL). The ARRA includes $4.81 billion for the Department of Labor. The amount is a 31% supplement to the $15.32 billion in other FY2009 appropriations, and a 39% supplement to the $12.41 billion in FY2009 discretionary funding for DOL. Of the $4.81 billion total, $4.20 billion is provided for employment and training programs authorized by the Workforce Investment Act (WIA) and the remaining $606.0 million went to related DOL programs. The amount for WIA programs represents a 79% supplement to the $5.31 billion in the Omnibus Appropriations Act, 2009. Of the $4.20 billion in WIA funding, a total of $3.95 billion is appropriated for Training and Employment Services activities as follows: (1) formula grants to states receive $2.95 billion, including $500.0 million in grants for adult employment and training, $1.20 billion in grants for youth activities, and $1.25 billion in grants for dislocated worker assistance; (2) the Dislocated Workers Assistance National Reserve receives $200.0 million; (3) the YouthBuild program receives $50.0 million; and (4) $750.0 million is provided for a new program of competitive grants for worker training and placement in high-growth and emerging industries. The remaining $250.0 million in WIA funding goes to the Office of Job Corps for construction and renovation of Job Corps Centers. The balance of ARRA funding for DOL is for the Community Service Employment for Older Americans program ($120.0 million), state unemployment insurance and employment service operations ($400.0 million), departmental management ($80.0 million), and the Office of the Inspector General ($6.0 million). Department of Health and Human Services (HHS). The ARRA provides $21.92 billion for the HHS programs funded under this appropriation. This is a 4% supplement to the $501.20 billion in total regular FY2009 appropriations, and a 31% supplement to the $71.38 billion in FY2009 discretionary funding for HHS. Of the $21.92 billion, the National Institutes of Health (NIH) receives the largest share at $10.00 billion (a 33% supplement to regular FY2009 appropriations). The Administration for Children and Families receives $5.15 billion, including $2.00 billion for the Child Care and Development Block Grant (a 94% supplement) and $3.15 billion for Children and Family Services programs (a 34% supplement). The Office of the HHS Secretary receives a total of $3.07 billion for several programs, including $1.00 billion for a new Prevention and Wellness Fund and $2.00 billion to implement activities authorized under the Health Information Technology for Economic and Clinical Health Act (Division A, Title XIII of ARRA). The Health Resources and Services Administration receives $2.50 billion, including $2.00 billion for health centers (a 91% supplement) and $500.0 million for health professions training programs. The Agency for Healthcare Research and Quality (AHRQ) receives a total of $1.10 billion for comparative effectiveness research ($300.0 million for AHRQ programs, $400.0 million for transfer to NIH, and $400.0 million for the Secretary to allocate). Finally, the Administration on Aging receives $100.0 million for senior nutrition programs. Department of Education (ED). The ARRA provides $98.24 billion for programs that are or will be administered by the Department of Education. This is a 148% supplement to the $66.51 billion in regular FY2009 appropriations for ED. Of the $98.24 billion, $42.62 billion is appropriated for existing discretionary ED programs—a 90% supplement to the regular FY2009 appropriations for these programs. Three programs that receive the largest shares of the funding are discussed here; the balance of ARRA funding for existing programs is provided in smaller amounts to numerous other ED programs. Most of ARRA funds for existing elementary education programs are appropriated for programs that provide formula grants directly to states or local educational agencies (LEAs), while most funds at the postsecondary level are appropriated for Pell Grants, which go directly to students. For some programs, these appropriations provide a substantial increase over the amount of funding provided through the regular appropriations process in recent years. The ARRA provides $10.00 billion for Title I-A, Education for the Disadvantaged, Grants to LEAs, a 69% supplement to the $14.49 billion in regular FY2009 appropriations for the program. Similarly, ARRA provides $11.30 billion for the Individuals with Disabilities Education Act (IDEA), Part B Grants to States, a 98% supplement to the $11.51 billion in regular FY2009 appropriations. At the postsecondary level, ARRA provides $15.64 billion in discretionary funding for Pell Grants, a 90% supplement to the $17.29 billion in regular FY2009 appropriations. The remaining $53.60 billion in ARRA funding for ED is appropriated for the new State Fiscal Stabilization Fund. After making reservations from the appropriation, including a $5.00 billion reservation for the Secretary of Education to provide State Incentive Grants and establish an Innovation Fund, $48.32 billion will be provided to governors through formula grants to each state that chooses to apply for funding through this program. At the state level, the governor must use 81.8% of the funds received to restore state support for public elementary and secondary education and for public institutions of higher education (IHEs) to the greater of the FY2008 or FY2009 level for FY2009, FY2010, and FY2011. The governor is required to use the remaining 18.2% of the state allocation for "public safety and other government services," which may include assistance for elementary and secondary education and public IHEs. Related Agencies. The ARRA includes $1.20 billion for related agencies. This is a 2% supplement to the $55.43 billion in total regular FY2009 appropriations, and a 9% supplement to the $12.75 billion in FY2009 discretionary funding for these agencies. Of the $1.20 billion, ARRA provides $1.00 billion to the Social Security Administration (SSA). Of this amount, $500.0 million is to replace SSA's National Computer Center and $500.0 million is for processing disability and retirement claims. SSA's Office of the Inspector General receives $2.0 million. The ARRA provides $201.0 million to the Corporation for National and Community Service. This amount includes $89.0 million for AmeriCorps State and National Grants, $65.0 million for the AmeriCorps Volunteers in Service to America program, and $40.0 million for the National Service Trust. Among other activities, the National Service Trust provides educational awards to participants in AmeriCorps, VISTA, and the National Civilian Community Corps. Legislative Branch (Division A, Title IX)51 The ARRA contains $25.0 million for the legislative branch, all of which is provided for the Government Accountability Office (GAO). This amount is a 0.6% supplement to the $4.40 billion in other appropriations for Legislative Branch for FY2009. The ARRA requires GAO to conduct bimonthly reviews of selected states and localities on their use funds provided by the act. It also seeks to ensure GAO access to various records related to contracts awarded with funds provided in the act. Military Construction and Veterans Affairs and Related Agencies (Division A, Title X)52 The ARRA includes $4.28 billion for Military Construction and Veterans Affairs and Related Agencies, a 4% addition to the $119.61 billion otherwise appropriated for FY2009. Of the $4.28 billion, $2.88 billion is devoted to military construction, military family housing construction and operation, and the Department of Defense (DOD) Homeowners Assistance Fund. Army construction ($180.0 million) is specified for use on child development centers and "warrior transition complexes." Army family housing construction receives an additional $34.5 million and operations another $3.9 million. Navy and Marine Corps construction ($280.0 million) is to be used for troop housing, child development centers, and energy conservation and alternative energy projects. Air Force construction ($180.0 million) is to be devoted to troop housing and child development centers. Air Force family housing construction receives $80.1 million and operations an additional $16.5 million. Defense-wide construction ($1.45 billion) is dedicated to hospitals, with a small portion reserved for the Energy Conservation Investment Program. The Army National Guard construction account is allocated $50.0 million, and the Air National Guard an additional $50.0 million. The Homeowners Assistance Fund, which provides assistance to DOD personnel forced to sell primary homes in depressed housing markets because of relocations due to base closures or downsizing, receives a $555.0 million appropriation, and additional legislative language expands eligibility to new categories of personnel. Of the $4.28 billion, ARRA provides $1.40 billion to the Department of Veterans Affairs. This amount includes $1.00 billion for the medical facilities account, and $50.0 million for the National Cemetery Administration. The funding for these accounts is for non-recurring maintenance and energy conservation projects in VA medical facilities and monument and memorial repairs in VA national cemeteries. The law does not specify which VA medical facilities or cemeteries would receive funding. The ARRA also provides: $150.0 million for the general operating expenses account to temporarily increase the number of claims processing personnel; $50.0 million for information technology; $1.0 million for the Office of the Inspector General; and $150.0 million for grants for construction of state extended care facilities. State, Foreign Operations, and Related Programs (Division A, Title XI)54 The ARRA contains $602.0 million for programs under the Department of State and the U.S. Agency for International Development (USAID). This is a 1.5% supplement to the other $40.46 billion in other appropriations for State, Foreign Operations, and Related Programs for FY2009. Of the $602.0 million, $382.0 million is provided for State Department activities, including $90.0 million under Diplomatic & Consular Programs to address facilities requirements for passport and training functions, $290.0 million to the Capital Investment Fund (CIF) for security upgrades to the information technology system (of which $38.0 million is to be transferred to USAID's CIF for coordination of State and USAID information technology systems), and $2.0 million to the Office of the Inspector General for oversight requirements. The remaining $220.0 million is provided for the U.S.-Mexico International Boundary and Water Commission for immediate repair and rehabilitation requirements, of which up to $2.0 million may be merged with funds for salaries and expenses. Transportation, Housing and Urban Development, and Related Agencies (Division A, Title XII)55 The ARRA provides $61.80 billion for programs within the Department of Transportation (DOT) and the Department of Housing and Urban Development (HUD). This is a 57% supplement to the $109.06 billion provided in the Transportation, Housing and Urban Development, and Related Agencies Appropriations Act, 2009 (Division I, P.L. 111-8 ). DOT. DOT receives a total of $48.12 billion from ARRA, primarily to make capital assistance grants. This additional funding represents a 72% supplement to DOT's regular FY2009 funding ($67.22 billion). The ARRA funding is allocated among ten grant programs, focusing on different modes of transportation. The largest allocation, $27.50 billion, goes to states and localities for highway projects, though passenger and freight rail and port infrastructure projects also are eligible for this funding in certain circumstances. The next largest allocation, $9.30 billion, is for states and Amtrak for intercity passenger rail projects, including high-speed rail. Transit projects receive $8.40 billion; aviation projects receive $1.30 billion; and small shipyards receive $100.0 million. The law also provides $1.50 billion for competitive grants for surface transportation projects of national and regional significance, whether highways, bridges, transit, rail, or port infrastructure. For most of these programs, the grants provided with funding from ARRA will not require any local match. States will be required to certify that they are using these grants to supplement their planned transportation spending, rather than substituting the additional funding for their planned spending. Further, the DOT Inspector General's Office is given $20.0 million to help audit these expenditures. HUD. The ARRA provides $13.68 billion for HUD in FY2009. This funding is a 33% supplement to the $41.54 billion provided for HUD in P.L. 111-8 . The $13.68 billion in HUD funding includes $4.00 billion for the repair and modernization of public housing and $2.00 billion for the acquisition, rehabilitation, and sale of abandoned and foreclosed housing through the Neighborhood Stabilization Program. It includes $2.00 billion to fund the full-year renewal of project-based rental assistance contracts between HUD and private property owners and another $2.25 billion is included to provide gap financing for certain tax credit financed affordable housing developments. The HUD funding also includes $1.50 billion for homelessness prevention activities, to be awarded to localities via the Emergency Shelter Grant program formula. The remaining HUD funding is provided for: supplemental Community Development Block Grant assistance ($1.00 billion); supplemental grants for Native American block grant recipients ($510.0 million); competitive grants for energy efficiency and green retrofits in HUD-assisted multifamily properties ($250.0 million); supplemental funding for the lead paint hazard reduction program ($100.0 million); and supplemental funding for HUD's Office of Inspector General ($15.0 million). Administrative provisions in the law increase the Federal Housing Administration loan limits and the government sponsored enterprises (GSE) conforming loan limits. The GSE changes are estimated to cost $37.0 million in FY2009 and $13.0 million in FY2010. Summary of Mandatory Spending Provisions Most mandatory spending in ARRA is contained in Division B of the act; however, some $29 billion of estimated outlays contained in Division A are also the result of changes in mandatory programs (for example, the Supplemental Nutrition Assistance Program, formerly known as food stamps). Of total amounts shown in Table 1 for mandatory spending under Division B, nearly $69 billion is from refundable tax credits. For purposes of this CRS report, these tax provisions are generally discussed in the "Summary of Tax and Public Finance Provisions," although a few that are directly related to the mandatory provisions discussed below also are mentioned here. Non-tax mandatory spending in Division B totals $198 billion over the 10-year period FY2009-FY2019, according to CBO estimates. The vast majority of this spending will occur in the first two years ($160 billion). Almost all funds will be spent during the five-year period FY2009-FY2013 ($194 billion). The key exception to this pattern, however, is the Medicaid/Medicare health information technology provisions (Title IV of Division B), which do not take effect until FY2011. The largest single component of spending results from provisions intended to provide fiscal relief to states under the Medicaid program (Title V of Division B). CBO estimates that Title V provisions will result in $90 billion in outlays over 10 years, with $78 billion in spending during the first two years (FY2009 and FY2010) and nearly the full $90 billion spent during FY2009-FY2013. The next largest category of mandatory non-tax spending results from changes in unemployment compensation (UC), which CBO estimates will cost $39 billion over 10 years, with more than $37 billion of that total occurring during the first two years. UC provisions are combined in Title II of Division B with provisions that amend the Temporary Assistance for Needy Families (TANF) and Child Support Enforcement (CSE) programs and that provide one-time "economic recovery" payments to certain individuals (e.g., recipients of Social Security and other benefit programs). CBO estimates that the combination of TANF, CSE, and economic recovery payments will cost $18 billion over 10 years, with $17 billion of that spending in the first two years. Most of this spending is for the economic recovery payments. Subsidies for COBRA health insurance premiums will cost an estimated $25 billion over 10 years, and Medicare/Medicaid health information technology (HIT) provisions will cost an estimated $21 billion. Most of the HIT spending will occur in FY2011-FY2015, with estimated savings starting in FY2016. Table 7 , toward the end of this report, provides summary information on the levels of mandatory spending (and revenue changes) provided in ARRA. Trade Adjustment Assistance (Division B, Title I, Part I) ARRA reauthorizes and expands the Trade Adjustment Assistance (TAA) programs (for workers, firms and farmers) through the end of calendar year 2010. It also created a TAA for Communities program. These programs provide various forms of assistance (e.g., income support, training, job search and relocation assistance, technical assistance) for individuals, businesses and communities adversely affected by imports or shifts in production out of the United States. In addition, a refundable Health Coverage Tax Credit (HCTC) is available to offset part of the health insurance premiums of eligible workers. Regarding TAA for Workers , ARRA expands eligibility to additional groups (including service and public sector workers) and extends income support benefits an additional 26 weeks. ARRA increases the amount of a worker's job search and relocation expenses that may be reimbursed by the program and increases the amount of annual training funds available. The law also continues and eases eligibility for a wage insurance program for older workers, and increases the portion of a worker's health insurance premium that will be covered by the HCTC. ARRA also makes significant changes to TAA for Firms . The new law extends eligibility to services firms in addition to manufacturing and agricultural firms, and increases a firm's flexibility in demonstrating it has been negatively affected by trade. The law requires the Secretary of Commerce, upon being informed by the Secretary of Labor that a firm's workers are covered by the TAA for Workers program, to notify the firm of its potential eligibility under the TAA for Firms program. For TAA for Farmers , ARRA makes it easier for any group of commodity producers, including fishermen, to qualify for assistance by lowering a key threshold and broadening the scope of the factors to be examined in determining eligibility. Also, instead of receiving cash payments automatically under a formula as before, a producer that meets specified requirements will become eligible for financial assistance only upon the completion of training intended to help him or her become more competitive in producing the same or another commodity. The TAA for Communities program makes communities that have received one or more certifications under the TAA for Workers, Firms, or Farmers program eligible for strategic planning grants as well as for economic development grants if the communities cannot match grant funds as required by other federal programs. Unemployment Compensation (Division B, Title II, Subtitle A) ARRA contains several provisions affecting unemployment benefits. The law increases unemployment benefits by $25 per week for all recipients of regular unemployment compensation (UC), extended benefits (EB), emergency unemployment compensation (EUC08), Trade Adjustment Assistance (TAA) programs, and Disaster Unemployment Assistance (DUA). Supplemental compensation will be available from the time a state enters into an agreement with the Labor Secretary and ending in most cases before January 1, 2010. The act extends the temporary EUC08 program through December 26, 2009, to be financed by federal general revenues. It also provides for 100% federal financing of the EB program to end before January 1, 2010, to be financed through the Unemployment Trust Fund. ARRA allows states the option of changing temporarily the eligibility requirements for the EB program in order to expand the number of persons eligible for EB benefits, to end before June 1, 2010. The law also adds an additional 13 weeks to the maximum amount of time railroad workers may receive extended unemployment benefits. ARRA suspends income taxation on the first $2,400 of unemployment benefits received in 2009, for taxable years beginning after December 31, 2008. It provides relief to states from the payment and accrual of interest on federal loans to states for the payment of unemployment benefits, from enactment of the stimulus package on February 17, 2009 through December 31, 2010. ARRA provides for a special transfer of up to $7 billion in federal monies to state unemployment programs as "incentive payments" for changing certain state UC laws. All incentive payments must be made before October 1, 2011. States do not need to repay these sums to the federal government. Any changes that states make to state unemployment programs as a result of ARRA's modernization provisions would be permanent. Finally, the act transfers a total of $500 million to the states for administering their unemployment programs, within 30 days of enactment of the law. States do not need to repay these sums to the federal government. TANF and Child Support Enforcement (Division B, Title II, Subtitle B) Most funding to states under the Temporary Assistance for Needy Families (TANF) program is provided through a block grant that totals $16.5 billion a year. TANF has additional funding streams, however, including a $2 billion contingency fund for states that meet criteria of economic need. ARRA retains the current TANF contingency fund and adds a new, temporary "emergency contingency fund," that provides extra funding to states in FY2009 and FY2010. States receive extra federal grants to cover 80% of increased recession-related costs in those two years. Recession-related costs are defined as increased basic assistance (for states with increased basic assistance caseloads), non-recurrent short-term benefits, or subsidized employment expenditures. A state's cumulative combined funding from both the TANF contingency fund and the temporary emergency fund is limited to 50% of its annual basic TANF block grant for the two years. The ARRA provides an appropriation of $5 billion for the emergency fund. ARRA also temporarily modifies the caseload reduction credit that applies toward TANF work participation standards. Under existing TANF law, the credit reduces a state's work participation standard for caseload reduction that has occurred since FY2005 to the fiscal year prior to the current fiscal year. If caseloads rise, the credit diminishes, raising the effective (after credit) work participation standard. ARRA modifies the credit for the FY2009, FY2010, and FY2011 standards, allowing the credit to be based on caseload reduction through FY2007 or FY2008 for those years. Thus, caseload increases occurring in FY2008 through FY2010 will not reduce caseload reduction credits. Finally, under pre-ARRA law, states could reserve unspent TANF grants without fiscal year limit for the purpose of providing cash welfare. ARRA allows states to use unspent TANF grants for any TANF benefit and service. Under the Child Support Enforcement (CSE) program, the federal government provides matching grants to states to reimburse them for part of the costs of running their programs. The federal government also provides incentive payments to states to encourage them to operate effective programs, and requires states to reinvest these incentive payments back into the CSE program or related activities. ARRA requires HHS to temporarily provide federal matching funds on CSE incentive payments that states reinvest back into the CSE program. (This practice had been prohibited by the Deficit Reduction Act of 2005 ( P.L. 109-171 ).) This means that CSE incentive payments received by states and reinvested in the CSE program can be used to draw down additional federal funds. ARRA provides the federal matching funds for FY2009 and FY2010 (i.e., the period October 1, 2008, through September 30, 2010). Economic Recovery Payments (Division B, Title II, Subtitle C) ARRA provides for a one-time economic recovery payment of $250 to certain individuals, to be made by the Secretary of the Treasury within 120 days of enactment (before mid-June). The payments will be made to those eligible persons who in November 2008, December 2008, or January 2009, received benefits under: Social Security; Supplemental Security Income (SSI); Railroad Retirement; and certain programs administered by the Department of Veterans Affairs (i.e., disability compensation; pension; dependency indemnity compensation; and special payments to disabled children of certain veterans). To be eligible, Social Security recipients must be over age 18 (19 if in school). However, disabled children receiving SSI also are eligible for the economic recovery payment. Individuals must live in the United States, District of Columbia, Puerto Rico, or one of the U.S. possessions, and will receive only one payment even if they are beneficiaries of more than one eligible program (for example, receiving both Social Security and veterans benefits). Taxpayers cannot benefit from both the economic recovery payment and the Making Work Pay tax credit (provided by Section 1001 of Division B of the act) in a single tax year. The economic recovery payment will reduce the Making Work Pay Credit to be claimed for the 2009 tax year on the tax return filed in 2010. The one-time payment may be offset for outstanding child support or other federal or state debts, but will not be offset for Social Security or SSI overpayments. The one-time payment is not counted as income for income tax purposes or as a resource for other federal programs. ARRA also created a $250 refundable credit against income taxes owed for tax year 2009 for individuals who receive a government pension or annuity from work not covered by Social Security, and who are not eligible to receive the one-time economic recovery payment described above. This refundable credit will also reduce any Making Work Pay credit claimed on the tax year 2009 return filed in 2010. Premium Assistance for COBRA Benefits (Division B, Title III) ARRA includes provisions to subsidize health insurance coverage provided through the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). ARRA includes COBRA premium subsidies of 65% to help the unemployed afford health insurance coverage from their former employer. The subsidy is available for up to 9 months to those individuals who meet the income test and who are involuntarily terminated on or after September 1, 2008, and before January 1, 2010. There is also a special extended enrollment period for two groups of unemployed who were involuntarily terminated from their employment on or after September 1, 2008: (1) individuals who did not elect COBRA coverage at the time, and (2) individuals who had chosen COBRA coverage after September 1, 2008, but dropped their coverage because they could not afford the premiums. Members of these two groups are to be notified by their former employer within 60 days of enactment and will have an additional 60 days after being notified to elect COBRA and receive the subsidy. ARRA also allows employers to permit eligible individuals the right to elect a different plan offered by their former employer, within 90 days of their notification for the subsidy. Individuals receiving the subsidy are required to pay no more than 35% of their COBRA premium. The remaining 65% is paid by their former employer, who will be reimbursed through either: (1) a credit against any tax liability for payroll taxes, or (2) if the premium subsidy exceeds their tax liability, a refund. The full subsidy is available for individuals whose modified adjusted gross income (AGI) during the tax year is no more than $125,000 for single filers (or $250,000 for joint filers). The subsidy is phased-out for higher income individuals with a reduced subsidy for individuals with modified AGI less than $145,000 for single filers (and $290,000 for joint filers). If individuals receive the subsidy and their income exceeds the levels specified above, the amount of the subsidy will be recaptured when they file their income taxes. To avoid recapture they may waive their rights to the subsidy and still enroll in COBRA and pay the full premium. However, waiving their right is a permanent decision, and they would not be allowed to take the subsidy in the future. Health Information Technology (Division B, Title IV) (Division A, Title XIII) Medicare and Medicaid Payments Division B of ARRA amends the Medicare and Medicaid statutes to authorize incentive payments for hospitals, physicians and other health care providers that adopt and use electronic health record (EHR) technology. The Congressional Budget Office estimates that Medicare and Medicaid providers will receive a total of $32.7 billion in EHR bonuses over a 10-year period (i.e., 2009-2019). (However, the provision is also estimated to achieve savings, resulting in the lower overall cost cited earlier.) Beginning in 2011, the legislation provides Medicare incentive payments to physicians and hospitals who are meaningful users (as defined in the act) of EHR technology. Physicians are eligible for up to $44,000 in bonus payments; rural providers may receive an additional 10%. Eligible hospitals receive a base amount of $2 million plus an amount based on the number of patient discharges during the year. The hospital payments are adjusted according to the share of Medicare patients and the amount of charity care provided. Both the physician and hospital incentive payments are phased out over time and replaced in 2015 with financial penalties for those who are not using EHR technology. In addition to the Medicare bonuses, ARRA authorizes a 100% federal match (or FMAP; see discussion in next section) for payments to certain qualifying Medicaid providers—including physicians and other eligible professionals, and acute-care and children's hospitals—for the acquisition and meaningful use of EHR technology. Physician payments cover up to 85% of allowable EHR technology costs. Payments are capped at $63,750 and payable over a period of up to six years. To qualify for Medicaid payments, physicians must pay the remaining 15% of EHR technology costs and waive their right to any Medicare EHR incentives. The Medicaid incentive payment for hospitals, also payable over a period of up to six years, is computed using a modified version of the formula for Medicare hospital EHR payments, adjusted for the facility's Medicaid patient share. Eligible hospitals may qualify for both Medicare and Medicaid EHR incentives. Office of the National Coordinator, Standards and Privacy The Medicare/Medicaid health IT provisions included in Division B are a component of new legislation, the Health Information Technology for Economic and Clinical Health (HITECH) Act, which is primarily contained in Title XIII of Division A of ARRA. The HITECH Act is aimed at promoting the widespread adoption of HIT for the electronic sharing of clinical data among hospitals, physicians, and other health care providers. The Act includes three sets of provisions. First, it codifies the Office of the National Coordinator for Health Information Technology (ONCHIT) within HHS. Created by a presidential executive order in 2004, ONCHIT has played an important role in directing HIT activities both inside and outside the federal government. It has focused on developing technical standards necessary to achieve interoperability among varying electronic health record applications; establishing criteria for certifying that HIT products meet those standards; ensuring the privacy and security of electronic health information; and helping facilitate the creation of prototype health information networks. The goal is to develop a national capability to exchange standards-based health care data in a secure computer environment. The HITECH Act requires the HHS Secretary, by December 31, 2009, to issue a comprehensive set of initial HIT standards. Second, the HITECH Act through a number of mechanisms provides financial incentives for HIT use among health care providers. In addition to the Medicare/Medicaid provisions described above, it establishes several grant programs to provide funding for investing in HIT infrastructure, purchasing certified EHRs, training, and the dissemination of best practices. It also authorizes grants to states for low-interest loans to help providers finance HIT. (See earlier discussion of HHS funding under Division A, Title VIII, for information on appropriations for these grants.) Finally, the HITECH Act includes a series of privacy and security provisions that amend and expand the current federal standards under the Health Insurance Portability and Accountability Act (HIPAA). Among other things, it establishes a breach notification requirement for health information that is not encrypted, strengthens enforcement of the HIPAA standards, and creates transparency by allowing patients to request an audit trail showing all disclosures of their electronic health information. State Fiscal Relief (Division B, Title V) The federal medical assistance percentage (FMAP) is the rate at which states are reimbursed for most Medicaid service expenditures. It is based on a formula that provides higher reimbursement to states with lower per capita incomes relative to the national average (and vice versa); it has a statutory minimum of 50% and maximum of 83%. In addition to Medicaid, the FMAP is used in determining the federal share of certain other programs (e.g., foster care and adoption assistance under Title IV-E of the Social Security Act) and serves as the basis for calculating an enhanced FMAP that applies to the State Children's Health Insurance Program (CHIP). During a recession adjustment period that begins with the first quarter of FY2009 and runs through the first quarter of FY2011, ARRA provisions that are intended to provide fiscal relief to states will hold all states harmless from any decline in their regular FMAPs, provide all states with an across-the-board increase of 6.2 percentage points, and provide qualifying states with an additional unemployment-related increase. The act further allows each territory to choose between an FMAP increase of 6.2 percentage points along with a 15% increase in its spending cap, or its regular FMAP along with a 30% increase in its spending cap. The full amount of the temporary FMAP increase only applies to Medicaid (with some exceptions) and a portion of the temporary FMAP increase (hold harmless plus across-the-board) applies to Title IV-E foster care and adoption assistance. States must meet various requirements to qualify for the FMAP increase. These FMAP provisions account for almost all (nearly 98%) of the spending under Title V of Division B. Additional Medicaid provisions in the state fiscal relief title of ARRA include temporarily increase Medicaid payment adjustments for hospitals that serve a disproportionate number of low-income patients with special needs (known as DSH payments); extend existing moratoria on implementation of certain Medicaid regulations issued in 2007 and 2008; extend through December 2010 a program known as Transitional Medical Assistance (TMA), which provides continued Medicaid benefits for certain low-income families who would otherwise lose coverage because of changes in their income; extend through December 2010 the QI-1 program that allows Medicaid to pay Medicare Part B premiums for certain low-income individuals who are aged or have disabilities; and provide certain protections for Indians under Medicaid and CHIP. Other Provisions (Division B, Titles VI and VII) Division B includes two titles that are not budgetary in nature. Title VI (Broadband Technology Opportunities Program) contains the authorization for the Broadband Technology Opportunities Program at the National Telecommunications and Information Administration (NTIA). The program is funded by discretionary appropriations made to NTIA in the Department of Commerce. Title VII (Limits on Executive Compensation) sets forth restrictions on the compensation of executives of companies during the period in which any obligation arising from financial assistance provided under the Troubled Assets Relief Program (TARP) remains outstanding. The Secretary of the Treasury is required to develop appropriate standards for executive compensation. A Board Compensation Committee must be set up to review employee compensation plans. Any annual or other meeting of the shareholders of a TARP recipient must permit a separate, nonbinding shareholder vote to approve the compensation of executives. Summary of Tax and Public Finance Provisions67 Division B, Title I of ARRA includes tax provisions targeted to individuals, families, and businesses. Other components of Title I include public finance measures designed to encourage economic development investment, energy conservation and efficiency, and a provision to increase the debt limit, which applies to federal debt held by the public and by the government. Table 7 , toward the end of this report, provides summary information on the level of revenue changes (and mandatory spending) provided in ARRA. Individual Income Tax Relief (Division B, Title I, Subtitle A) In addition to the provisions mentioned previously in the economic recovery payments section of this report, ARRA provides other temporary changes to certain individual income tax provisions. The incentives target families and individuals, education, and housing. Families and Individuals . ARRA enacts a temporary refundable tax credit of up to $400 for individuals and $800 for married couples for tax years 2009 and 2010. The Making Work Pay Tax Credit is calculated at a rate of 6.2% of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or in the case of married couples filing jointly, $150,000. The credit is estimated to cost $116.2 billion over 10 years. For taxpayers receiving paychecks who also are subject to withholding, the credit will typically be handled by their employers through automated withholding changes that began in early April. These changes are expected to result in an increase in take-home pay. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return. Private pension recipients are not eligible for the credit unless they have earned income. At an estimated 10-year cost of $14.8 billion, ARRA increases the eligibility for the refundable child tax credit in 2009 and 2010. The child tax credit allows families with qualifying children under the age of 17 a credit against their federal income tax, and for families with three or more children, the child tax credit is refundable. The refundability of the credit depends on a minimum level of household earnings, which, for 2008, was scheduled to be $12,550. ARRA reduces the threshold to $3,000 permitting more taxpayers to use the additional child tax credit and increasing the amount of the payments they may receive. The legislation temporarily increases the earned income tax credit for working families with three or more children from 40% to 45%. Under current law, working families with two or more children currently qualify for a tax credit up to the family's first $12,570 of earned income. Generally, this credit is phased-out for working families with adjusted gross income in excess of $16,420 ($19,540 for married couples filing jointly) but the new law increases the beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) by $1,880. In response to lagging sales and financial distress of American automakers, a temporary deduction for state and local sales and excise taxes paid on purchases of new cars, light trucks, recreational vehicles, and motorcycles through 2009 is included in ARRA. The deduction is available regardless of whether a taxpayer itemizes deductions and is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle. The deduction is subject to a phase-out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return). ARRA includes, for 2009 only, an increase in the amount of income that can be exempted for taxpayers under the individual alternative minimum tax (AMT). The AMT was originally designed to make sure that everyone paid at least a minimum of taxes while still preserving the economic and social incentives in the tax code. The AMT provides an alternative set of rules for calculating income tax and the original amounts of income exempt from tax were not indexed for inflation. As a result, almost annually, temporary adjustments, referred to as patches, are made to the exemption amounts. For the 2009 tax year these exemption amounts are adjusted upward by ARRA to $46,700 for individuals and $70,950 for joint filers. Education Tax Incentives. ARRA expands the Hope education tax credit for 2009 and 2010, by increasing its value and making it partially refundable. Under the new, temporary version of the tax credit, called the American Education Opportunity Tax Credit, taxpayers can receive a credit based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the taxable year and 25% of the next $2,000 of tuition and related expenses paid during the taxable year. Thus, the maximum value increases from $1,800 to $2,500. Unlike the Hope credit, 40% of the American Education Opportunity credit is refundable and is subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly). The modifications are estimated to cost $13.907 billion over 10 years. Section 529 Programs, also known as Qualified Education Savings Plans, are tax-advantaged savings plans that cover all qualified education expenses, including tuition, room and board, mandatory fees and books. ARRA expands the eligible qualified education expenses to include computer technology or equipment or Internet access and related services. Expansion of Home Buyer Tax Credit. ARRA modifies and expands the first-time home buyer credit enacted in the Housing and Economic Recovery Act of 2008 (HERA; P.L. 110-289 ). The original credit was refundable but taxpayers receiving the credit were required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The HERA credit was equivalent to an interest-free loan equal to 10% of the purchase of a home (up to $7,500) by first-time home buyers and applied to homes purchased on or after April 9, 2008 and before July 1, 2009. ARRA eliminates the repayment obligation for taxpayers that purchase homes after January 1, 2009 and increases the maximum value of the credit to $8,000. The tax credit, which is estimated to cost $6.638 billion over 10 years, extends the availability of the credit for homes purchased before December 1, 2009 and is limited to taxpayers with certain income levels. Energy Tax Incentives (Division B, Title I, Subtitle B) More than $20 billion in energy-related tax incentives are included in ARRA with $14.1 billion for renewable energy, $2.3 billion for energy efficiency, $2.2 billion for transportation, $1.6 billion for manufacturing, and $1.4 billion for state and local government energy bonds. Renewable Energy. The renewable energy provisions include incentives for alternative energy investment and alternative energy production. In particular, ARRA expands an energy production tax credit that has been available for wind facilities and other qualifying facilities such as landfill gas, geothermal, hydropower, and others. The length of time to complete such facilities, to place them into service to begin operation, in order to claim the credit is extended three years by ARRA. Other rules and modifications to investment tax credits are enacted along with several enhancements to existing tax-advantaged bond programs. Clean Renewable Energy Bonds (CREBs) and Qualified Energy Conservation Bonds (QECBs) are two examples. For nonprofit entities, $1.6 billion of new CREBs are authorized to finance facilities that generate electricity from wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, marine renewable, and municipal waste (trash) combustion facilities. Of the $1.6 billion bond authorization for such projects, one-third is available to state/local/tribal governments, one-third to public power providers, and one-third to electric cooperatives. QECBs, initially authorized by the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ), can be used to finance capital expenditures to reduce energy use in publicly owned buildings by at least 20%; implementation of green community programs; rural development involving electricity production from renewables; research facilities and grants for the development of cellulosic ethanol or other nonfossil fuels; technologies to capture and sequester carbon dioxide produced by fossil fuel use; more efficient technologies for producing nonfossil fuels; automobile battery technologies and other technologies to reduce fossil fuel use in transportation, or technologies to reduce energy use in buildings; mass commuting facilities that reduce energy use (including pollution reduction for vehicles used for mass commuting); demonstration projects that promote commercialization of green building technology; conversion of agricultural waste for fuel production; advanced battery manufacturing technologies; technologies to reduce peak electricity demand; technologies that capture and sequester carbon dioxide emitted from fossil-fuel-fired power facilities; and public education campaigns to promote energy efficiency. ARRA authorizes $2.4 billion of QECBs to finance state, municipal and tribal government programs, greenhouse gas reduction initiatives, and loans and grants to implement green community programs. Energy Efficiency. Incentives for energy efficiency improvements to existing homes and residential efficiency are included in ARRA. Specifically, ARRA expands a 10% investment tax credit for home energy efficiency improvements, with caps of $50 for fans, $150 for furnaces and boilers, and $300 for shell improvements. The investment credit is increased to a rate of 30%, is available for an additional year, through 2010, and certain cap adjustments are made. Another provision of ARRA modifies a 30% investment tax credit for a variety of residential energy efficiency and renewable energy equipment. Prior to ARRA, caps were set on the equipment credit and the credit had to be reduced if the qualifying residence received subsidized financing. ARRA eliminates the caps on residential wind, geothermal, and solar thermal equipment. It also repeals the subsidized financing reduction for residential solar, geothermal, wind, and fuel cells. Transportation. The Energy Policy Act of 2005 (EPAct2005, P.L. 109-58 ) established tax credits for the installation of retail and residential alternative fuel refueling systems. Eligible fuels include ethanol, natural gas, liquefied petroleum gas, and hydrogen. The retail credit is valued at 30% of the system, up to $30,000. For residential systems, the credit is capped at $1,000. For calendar years 2009 and 2010, ARRA increases the Alternative Fuel Refueling Infrastructure Tax Credit to 50% for all fuels except hydrogen, and raises the limitations to $50,000 for retail systems and $2,000 for residential systems. For hydrogen, the 30% credit is maintained, but the credit limit is raised to $200,000. ARRA modifies a tax credit for the purchase of new plug-in vehicles (plug-in hybrids and pure electric vehicles). The credit is based on the battery capacity of the vehicle, and, prior to ARRA, was capped at $7,500 for light-duty vehicles and up to $15,000 for the heaviest vehicles. When total U.S. sales of vehicles eligible for the credit reached 250,000, the credit began to phase out. ARRA modifies the existing tax credit to cap the per-vehicle credit at $7,500 for both light-duty vehicles and heavy-duty vehicles up to 14,000 pounds gross weight. It replaces the 250,000 total vehicle limit for phase-out of the credit with a 200,000 per-manufacturer limit. Further, ARRA eliminates the credit for heavier vehicles (after 2009), and establishes a credit of up to $2,500 for low-speed four-wheeled vehicles, as well as two- and three-wheeled electric vehicles. It establishes a credit of up to $4,000 for the conversion of an existing vehicle to battery power. ARRA also allows taxpayers otherwise subject to the Alternative Minimum Tax (AMT) to claim plug-in credit (as well as other alternative fuel and advanced vehicle credits). Qualified transportation fringe benefits provided by an employer are excluded from an employee's gross income for income tax purposes and from an employee's wages for payroll tax purposes. The benefits include parking, transit passes, vanpool benefits, and qualified bicycle commuting reimbursements. Prior to ARRA, up to $230 (for 2009) per month of employer-provided parking was excludable from income. Up to $120 (for 2009) per month of employer-provided transit, vanpools, and bicycle commuting benefits was excludable from gross income. ARRA increases the benefit for transit, vanpools, and bicycle commuting to $230 per month, thus equalizing the tax-free benefit employers can provide for transit and parking expenses. Tax Incentives for Business (Division B, Title I, Subtitle C) Several existing investment tax incentives are enhanced by ARRA along with the addition of some temporary provisions targeted at capital acquisitions. Under ARRA, business taxpayers may expense (or deduct as a current expense) up to $250,000 of the total cost of certain depreciable assets placed in service in 2009, within certain limits. One limit is a phaseout threshold, which is set at $800,000 in 2009. The act also allows business taxpayers to claim a so-called bonus depreciation allowance in 2009 that is equal to 50% of the cost of qualified assets placed in service that year. Firms unable to use either option for accelerated depreciation have to write off that cost over a longer period, using current depreciation schedules. The rules governing the use of the allowance confine most of its benefits to relatively small firms. ARRA expands certain rules applying to net operating losses (NOLs). A net operating loss is incurred when a business taxpayer has negative taxable income and can be used to obtain a refund for taxes paid in the past or to reduce future tax obligations. The process of using an NOL to refund previously paid taxes is known as an NOL carryback, whereas the process of using an NOL to reduce future taxes is known as a carryforward. Under current law, there is a two-year carryback period and a 20-year carryforward period for most business taxpayers. ARRA extends the carryback period for up to five years for NOLs incurred in 2008. To qualify as an eligible small business to claim the ARRA incentive, a taxpayer must have $15,000,000 or less in gross receipts. Other business incentives enacted by ARRA include the deferment of income arising from discharged business indebtedness; special rules applicable to qualified small business stock for 2009 and 2010; temporary reduction in the recognition period for built-in gains tax; and clarification of regulations related to limitations on certain built-in losses following an ownership change. Prior to ARRA, a taxpayer generally has income where the taxpayer cancels or repurchases its debt for an amount less than its adjusted issue price and is taxed on that income, which is known as cancellation of debt income (CODI). CODI is the excess of the old debt's adjusted issue price over the repurchase price. ARRA allows certain businesses to recognize CODI over 10 years, which essentially defers tax on CODI for the first four or five years and recognizes this income ratably over the following five taxable years. The provision applies for specified types of business debt repurchased by the business after December 31, 2008 and before January 1, 2011. Section 1202 of the Internal Revenue Code provides a 50% exclusion for the gain from the sale of certain small business stock held for more than five years. The amount of gain eligible for the exclusion is limited to the greater of 10 times the taxpayer's basis in the stock, or $10 million gain from stock in that small business corporation. This provision is limited to individual investments and not the investments of a corporation. The non-excluded portion of section 1202 gain is taxed at the lesser of ordinary income rates or 28%, instead of the lower capital gains rates for individuals. ARRA increases the rate of exclusion to 75% for individuals on the gain from the sale of certain small business stock held for more than five years. This change is for stock issued after the date of enactment and before January 1, 2011. Manufacturing Recovery Provisions (Division B, Title I, Subtitle D) Two provisions are included in ARRA with the focus on enhancing manufacturing. Current rules for the industrial development bond are expanded to more broadly define eligibility for manufacturing facilities to include any facility used in the manufacturing, creation, or production of tangible or intangible property. The second provision enacts a new advanced energy investment credit of 30% in value for facilities engaged in the manufacture of advanced energy property. Certain manufacturing facilities are eligible for tax exempt bond financing. The Internal Revenue Code Section 144(a)(12)(C), however, limits the definition of a manufacturing facility for the purposes of such financing to facilities that are used in the manufacturing or production of tangible personal property. ARRA amends the definition of manufacturing facility to any facility used in the manufacturing, creation, or production of tangible or intangible property described in section 197(d)(1)(C)(iii). Intangible property is any patent, copyright, formula, process, design, pattern, knowhow, format, or other similar item. The new law also clarifies which physical components of a manufacturing facility qualify as "ancillary" and therefore are subjected to a 25% limitation in the amount of bond issuance used to build or re-construct those components. ARRA establishes a new 30% investment tax credit for facilities engaged in the manufacture of advanced energy property. Advanced energy property includes technology for the production of renewable energy, energy storage, energy conservation, efficient transmission and distribution of electricity, and carbon capture and sequestration. Credits are available only for projects certified by the Secretary of the Treasury, in consultation with the Secretary of Energy, through a competitive bidding process and the Secretary of the Treasury must establish a certification program no later than 180 days after date of enactment in order to allocate the credits. The maximum amount to be allocated is $2.3 billion. Economic Recovery Tools (Division B, Title I, Subtitle E) Economic recovery tools include investment and bond finance measures that are expanded by ARRA. Authorization for the new markets tax credit is increased by $1.5 billion a year for 2008 and 2009 to yield an annual available amount of $5 billion each year. Existing bonds for tribal economic development and high speed rail are expanded as certain rules are temporarily relaxed for the purpose of expanding the availability of financing. ARRA creates a new category of tax credit bonds for investment in economic recovery zones by authorizing $10 billion in recovery zone economic development bonds and $15 billion in recovery zone facility bonds. These bonds can be issued during 2009 and 2010. Each state would receive a share of the national allocation based on that state's job losses in 2008 as a percentage of national job losses in 2008 (each state will receive a minimum allocation of these bonds). These allocations are sub-allocated to local municipalities. Municipalities receiving an allocation of these bonds are permitted to use these bonds to invest in infrastructure, job training, education, and economic development in areas within the boundaries of the state, city or county that has significant poverty, unemployment or home foreclosures. Under the Internal Revenue Code, Projects funded by bonds issued by tribal governments must satisfy an "essential governmental function" requirement, which limits tribal governments' abilities to issue tax-exempt bonds to finance economic development. ARRA temporarily allows tribal governments to issue $2 billion in tax-exempt bonds for projects without this restriction in order to spur economic development on tribal lands, and requires the Secretary of the Treasury to study whether this restriction should be repealed on a permanent basis. States are allowed to issue private activity bonds for high-speed rail facilities, which are defined as a facility for the transportation of passengers between metropolitan areas using vehicles that are reasonably expected to operate at speeds in excess of 150 miles per hour between scheduled stops. ARRA modifies the definition of vehicles to include those trains that are capable of attaining speeds in excess of 150 miles per hour. Infrastructure Financing Tools (Division B, Title I, Subtitle F) Infrastructure financing tools primarily include bond programs and certain rules and changes are made to many programs in an effort to broaden finance options. Waivers of certain rules for financial institutions to deduct interest expense on the investment in tax-exempt municipal bonds issued during 2009 and 2010 are enacted by ARRA along with modification to a small issuer exception to tax-exempt interest expense allocation rules for financial institutions. New categories of certain tax credit bonds also are added, as well as increases in authorization amounts. These bonds include qualified school construction bonds and Build America Bonds. Financial Institutions' Deduction of Interest Expense on Tax-Exempt Bonds. Financial institutions have not been allowed to take a deduction for the portion of their interest expense that is allocable to such institution's investments in tax-exempt municipal bonds. In determining the portion of interest expense that is allocable to investments in tax-exempt municipal bonds, ARRA excludes investments in tax-exempt municipal bonds issued during 2009 and 2010 to the extent that these investments constitute less than 2% of the average adjusted bases of all the assets of the financial institution. For purposes of the interest disallowance rule mentioned previously, bonds that have been issued by a "qualified small issuer" are not taken into account as investments in tax-exempt municipal bonds. Under current law, a "qualified small issuer" is defined as any issuer that reasonably anticipates that the amount of its tax-exempt obligations (other than certain private activity bonds) will not exceed $10,000,000. ARRA increases this dollar threshold to $30,000,000 when determining whether a tax-exempt obligation issued in 2009 and 2010 qualifies for this small issuer exception. The small issuer exception also applies to an issue if all of the ultimate borrowers in such issue separately qualify for the exception. For these purposes, the issuer of a qualified 501(c)(3) bond shall be deemed to be the ultimate borrower on whose behalf a bond was issued. Delay Application of Withholding Requirement on Certain Governmental Payments for Goods and Services. For payments to contractors made after December 31, 2010, the Internal Revenue Code requires withholding at a 3% rate on certain payments made by federal, state, and local governments to persons providing property or services. The withholding is required regardless of whether the government entity making the payment is the recipient of the property or services. Government entities with less than $100 million in annual expenditures for property or services are exempt. Numerous government entities and small businesses have raised concerns about the application of this provision, expressing concern about the administrative burden of implementation. ARRA delays for one year, through December 31, 2011, the application of the 3% withholding requirement on government payments for goods and services in order to provide time for the Treasury Department to study the impact of this provision on government entities and other taxpayers. Tax-Exempt Bonds and Tax Credit Bonds. The federal government subsidizes the cost of most state and local debt by excluding the interest income from federal income taxation. This tax exemption of interest income is granted because it is believed that state and local capital facilities will be under provided if state and local taxpayers have to pay the full cost. Both tax credit bonds and tax-exempt bonds provide a subsidy to municipalities by reducing the cash interest payments that a state or local government must make on its debt. Interest on private activity bonds issued by state and local governments typically is not deductible under the alternative minimum tax (AMT), though that interest is deductible under the regular income tax system. This tax treatment can increase the costs of issuing tax-exempt private activity bonds imposed on state and local governments by limiting the marketability of these bonds and, therefore, forces state and local governments to issue these bonds at higher interest rates. ARRA temporarily waives the interest exclusion for the AMT for bonds issued in 2009 or 2010 in order to maximize investment in such bonds, which are typically issued by state and local governments. ARRA also allows AMT relief for current refunding of private activity bonds issued after 2003 and refunded during 2009 and 2010. ARRA creates a new category of tax credit bonds for the construction, rehabilitation, or repair of public school facilities or for the acquisition of land on which a public school facility will be constructed. There are national limitations imposed by ARRA on the amount of qualified school construction bonds that may be issued. State and local governments have a limit of $22 billion ($11 billion allocated initially in 2009 and the remainder allocated in 2010) and Indian tribal governments have a limit of $400 million ($200 million allocated initially in 2009 and the remainder allocated in 2010). ARRA also allows an additional $1.4 billion of Qualified Zone Academy Bond (QZAB) issuing authority to state and local governments in 2009 and 2010, which can be used to finance renovations, purchase equipment, develop course material, and train teachers and personnel at a qualified zone academy. In general, a qualified zone academy is any public school (or academic program within a public school) below college level that is located in an empowerment zone or enterprise community and is designed to cooperate with businesses to enhance the academic curriculum and increase graduation and employment rates. QZABs are a form of tax credit bonds which offer the holder a federal tax credit instead of interest. ARRA created a tax credit bond option for state and local governments (Build America Bonds). For 2009 and 2010, the bill provides state and local governments with the option of issuing a tax credit bond instead of a tax-exempt governmental obligation bond. Because the market for tax credits is currently small given current economic conditions, the bill would allow the state or local government to elect to receive a direct payment from the federal government equal to the subsidy that would have otherwise been delivered through the federal tax credit for bonds. Other Provisions (Division B, Title I, Subtitle G) ARRA includes an increase in the debt limit, which applies to federal debt held by the public (that is, debt held outside the federal government itself) and to federal debt held by the government's own accounts. The 2008 economic slowdown, which reduced federal tax revenues and increased federal outlays, caused federal deficit spending to rise, thus bringing forward the projected date when the federal debt will reach its current limit. In July 2008, the Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ) included a debt limit increase to $10,615 billion. Subsequently, the Emergency Economic Stabilization Act of 2008 (Division A of P.L. 110-343 ) raised the debt limit, for the second time in 2008, to $11,315 billion. The debt limit was raised for the third time in less than a year as a result of passage of ARRA, which raises the debt limit to $12,104 billion. Grants in lieu of tax credits were enacted and the authorization for those credits was assigned to the Treasury Department. Several provisions—electricity production tax credits, investment tax credits for certain renewable property, and low income housing tax credits—have existed in the tax code with the intent of attracting private capital investment in targeted projects. Concern about insufficient demand led to the enactment in ARRA of an option for certain entities to temporarily request grants instead of the tax credits. Summary of General Oversight Provisions Divisions A and B of ARRA contain numerous oversight, accountability, and transparency provisions. Many provisions are specific to individual programs, agencies, and appropriations accounts. Other provisions are more general in nature, applying to multiple programs, agencies, or appropriations. This section concerns the latter type. Most of the general oversight provisions appear to cover activities and provisions associated with Division A rather than the entire law. The general oversight provisions might be further categorized into two groups: appropriations to oversight entities including offices of inspector general (IG), the Government Accountability Office (GAO), and a newly established Recovery Accountability and Transparency Board (RATB); and a number of substantive provisions, including establishment of RATB and enumeration of numerous reporting requirements. Appropriations to IGs, GAO, and RATB are included predominately in Division A. The provisions are distributed among 12 titles in Division A and one title in Division B. In total, 23 IGs receive $254.75 million in 25 separate appropriations. IGs in all 15 executive departments receive appropriations, ranging from the Department of Veterans Affairs on the low side ($1 million in a single appropriation) to the Department of Health and Human Services on the high side ($48.25 million in two appropriations). ARRA provides funding to be available to IGs with widely varying periods of availability. For the IG at the Department of State, for example, funds are available until the end of FY2010. Other IGs variously have funds available until the end of FY2011, FY2012, FY2013, or "until expended" (i.e., "no-year" funds). GAO receives $25 million, available through the end of FY2010, and RATB receives $84 million, available through the end of FY2011. Some appropriations specify that funds are to be used specifically for oversight of ARRA-related activities, but others essentially are supplemental appropriations that do not restrict use of funds to ARRA-related purposes. It should be noted that RATB has authority to transfer up to 100% of its funds to any office of inspector general, the Office of Management and Budget, the General Services Administration, and an advisory panel for RATB that ARRA establishes (Division A, Title XV, Section 1524(f)). In total, the appropriations provided to these oversight-oriented entities sum to $363.75 million. The second group of general oversight provisions is included only in Division A—chiefly in Titles XV and XVI—albeit in considerable variety. Among other things, these substantive provisions establish new oversight-oriented entities like RATB, enumerate diverse reporting requirements for federal agencies and nonfederal recipients of funds, and task RATB, IGs, and GAO with several duties. Under ARRA's requirements, for example, RATB's purpose is "to coordinate and conduct oversight of covered funds to prevent fraud, waste, and abuse." RATB's membership is to be comprised of at least 10 IGs, in addition to or including a chairperson, who may be designated or appointed by the President according to certain criteria. RATB has several enumerated functions, including to review whether reporting for contracts and grants "meets applicable standards" and "specifies the purpose of the contract or grant and measures of performance." In addition, RATB is required to establish a website. The Obama Administration established a rudimentary Recovery.gov website in anticipation of enactment of stimulus legislation. As agencies implement ARRA, the website is to contain, among many other things, considerable information about how funds are allocated and used. IGs and GAO also are required to conduct certain reviews. State and local governments that receive funds also will have certain certification and reporting requirements, which may be funded, at least in part, by flexibility granted to federal agencies to adjust applicable limits on administrative expenditures for federal awards. Further requirements and guidance concerning ARRA implementation was forthcoming from the Office of Management and Budget (OMB), some of which went beyond ARRA's statutory requirements. On February 18, 2009, OMB issued "initial implementing guidance" regarding ARRA, including numerous reporting requirements, to agencies in a 62-page document. Some of the required information will be posted on Recovery.gov and agency-specific ARRA-related websites. On March 20, 2009, President Obama issued a five-page presidential memorandum entitled "Ensuring Responsible Spending of Recovery Act Funds." The memorandum directed agencies in how to use "available discretion" when allocating and spending certain ARRA-related funding. On April 3, 2009, OMB issued "updated implementing guidance" to agencies in a 175-page document. Further guidance is expected. Additional Resources Many additional resources pertaining to the American Recovery and Reinvestment Act of 2009 are available online. An overview of online resources, particularly with respect to federal, state, and local entities, is provided in CRS Report R40244, Authoritative Resources on the American Recovery and Reinvestment Act (ARRA) , by [author name scrubbed] and [author name scrubbed]. Key Congressional Research Service reports on various funding and policy areas affected by ARRA are grouped together under the Current Legislative Issues term "Economy, Recession, and Financial Sector" on the CRS homepage: http://apps.crs.gov/cli/cli.aspx?PRDS_CLI_ITEM_ID=3405&from=3&fromId=4 . In addition, reports on the individual annual appropriations bills are listed under the Current Legislative Issues term "Appropriations and Budget" at http://apps.crs.gov/cli/level_2.aspx?PRDS_CLI_ITEM_ID=73 . "Recovery.gov" is the centerpiece of the Administration's online effort to monitor implementation of the act: http://www.recovery.gov/ . The Administration's website is intended to be a repository for information related to implementation and oversight of the stimulus, with information about available funding, distribution of funds, and major recipients. Under the umbrella of "Recovery.gov," separate websites established by federal agencies and states may be accessed: Federal agency recovery sites: http://www.recovery.gov/?q=content/agencies ; and State recovery sites: http://www.recovery.gov/?q=content/state-recovery-page . Finally, the Office of Management and Budget (OMB) has established a "Recovery Act Guidance" page on its website, including OMB memoranda and other documentation providing guidance to federal agencies: http://www.whitehouse.gov/omb/recovery_default/ .

President Barack Obama signed H.R. 1, the American Recovery and Reinvestment Act (ARRA) of 2009, into law on February 17, 2009, as P.L. 111-5 (123 Stat. 115-521). The act is seen as one of the most significant legislative responses made thus far to the current economic turmoil. This report provides a summary and legislative history of ARRA and identifies other resources that provide additional information regarding its content and implementation. ARRA is a relatively lengthy and complex act, amounting to just over 400 pages (in slip law form) and melding together hundreds of billions of dollars in discretionary spending, mandatory spending, and revenue provisions encompassing the jurisdiction of several House and Senate committees. The act consists of two major divisions. Division A (Appropriations Provisions) includes supplemental appropriations for FY2009 (and later fiscal years) covering by separate titles all 12 of the regular appropriations acts, as well as four additional titles dealing with health information technology, a state fiscal stabilization fund, accountability and transparency, and general provisions. Division B (Tax, Unemployment, Health, State Fiscal Relief, and Other Provisions) consists of seven separate titles. Division A includes the discretionary spending provisions, but some significant substantive provisions as well; Division B includes the mandatory spending and revenue provisions, with some exceptions. ARRA provides almost $800 billion through extensive discretionary spending, mandatory spending, and revenue provisions that the Administration estimates will save or create some 3.5 million jobs. Funding is provided for existing and some new programs in the 15 Cabinet-level departments and 11 independent agencies. Some of the funds are distributed to states, localities, other entities, and individuals through a combination of formula and competitive grants and direct assistance. In addition to new spending and tax provisions, new policies are created regarding unemployment compensation, health insurance, health information technology, broadband communications, and energy, among others. Numerous oversight, accountability, and transparency provisions are contained in the act. They include various reporting requirements and funding for offices of inspector general, the Government Accountability Office, and a newly established Recovery Accountability and Transparency Board. With regard to its specific impact on the budget, the act is estimated by the Congressional Budget Office to increase the deficit by $787.2 billion over the 11-year period covering FY2009-FY2019. The estimated deficit impact reflects spending increases of $575.3 billion (in outlays) and revenue reductions of $211.8 billion. The total spending increases consist of $311.2 billion in discretionary new budget authority (yielding $308.3 billion in outlays) and $269.5 billion in mandatory new budget authority (yielding $267.0 billion in outlays). About 21% of total outlays ($120.1 billion) under ARRA are estimated to occur by the end of FY2009. By the end of FY2010, 59% of total outlays ($339.4 billion) are expected to occur, and by the end of FY2011, 81% of total outlays ($465.6 billion) are expected to occur. Revenue reductions occur more quickly, with reductions of $64.8 billion in FY2009 and $180.1 billion in FY2010, offset somewhat in later years by modest revenue increases. This report will not be updated.

How Amber Alerts Work Amber Alerts (also referred to as AMBER ) use technology to disseminate information about child abductions in a timely manner. Typically an Amber Alert is triggered for children under 18 who are believed by law enforcement officers to have been abducted (except in cases of parental abduction). Research has found that most abducted children murdered by their kidnappers are killed within three hours of the abduction. Prompt response to child abductions is therefore deemed critical by many. Law enforcement officers are encouraged to send out an alert if circumstances indicate that the child is in harm's way, if they have sufficient descriptive information about the child and/or the abductor for an alert, and if they believe that the immediate broadcast of an alert will help. When there is information about a vehicle used in an abduction, this information will usually be transmitted to highway message boards, if that technology is in place. While each plan sets its own parameters, most follow guidelines set by the National Center for Missing and Exploited Children (NCMEC). A typical Amber Alert would include an Emergency Alert System (EAS) broadcast, alerts on highway message boards, and notifications to public service partners such as police, highway patrols and the field crews of public utilities. A number of counties and cities have Amber Alert programs that notify local residents using e-mail or telephone alert systems to aid in the recovery of abducted children. Alerts can also be sent by text messages to cell phones and other wireless devices. AT&T Mobility, Sprint Nextel, Verizon Wireless and T-Mobile are among the wireless service providers that participate in the Amber Alert network; subscribers can sign up for free text messages. These systems have the advantage of targeting selected audiences by function or geographical location but may not be received in a timely manner; telephone alert systems, for example, can be blocked by call-screening technologies. Amber Alert technology and alerting techniques are also used for other missing person notifications. A number of local or faith-based organizations maintain services to assist in locating missing adults. Some states participate in a consortium that operates an Amber Alert Web Portal using Internet technology. Information about an Amber Alert is sent to a web portal and reconfigured for different types of broadcasting, including cell phones, pagers, e-mail, highway signs, TV news websites, and emergency communications centers. The technology allows police officers to transmit details and photos through encrypted computer systems in patrol cars. Information, therefore, is disseminated both more quickly and more widely, maximizing the opportunity to find a missing child in the critical first three hours. The alert system is managed from a dedicated web portal that can be accessed by statewide or local systems. The software recognizes the reported locations of abductions and sends emergency messages to targeted areas. Emergency Alert System (EAS) The Emergency Alert System (EAS) is jointly administered by the Federal Communications Commission (FCC) and the Federal Emergency Management Agency (FEMA), in cooperation with the National Weather Service (NWS), an organization within the National Oceanic and Atmospheric Administration (NOAA).The EAS sends emergency messages with the cooperation of broadcast radio and television and most cable television stations. Its most common use is for weather alerts. EAS technology is also used in the Amber Alert programs administered in some states and communities. To facilitate transmittal, EAS messages are classified by types of events, which are coded. These event codes speed the recognition and retransmittal process at broadcast stations. For example, a tornado warning is TOR, evacuation immediate is EVI, a civil emergency message is CEM. When a message is received at the broadcast station, it can be relayed to the public either as a program interruption or, for television, a "crawl" at the bottom of the TV screen. In the early stages of Amber Alert program development the CEM (civil emergency) event code was used for EAS messages. In February 2002, the FCC added several new event and location codes for broadcast and cable stations to use; included was a Child Abduction Emergency (CAE) event code. Although broadcaster participation is mandatory for national alerts, the participation of broadcast and cable stations in state and local emergency announcements is voluntary. Federal Support of Alert Programs The PROTECT Act ( P.L. 108-21 ) formally established the federal government's role in the Amber Alert system in 2003. Congress has encouraged federal support for other alert programs as well. The Office of Justice Programs, at the Department of Justice, includes an Amber Alert division, the National AMBER Alert Initiative. The Department of Justice, the Department of Transportation, NCMEC, broadcasters, and law enforcement officers collaborate on national strategies for the Amber Alert program. One collaborative initiative was to develop standard procedures for emergency call takers responding to a report of a missing or abused child. Members of the joint committee that developed the standard included the Association of Public-Safety Communications Officials (APCO), the National Academies of Emergency Dispatch (NAED), the National Emergency Number Association (NENA), NCMEC, and the Department of Justice. The American National Standards Institute (ANSI) Board of Standards Review approved the standard in December 2007 [APCO American National Standard (ANS)1.101.1-2007]. National Emergency Child Locator Center The National Emergency Child Locator Center has been established within NCMEC, as required by the Homeland Security Appropriations Act, 2007 ( P.L. 109-295 , Title VI, Subtitle E). The purpose of the center is to identify children separated from their families as the consequence of a disaster and reunite them expeditiously. NCMEC is to operate a toll-free call center, set up a website with information about displaced children, and take other steps to collect and disseminate information about the children and their families. NCMEC established a website with links to reports of missing children and missing adults in the aftermath of Hurricanes Katrina and Rita. National Center for Missing Adults The National Center for Missing Adults (NCMA) operates as the national clearinghouse for missing adults. NCMA also maintains a national database of missing adults determined to be "endangered" or otherwise at-risk. NCMA was formally established after the passage of Kristen's Act ( P.L. 106-468 ), in 2002. NCMA is a division of the Nation's Missing Children Organization, Inc. (NMCO)—a 501c (3) non-profit organization working in cooperation with the U.S. Department of Justice's Bureau of Justice Assistance, Office of Justice Programs. Kristen's Act authorized the Attorney General to make grants to public agencies or not-for-profit organizations to perform these functions: to assist law enforcement and families in locating missing adults; to maintain a national, interconnected database for the purpose of tracking missing adults who are determined by law enforcement to be endangered due to age, diminished mental capacity, or the circumstances of disappearance, when foul play is suspected or circumstances are unknown; to maintain statistical information of adults reported as missing; to provide informational resources and referrals to families of missing adults; to assist in public notification and victim advocacy related to missing adults; and to establish and maintain a national clearinghouse for missing adults. State Initiatives All 50 states operate Amber Alert programs for missing children. Many states have extended their Amber Alert programs to include missing adults or participate in other alert programs. Silver Alert programs, for example, are operated for the benefit of those with Alzheimer's Disease and other cognitive impairments. Silver Alerts are modeled on Amber Alerts and use many of the same technologies and information channels for disseminating information. CRS has prepared an analysis of 11 states with active alert programs, evaluating program features such as legal authority, administrative responsibility, training, and interstate coordination. The states are: Colorado, Delaware, Florida, Georgia, Kentucky, North Carolina, Ohio, Oklahoma, Rhode Island, Texas, and Virginia. Technology Initiatives The Emergency Alert System is being upgraded to digital technology and in time will be connected to a gateway that will be able to receive and direct alerts of all types, to any designated location, using any digital media. The gateway, the Integrated Public Alert and Warning System (IPAWS), is being developed through FEMA's National Continuity Program Directorate. One of the new alert technologies that will use the gateway is the Commercial Mobile Alert System (CMAS). The regulations for CMAS were established by the FCC through its rule-making process. In addition to message formats and other standards, regulations require three alert categories that must be carried by participating carriers: presidential, imminent threat, and Amber Alerts. Another investment in emergency communications infrastructure that will likely benefit Amber Alerts and similar programs is for the transition to Internet protocols in 911 call centers and networks. Unlike most existing 911 systems, which use analog technology, IP-enabled networks can transmit information digitally. The networks, which operate like the Internet but do not necessarily connect to the Internet, can support any type of broadband communication and therefore can be used for a variety of communications purposes. Policy Initiatives In compliance with requirements of the Homeland Security Appropriations Act, 2007, the Department of Homeland Security issued the National Emergency Communications Plan (NECP) in July 2008. The plan focused on the communications needs of first responders at the site of disasters. The next version of the plan, due in 2010, is expected to expand the planning process to include 911 systems, alert programs, and other communications tools that are needed in responding to large-scale emergencies. The NECP is widely viewed as the capstone of coordinated planning for emergency communications between and among agencies at all levels of government. The scope of the plan, however, may not be wide enough to include the type of technology-policy decisions that would ensure that all facets of emergency communications are developed in concert. Such a step is widely considered to be essential to an effective response capacity for crises big or small, personal or global, that would endeavor to protect everyone with equal zeal and efficiency.

Amber Alerts (also referred to as AMBER plans) were created to disseminate information about child abductions in a timely manner. Research has found that most abducted children murdered by their kidnappers are killed within three hours of the abduction. Prompt response to child abductions is therefore deemed critical by many. Amber Alert plans are voluntary partnerships including law enforcement agencies, highway departments, and companies that support emergency alerts. Technologies used for alerts include the Emergency Alert System (EAS), highway message boards, telephone alert systems, the Internet, text messaging, and e-mail. All 50 states have statewide Amber Alert programs. Because kidnappers can cross state lines with their victims, the Department of Justice will often be involved in responding to an abduction. For this and other reasons, there is increased federal involvement in and support of Amber Alert plans. The National Center for Missing Adults is another example of an alert program that receives support from the U.S. Department of Justice. Amber Alert and related technologies are in place for other at-risk programs as well. For example, a number of states have created Silver Alert programs to assist in locating missing adults with cognitive impairments. Government, non-profit, and volunteer programs use alert technologies as tools to meet their larger goals. Participants choose among the tools available to them. From the perspective of technology policy, more thought might be given by the various program managers, and policy-makers in general, as to how to ensure that the development paths of these technologies mesh. Ideally program alerts should be interoperable – able to exchange information seamlessly across different systems. Planning for state and national emergency alert systems might provide gateways that would ensure access for alerts from all certified programs. Among the new systems being developed, with federal support, that could provide such gateways are the Commercial Mobile Alert System, for cell phone alerts, and new networks using Internet protocols to support 911 call center and other non-commercial communications needs.

Background The Balanced Budget Act of 1997 ( P.L. 105-33 , BBA-97) established the State Children's Health Insurance Program (CHIP) under a new Title XXI of the Social Security Act. CHIP builds on Medicaid by providing health care coverage to low-income, uninsured children in families with incomes above applicable Medicaid income standards. Official numbers show that CHIP enrollment reached a total of nearly 7.4 million children and nearly 335,000 adults in FY2008. In FY2008, federal CHIP spending totaled $7.0 billion, with states' projected spending expected to equal $7.9 billion in FY2009. In BBA 97, Congress authorized and appropriated funds for FY1998-FY2007, with no federal appropriations slated for FY2008 and beyond. The absence of future federal appropriations triggered CHIP legislative attention during the 110 th Congress. One of the first acts of the 111 th Congress was to reauthorize the program. On February 4, 2009, President Obama signed the Children's Health Insurance Program Reauthorization Act of 2009 ( P.L. 111-3 , CHIPRA) into law. This report summarizes the changes to prior law made by CHIPRA, including a national appropriation for CHIP allotments totaling $68.9 billion over five years, distributed to states and territories using a new formula primarily based on their past and/or projected federal CHIP spending. For FY2009 onward, annual allotments would be available for two years, with unspent funds available for redistribution first to shortfall states and then toward bonus payments, described below. a new contingency fund (for making payments to states for certain shortfalls of federal CHIP funds), which receives deposits through a separate appropriation each year through FY2013, and makes payments of up to 20% of the available national allotment for CHIP for each eligible shortfall state; new performance bonus payments (for states exceeding certain child enrollment levels and states that implement certain outreach and enrollment initiatives), which are funded with a FY2009 appropriation of $3.225 billion and deposits of certain unspent CHIP funds through FY2013; additional grants for outreach and enrollment totaling $100 million each year through FY2013; provisions to remove barriers to enrollment including a state option to rely on findings from specified "Express Lane" agencies for eligibility determinations in Medicaid and CHIP; a state option to extend coverage to pregnant women under CHIP through a state plan amendment when certain conditions are met; provisions to terminate CHIP adult coverage waivers, and establish conditions to continue existing waivers under Medicaid; a state option to waive the five-year bar for Medicaid or SCHIP coverage to pregnant women and children who are lawfully residing in the United States and are otherwise eligible for such coverage; provisions to provide a specific alternative for states to verify proof of citizenship, and a requirement for citizenship documentation in SCHIP; provisions related to benefits (e.g., dental, mental health); a state plan option for premium assistance to enroll in employer-based health insurance, and elimination of barriers to providing premium assistance; provisions to strengthen quality of care and health outcomes of children; a Medicaid and CHIP Payment and Access Commission; program integrity and miscellaneous provisions, including some that affect the Medicaid program; and tobacco tax changes. The Appendix provides a summary of the major CHIP legislation during the 110 th and 111 th Congresses. The Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA) The Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA, H.R. 2 ) was passed in the House on January 14, 2009, and an amended version was passed in the Senate on January 29, 2009. On February 4, 2009, the House passed H.R. 2 (as amended by the Senate), and later that day President Obama signed the bill into law as P.L. 111-3 , the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA). One of the provisions of CHIPRA permits using CHIP as the program's acronym, instead of SCHIP. This report reflects this change, using CHIP instead of SCHIP. CHIPRA is effective April 1, 2009, which is the beginning of the second half of the federal fiscal year. States will be given additional time to come into compliance with the requirements of CHIPRA, if applicable, based on the timing of state legislative sessions. If FY2009 CHIP allotment amounts provided for the first two quarters of FY2009 have not been obligated, they will be rescinded and will effectively be replaced with funding provided in this act. The amount of allotments provided under CHIPRA in the second half of FY2009 will be reduced by spending that occurred from a state's FY2009 allotment in the first half of the fiscal year. Provisions in the act will be considered effective on the dates specified regardless of whether implementing regulations have been issued. In addition, states cannot be denied Medicaid and CHIP payments if they acted in good faith reliance on the provisions of the act, even if those expenditures do not comply with the final regulations ultimately issued. Cost estimates from the Congressional Budget Office (CBO) indicated that CHIPRA would increase outlays by $32.8 billion over 5 years and by $66.1 billion over 10 years. Those costs would be offset primarily by increases in federal tobacco taxes, which were estimated to increase on-budget revenue by $32.8 billion over 5 years and by $66.6 billion over 10 years. On any given day in 2007, approximately 9 million children were without health insurance. Most of these children came from two-parent families (53%). Most had a parent who worked full time all year (60%). And other data indicate most uninsured children are eligible for Medicaid or CHIP (62%). CBO estimated CHIPRA will increase average monthly FY2013 Medicaid and CHIP enrollment by 6.5 million over prior-law estimates, for a total of 37.7 million projected enrollees. About 80% of the increased enrollment would occur among current eligibility groups, rather than new ones. Of the 6.5 million increased average monthly enrollment in FY2013, CBO estimates that 2.4 million (37%) would have private coverage in the absence of the legislation and that 4.1 million (63%) would be uninsured. The overall structure of CHIPRA is similar to its two predecessors, H.R. 976 and H.R. 3963 from the 110 th Congress. The remainder of this report summarizes changes to prior law as enacted by CHIPRA. Summary of Provisions in P.L. 111-3 TITLE I-FINANCING Subtitle A-Funding Sections 101. Extension of CHIP. Under prior law, BBA97 created the Children's Health Insurance Program (CHIP) and appropriated $40 billion for CHIP original allotments from FY1998 to FY2007. The Medicare, Medicaid, and CHIP Extension Act of 2007 (MMSEA, P.L. 110-173 ) appropriated allotments and additional funding to prevent any state from running out of federal CHIP funds before March 31, 2009. The CHIP appropriation for original allotments in FY2007, the last year provided for in BBA97, totaled $5.04 billion. MMSEA provided that same amount annually for CHIP allotments in FY2008 and FY2009, stating, however, that these funds "shall not be available for child health assistance [CHIP expenditures] for items and services furnished after March 31, 2009." MMSEA also provided up to $275 million to cover any shortfalls of federal CHIP funds for the first half of FY2009—that is, through March 31, 2009. CHIPRA provides national appropriations for CHIP allotments as follows: $10.562 billion in FY2009; $12.52 billion in FY2010; $13.459 billion in FY2011; $14.982 billion in FY2012; and $2.85 billion for the first half of FY2013 and $2.85 billion for the second half of FY2013. See " Section 108. One-time appropriation. " for additional FY2013 CHIP funding. Section 102. Allotments for States and territories for fiscal years 2009 through 2013. Prior to CHIPRA, of the national appropriation ($5 billion for each of FY2007, FY2008 and FY2009, for example), the territories receive 0.25%. The remainder ($4.9875 billion for each of FY2007, FY2008, and FY2009) was divided, or allotted, among the states based on a formula using survey estimates of the number of low-income children in the state and the number of those children who were uninsured. These amounts were adjusted by a geographic adjustment factor and were limited by various floors and ceilings to ensure that a state's allotment did not vary substantially from certain past allotments. Rather than dividing a fixed national appropriation on the basis of state survey estimates, CHIPRA calculates a state's allotment as described below—and if the total of all the states' and territories' allotments does not exceed the national appropriation, that will be the state's allotment. FY2009 Allotment FY2009 federal CHIP allotments for states under CHIPRA will be based on the largest of three state-specific amounts: the state's FY2008 federal CHIP spending, multiplied by a growth factor; the state's FY2008 federal CHIP allotment, multiplied by a growth factor; and the state's own projections of federal CHIP spending for FY2009, submitted by states to the Secretary of Health and Human Services (HHS) as of February 2009. The largest of these three amounts will be increased by 10% and will serve as the state's FY2009 federal CHIP allotment, as long as the national appropriation is adequate to cover all the states' and territories' FY2009 allotments. If not, allotments will be reduced proportionally. FY2010 Allotment For FY2010, the allotment for a state (or territory) will be calculated as the sum of the following four amounts, if applicable, multiplied by the applicable growth factor for the year: the FY2009 CHIP allotment; FY2006 unspent allotments redistributed to and spent by shortfall states in FY2009; Spending of funds provided to shortfall states in the first half of FY2009; and Spending of Contingency Fund payments (discussed below) in FY2009, although there may be none. FY2011 and FY2013 Allotments For FY2011 and FY2013, the allotment for a state (or territory) will be "rebased," based on prior year spending. This will be done by multiplying the state's growth factor for the year by the new base, which will be the prior year's federal CHIP spending from allotments, redistribution, and Contingency Fund payments. FY2012 Allotment For FY2012, the allotment for a state (or territory) will be calculated as the FY2011 allotment and any FY2011 Contingency Fund spending, multiplied by the state's growth factor for the year. Section 103. Child Enrollment Contingency Fund. A Child Enrollment Contingency Fund will be established and funded initially by a separate appropriation of 20% of the available national allotment for CHIP in FY2009 (approximately $2.1 billion). For FY2010 through FY2013, the appropriation will be such sums as are necessary for making payments to eligible states for the fiscal year, as long as the annual payments do not exceed 20% of that fiscal year's available national CHIP allotment. If a state's federal CHIP spending in FY2009 through FY2013 exceeds its available allotments (excluding unspent allotments redistributed from other states) and if the state experiences enrollment that exceeded its target average number (FY2008 enrollment plus annual state child population growth plus one percentage point per year), payments from the Contingency Fund will be the projected federal CHIP costs for those enrollees above the target number in the state. Section 104. CHIP performance bonus payment to offset additional enrollment costs resulting from enrollment and retention efforts.7 Funds for bonus payments will be payable in FY2009 to FY2013 to states that increase their Medicaid (not CHIP) enrollment among low-income children above a defined baseline. To qualify for bonus payments, states will also have to implement five of the following eight outreach and enrollment activities: 12 months of continuous eligibility for Medicaid and CHIP children; Elimination of an assets test in Medicaid and CHIP, or use of administrative verification of assets; Elimination of in-person interview requirement; Use of a joint application for Medicaid and CHIP; Implementation of certain options to ease enrollees' renewal processes; Presumptive eligibility for children; Implementation of "Express Lane," described in Section 203; and Implementation of premium assistance, described in Section 301. The payments would be funded by an initial appropriation in FY2009 of $3.225 billion, along with transfers from four different potential sources: National appropriation amounts for FY2009 through FY2013 provided but not used for allotments; Redistribution amounts not spent; and On October 1 of FY2010 through FY2013, any amounts in the CHIP Contingency Fund that exceed its cap (described above). For FY2009, the Medicaid bonus baseline is equal to the state's average monthly number of enrolled Medicaid children in 2007, increased by state child population growth between 2007 and 2008 (estimated by the U.S. Census Bureau) plus four percentage points, further increased by state child population growth between 2008 and 2009 plus four percentage points. For subsequent years, the Medicaid bonus baseline is the prior year's number plus state child population growth plus additional percentage point increases that are lower than the 4 percentage points for FY2009: for FY2010 to FY2012, 3.5 percentage points; for FY2013 to FY2015, 3 percentage points; and FY2016 onward, 2 percentage points. The first tier of bonus payments is for child Medicaid enrollees that represent growth above the baseline less than 10%. For these Medicaid child enrollees, the bonus payment is equal to 15% of the state share of these enrollees' projected per capita Medicaid expenditures. (Projected per capita Medicaid expenditures are the average per capita Medicaid expenditures for children for the most recent year with actual data, increased by necessary projected annual increases in per capita National Health Expenditures.) For the second tier, 10% or more above baseline, the bonus payment is 62.5% of the state share of these enrollees' projected per capita expenditures. An eligibility expansion would not qualify a state for additional bonus payments. In order for new Medicaid children to count toward bonus payments, they must have been able to meet the state's eligibility criteria in place on July 1, 2008. If the available funding for bonus payments to states in a given year is inadequate, the payments would be reduced proportionally. Under prior law, a number of entities may make Medicaid "presumptive eligibility" determinations for children (e.g., medical providers, entities that determine eligibility for Head Start). Presumptive eligibility allows children who appear to be eligible for Medicaid based on an initial determination to be enrolled for up to two months of coverage while a final determination of eligibility is made. Children who were enrolled in Medicaid through presumptive eligibility would only count for a state's bonus payments if the child was ultimately enrolled through a final determination. Section 105. Two-year initial availability of CHIP allotments. Although federal CHIP allotments under BBA97 were made available for three years, allotments for FY2009 onward under CHIPRA would be available for two years. Section 106. Redistribution of unused allotments. Under CHIPRA, unspent funds available for redistribution would first be provided to shortfall states and then, if any remain, toward bonus payments. Section 107. Option for States to receive the enhanced portion of the CHIP matching rate for Medicaid coverage of certain children. Under BBA97, states faced a maintenance of effort so they could not draw federal CHIP funds for child populations already covered under Medicaid. States that had expanded Medicaid coverage to higher income children prior to CHIP expressed that this was a penalty against their early expansion efforts. A provision was added later in CHIP to permit 11 early expansion "qualifying states" to draw some CHIP funds for Medicaid children above 150% of poverty, although with an additional limit in the amount besides just their available federal CHIP funds (that is, no more than 20% from each original allotment could be spent on these Medicaid children). CHIPRA would permit this spending for Medicaid children above 133% of poverty, and without the 20% limitation. Section 108. One-time appropriation. A "one-time appropriation" of $11.706 billion will be added to the half-year amounts provided for FY2013 described in Section 101. These provisions for FY2013 are intended to annually reduce by the "one-time appropriation" the amount of allotments assumed by the Congressional Budget Office (CBO) for fiscal years after FY2013. Subtitle B-Focus on Low-Income Children and Pregnant Women Section 111. State option to cover low-income pregnant women under CHIP through a State plan amendment. Under prior CHIP law, states were permitted to cover pregnant women ages 19 and older through waiver authority or by providing coverage to unborn children as permitted through regulation. In the latter case, coverage is supposed to be limited to prenatal and delivery services. CHIPRA allows states to cover pregnant women under CHIP through a state plan amendment when certain conditions are met (e.g., the Medicaid income standard for pregnant women must be at least 185% FPL but in no case lower than the percentage level in effect on July 1, 2008; no pre-existing conditions or waiting periods may be imposed; CHIP cost-sharing protections apply). The upper income limit may be as high as the standard applicable to CHIP children in the state. Other eligibility restrictions applicable to CHIP children (e.g., must be uninsured, ineligible for state employee health coverage, etc.) also apply. The period of coverage is during pregnancy through the postpartum period (roughly through 60 days postpartum). States are allowed to temporarily enroll pregnant women for up to two months until a formal determination of eligibility is made. Benefits include all services available to CHIP children in the state as well as prenatal, delivery, and postpartum care. Infants born to these pregnant women are deemed eligible for Medicaid or CHIP, as appropriate, and are covered up to age one year. States may continue to cover pregnant women through waivers and the unborn child regulation. In the latter case, states are allowed to offer postpartum services. Section 112. Phase-out of coverage for nonpregnant childless adults under CHIP; conditions for coverage of parents.10 Under current law, Section 1115 of the Social Security Act gives the Secretary of Health and Human Services (HHS) broad authority to modify many aspects of the Medicaid and CHIP programs including expanding eligibility to populations who are not otherwise eligible for Medicaid or CHIP (e.g., childless adults, pregnant women age 19 and older, and parents of Medicaid and CHIP-eligible children). Certain states that have covered adults with CHIP funds were permitted to do so almost entirely through the use of these waivers. Adult coverage waivers, which initially are effective for five years, are subject to renewal at least every three years. Prior to 2007, waiver renewals for states with adult coverage waivers were approved, even for those states that were projected to face federal CHIP shortfalls (e.g., New Jersey, Rhode Island). Beginning in 2007, however, such waiver renewals have not been approved (e.g., Illinois, Oregon) or states have begun to transition adult populations out of CHIP coverage (e.g., Wisconsin, Minnesota). As of January 7, 2009, four states have CMS authority to use CHIP funds to extend coverage to certain childless adult populations, and seven states have such authority to cover parent populations. CHIPRA terminates CHIP coverage of nonpregnant childless adults by the end of calendar year 2009. States with existing childless adult waivers are permitted to apply for Medicaid waivers to continue coverage for these individuals subject to a specified budget neutrality standard, but in FY2010 childless adult spending under the waiver will be tied to the state's 2009 waiver spending on this population. CHIPRA requires budget neutrality standards for succeeding fiscal years to be tied to waiver spending in the preceding fiscal year. Under CHIPRA, coverage of parents is allowed, but beginning in FY2012, allowable spending under the waivers will be subject to a set-aside amount from a separate allotment and will be matched at the state's regular Medicaid FMAP unless the state was able to prove it met certain coverage benchmarks (related to performance in providing coverage to children). In FY2013, even states meeting the coverage benchmarks will not get the enhanced FMAP for parents but an amount between the regular and enhanced FMAPs. Finally, the provision prohibits waiver spending under the set-aside for parents whose family income exceeds the income eligibility thresholds that were in effect under the existing waivers as of the date of enactment of CHIPRA. Section 113. Elimination of counting Medicaid child presumptive eligibility costs against title XXI. Prior SCHIP statute set the federal share of costs incurred during periods of presumptive eligibility for Medicaid children (i.e., up to two months of coverage while a final determination of eligibility is made) at the Medicaid matching rate. Prior law also allowed payment out of SCHIP allotments for Medicaid benefits received by Medicaid children during periods of presumptive eligibility. A number of entities may make presumptive eligibility determinations for children (e.g., medical providers, entities that determine eligibility for Head Start, and for a special supplemental nutrition program for women, infants and children or WIC). A provision in CHIPRA eliminates the counting of Medicaid child presumptive eligibility costs against state SCHIP allotments, and allows entities that make presumptive eligibility determinations for children under Medicaid to make such determinations for pregnant women under Medicaid. Under prior Medicaid law, newborns were deemed eligible for coverage through age 1 as long as they remained in the mother's household and the mother remained eligible for Medicaid during this period. A provision in CHIPRA provides continuous eligibility of newborns through age 1, regardless of the living arrangements and mothers' eligibility. Section 114. Limitation on matching rate for States that propose to cover children with effective family income that exceeds 300 percent of the poverty line. The federal medical assistance percentage (FMAP) is the state-specific percentage of Medicaid service expenditures paid by the federal government. It is based on a formula that provides higher reimbursement rates to states with lower per capita incomes relative to the national average (and vice versa); it has a statutory minimum of 50% and maximum of 83%. The enhanced FMAP (E-FMAP) for CHIP reduces the state's share under the regular FMAP by 30%. The E-FMAP has a statutory minimum of 65% and maximum of 85%. CHIPRA reduces federal CHIP payments for certain higher-income CHIP children. It specifies that the regular FMAP would be used for CHIP enrollees whose effective family income exceeds 300% of poverty using the state's policy of excluding "a block of income that is not determined by type of expense or type of income," with an exception for states that already had a federal approval plan or that had enacted a state law to submit a plan for federal approval. Section 115. State authority under Medicaid. Under prior law, children in a Medicaid-expansion CHIP program were to be paid for out of CHIP funds at the E-FMAP. Medicaid funding for these children could not be used until a state's available CHIP funding was exhausted. CHIPRA gives states the option to draw Medicaid funds at the regular FMAP for Medicaid-expansion CHIP children. TITLE II-OUTREACH AND ENROLLMENT Subtitle A-Outreach and Enrollment Activities Section 201. Grants and enhanced administrative funding for outreach and enrollment.11 CHIPRA authorizes $100 million in outreach and enrollment grants above and beyond the regular CHIP allotments for fiscal years 2009 through 2013. Ten percent of the allocation will be directed to a national enrollment campaign, and 10% will be targeted to outreach for Native American children. The remaining 80% will be distributed among state and local governments and to community-based organizations for purposes of conducting outreach campaigns with a particular focus on rural areas and underserved populations. Grant funds will also be targeted at proposals that address cultural and linguistic barriers to enrollment. CHIP includes outreach to Native Americans as a part of the National Enrollment Campaign. Section 202. Increased outreach and enrollment of Indians. Under prior SCHIP law, state SCHIP plans were required to include a description of procedures used to ensure the provision of child health assistance to American Indian and Alaskan Native children. Also, certain non-benefit payments under SCHIP (e.g., for other child health assistance, health service initiatives, outreach and program administration) cannot exceed 10% of the total amount of expenditures for benefits and these non-benefit payments combined. A provision in CHIPRA encourages states to take steps to enroll Indians residing in or near reservations in Medicaid and CHIP. These steps may include outstationing eligibility workers; entering into agreements with Indian entities (i.e., the IHS, tribes, tribal organizations) to provide outreach; education regarding eligibility, benefits, and enrollment; and translation services. The Secretary must facilitate cooperation between states and Indian entities in providing benefits to Indians under Medicaid and CHIP. This provision also excludes costs for outreach to potentially eligible Indian children and families from the 10% cap on non-benefit expenditures under CHIP. Section 203. State option to rely on findings from an Express Lane agency to conduct simplified eligibility determinations.12 CHIPRA creates a state option to rely on a finding from specified "Express Lane" agencies (e.g., those that administer programs such as Temporary Assistance for Needy Families, Medicaid, CHIP, and Food Stamps) to determine whether a child under age 19 (or an age specified by the state not to exceed 21 years of age) has met one or more of the eligibility requirements (e.g., income, assets or resources, citizenship, or other criteria) necessary to determine an individual's initial eligibility, eligibility redetermination, or renewal of eligibility for medical assistance under Medicaid or CHIP. States will have the option to institute automatic enrollment through an Express Lane eligibility determination contingent on a family's signature of consent, or consent obtained in writing, by telephone, orally, through electronic signature, or any other means specified by the Secretary of HHS. The provision gives states the option to rely on an applicant's reported income as shown by state income tax records or returns. Under CHIPRA, states are required to inform families that they may qualify for lower premium payments or more comprehensive health coverage under Medicaid if the family's income were directly evaluated by the state Medicaid agency. CHIPRA also drops the requirement for signatures on a Medicaid or CHIP application form under penalty of perjury. Subtitle B-Reducing Barriers to Enrollment Section 211. Verification of declaration of citizenship or nationality for purposes of eligibility for Medicaid and CHIP. The Deficit Reduction Act of 2005 (DRA) requires citizens and nationals applying for Medicaid who claim to be citizens to provide both proof of citizenship and identity. Before DRA, states could accept self-declaration of citizenship for Medicaid, although some chose to require additional supporting evidence. CHIPRA provides a specific alternative, which allows a state to use the Social Security Number (SSN) provided by individuals and verified by the Social Security Administration (SSA), and provides an enhanced match for certain administrative costs. (SSNs by themselves do not denote citizenship, because certain noncitizens are eligible for them.) CHIPRA also adds a requirement for citizenship documentation in CHIP. Section 212. Reducing administrative barriers to enrollment. During the implementation of CHIP, states instituted a variety of enrollment facilitation and outreach strategies to bring eligible children into Medicaid and CHIP. As a result, substantial progress was made at the state level to simplify the application and enrollment processes to find, enroll, and maintain eligibility among those eligible for the program. CHIPRA requires the state plan to describe the procedures used to reduce the administrative barriers to the enrollment of children and pregnant women in Medicaid and CHIP, and to ensure that such procedures are revised as often as the state determines is appropriate to reduce newly identified barriers to enrollment. States will be deemed to be in compliance with these requirements if they implement joint Medicaid and CHIP application and renewal processes, and drop requirements for face-to-face interviews. Section 213. Model of Interstate coordinated enrollment coverage process. CHIPRA requires the Secretary of HHS, in consultation with state Medicaid, CHIP directors, and organizations representing program beneficiaries to develop a model process (and report for Congress) for the coordination of enrollment, retention, and coverage of children who frequently change their residency due to migration of families, emergency evacuations, educational needs, etc. Section 214. Permitting States to ensure coverage without a 5-year delay of certain children and pregnant women under the Medicaid program and CHIP. Under prior law, legal immigrants arriving in the United States after August 22, 1996, were ineligible for Medicaid or CHIP benefits for their first five years here. Coverage of such persons after the five-year bar was permitted at state option if they met other eligibility requirements for that program. For legal immigrants (but not refugees and asylees), the law requires that their sponsor's income and resources would be taken into account in determining eligibility for those who have signed a legally binding affidavit of support. Generally speaking, for federally means-tested programs (e.g., Medicaid, TANF), the affidavit of support required the sponsor to ensure that the new immigrant will not become a public charge and makes the sponsor financially responsible for the individual. CHIPRA permits states to waive the five-year bar for Medicaid or CHIP coverage to pregnant women and children who are (1) lawfully residing in the United States and (2) are otherwise eligible for such coverage. The CHIP state plan option made available under this provision is available only to states that (1) elect this state plan option under Medicaid and (2) in the case of pregnant women coverage, elect the CHIP state plan option to provide assistance for pregnant women. For states that elect to extend such coverage, the provision assures that the cost of care will not be deemed under an affidavit of support against an individual's sponsor. In addition, as a part of states' redetermination processes (i.e., to redetermine eligibility at least every 12 months with respect to circumstances that may change and affect eligibility), individuals made eligible under this provision whose initial documentation showing legal residence is no longer valid will be required to show "further documentation or other evidence" that the individual continues to lawfully reside. TITLE III-REDUCING BARRIERS TO PROVIDING PREMIUM ASSISTANCE Subtitle A-Additional State Option for Providing Premium Assistance Section 301. Additional State option for providing premium assistance. Under prior law, states were permitted to pay a beneficiary's share of costs for group (employer-based) health insurance in CHIP if the employer plan was cost effective relative to the amount paid to cover only the targeted low-income children, and did not substitute for coverage under group health plans otherwise being provided to the children. In addition, states using CHIP funds for employer-based plan premiums were required to ensure that CHIP minimum benefits were provided and CHIP cost-sharing ceilings were met. Under Medicaid, including a Medicaid expansion CHIP program, states may implement a premium assistance program if the employer plan is comprehensive and cost-effective for the state. Under Medicaid, an individual's enrollment in an employer plan is considered cost-effective if paying the premiums, deductible, coinsurance, and other cost-sharing obligations of the employer plan is less expensive than the state's expected cost of directly providing Medicaid-covered services. To meet the comprehensiveness test under Medicaid, states are required to provide coverage for those Medicaid-covered services that are not included in the private plans. In other words, they must provide "wrap-around" benefit coverage. It has proved prohibitive for many employer plans and states to meet all of these requirements. To circumvent these restrictions, most states operating CHIP or Medicaid premium assistance programs do so under waivers. CHIPRA creates a new state plan option for providing premium assistance. States have the option to offer premium assistance for Medicaid and CHIP-eligible children and/or parents of Medicaid and/or CHIP-eligible children where the family has access to employer-sponsored insurance (ESI) coverage, if the employer pays at least 40% of the total premium (and meets certain other requirements). Under CHIPRA, a state offering premium assistance may not require CHIP-eligible individuals to enroll in an employer's plan; individuals eligible for CHIP and for employment-based coverage may choose to enroll in regular CHIP rather than the premium assistance program. The premium assistance subsidy will generally be the difference between the worker's out-of-pocket premium that included the child(ren) versus only covering the employee. For employer plans that do not meet CHIP benefit requirements, a wrap-around is required. For the child's coverage using premium assistance, no cost-effectiveness test is required regarding the cost of the private coverage (plus any necessary wrap-around) relative to regular CHIP coverage. CHIPRA establishes a separate test for family coverage. If the CHIP cost of covering the entire family in the employer-sponsored plan is less than regular CHIP coverage for the eligible individual(s) alone, then the premium assistance subsidy may be used to pay the entire family's share of the premium. In states that offered premium assistance, CHIPRA requires states and participating employers to do outreach. Finally, states are permitted to establish an employer-family premium assistance purchasing pool for employers with less than 250 employees who have at least one employee who is a CHIP-eligible pregnant woman or at least one member of the family is a CHIP-eligible child. Finally, the new premium assistance provisions under Medicaid, not CHIP, will apply to children enrolled in a Medicaid-expansion CHIP program. Section 302. Outreach, education, and enrollment assistance. CHIP state plans are required to include a description of the procedures in place to provide outreach to children eligible for CHIP child health assistance, or other public or private health programs to (1) inform these families of the availability of public and private health coverage and (2) to assist them in enrolling such children in CHIP. There is a limit on federal spending for CHIP administrative expenses (i.e., 10% of a state's spending on benefit coverage in a given fiscal year). Administrative expenses include activities such as data collection and reporting, as well as outreach and education. In addition, states are required to provide a description of the state's efforts to ensure coordination between CHIP and other health insurance coverage applies to State administrative expenses. CHIPRA requires states to include a description of the procedures in place to provide outreach, education, and enrollment assistance for families of children likely to be eligible for premium assistance subsidies under CHIP, or a waiver approved under Section 1115. For employers likely to provide qualified employer-sponsored coverage, the state is required to include the specific resources the state intends to use to educate employers about the availability of premium assistance subsidies under the CHIP state plan. Expenditures for such outreach activities will be limited to 1.25% of the state's limit on spending for administrative costs associated with their CHIP program (i.e., 10% of the state's spending on benefit coverage in a given fiscal year). Subtitle B-Coordinating Premium Assistance with Private Coverage Section 311. Special enrollment period under group health plans in case of termination of Medicaid or CHIP coverage or eligibility for assistance in purchase of employment-based coverage; coordination of coverage. Under the Internal Revenue Code, the Employee Retirement Income Security Act, and the Public Health Service Act, a group health plan is required to provide special enrollment opportunities to qualified individuals. Such individuals must have lost eligibility for other group coverage, or lost employer contributions towards health coverage, or added a dependent due to marriage, birth, adoption, or placement for adoption, in order to enroll in a group health plan without having to wait until a late enrollment opportunity or open season. The individual still must meet the plan's substantive eligibility requirements, such as being a full-time worker or satisfying a waiting period. Health plans must give qualified individuals at least 30 days after the qualifying event (e.g., loss of eligibility) to make a request for special enrollment. CHIPRA amends applicable federal laws to streamline coordination between public and private coverage, including making the loss of Medicaid/CHIP eligibility a "qualifying event" for the purpose of purchasing employer-sponsored coverage. Individuals may request such coverage up to 60 days after the qualifying event. The provision also requires health plan administrators to disclose to the state, upon request, information about their benefit packages so states can evaluate the need to provide wraparound coverage. CHIPRA also requires employers to notify families of their potential eligibility for premium assistance. TITLE IV-STRENGTHENING QUALITY OF CARE AND HEALTH OUTCOMES Section 401. Child health quality improvement activities for children enrolled in Medicaid or CHIP.13 CHIPRA includes several provisions designed to improve the quality of care under Medicaid and CHIP. This new law directs the Secretary of HHS to develop (1) child health quality measures, and (2) a standardized format for reporting information, and procedures to encourage states to voluntarily report on the quality of pediatric care in these two programs. Examples of these initiatives include (1) grants and contracts to develop, test, update and disseminate evidence-based measures; (2) demonstrations to evaluate promising ideas for improving the quality of children's health care under Medicaid and CHIP; (3) a demonstration to develop a comprehensive and systematic model for reducing child obesity; and (4) a program to encourage the creation and dissemination of a model electronic health record format for children enrolled in these two programs. The federal share of the costs association with developing or modifying existing state data systems to store and report child health measures is based on the matching rate applicable to benefits rather than one of the (typically) lower matching rates applied to different types of administrative expenses. Section 402. Improved availability of public information regarding enrollment of children in CHIP and Medicaid. CHIPRA improves the availability of public information regarding enrollment of children in Medicaid and CHIP. Several reporting requirements are added to states' annual CHIP reports, including for example, data on eligibility criteria, access to primary and specialty care, and data on premium assistance for employer-sponsored coverage. CHIPRA also requires the Secretary to improve the timeliness of the enrollment and eligibility data for Medicaid and CHIP children contained in the Medicaid Statistical Information System (MSIS) maintained by CMS and based on annual state reported enrollment and claims data. GAO must conduct a study of children's access to primary and specialty care under Medicaid and CHIP. A report on this analysis, including recommendations addressing identified barriers, is due within two years of the date of enactment. Section 403. Application of certain managed care quality safeguards to CHIP. Under CHIPRA, certain managed care safeguards applicable to Medicaid (e.g., process for enrollment, termination, and change in enrollment; form and substance of information available to enrollees and potential enrollees; beneficiary protections; quality assurance standards) also apply in the same manner to CHIP. This provision applies to contract years for health plans beginning on or after July 1, 2009. TITLE V-IMPROVING ACCESS TO BENEFITS Under current law, states may provide CHIP coverage under their Medicaid programs, create a new separate CHIP program, or both. Under separate CHIP programs, states may elect any of three benefit options: (1) a benchmark plan, (2) a benchmark-equivalent plan, or (3) any other plan that the Secretary of HHS deems would provide appropriate coverage for the target population (Secretary-approved coverage). Benchmark plans include (1) the standard Blue Cross/Blue Shield preferred provider option under the Federal Employees Health Benefits Program (FEHBP), (2) the coverage generally available to state employees, and (3) the coverage offered by the largest commercial HMO in the state. Benchmark-equivalent plans must cover basic benefits (i.e., inpatient and outpatient hospital services, physician services, lab/x-ray, and well-child care including immunizations), and must include at least 75% of the actuarial value of coverage under the selected benchmark plan for specific additional benefits (i.e., prescription drugs, mental health services, vision care, and hearing services). CHIPRA adds or modifies several benefits available to children under CHIP. It also addresses payment of premiums and related sanctions. Section 501. Dental benefits. Under CHIPRA, dental services become a required benefit under CHIP and include services necessary to prevent disease and promote oral health, restore oral structures to health and function, and treat emergency conditions. States have the option to provide dental services through "benchmark dental benefit packages" modeled after the benchmark plans for medical services described above (e.g., dental benefit plans under FEHBP, state employee programs and commercial HMO options). The new law also includes provisions for dental education for parents of newborns and dental services through federally qualified health centers. States must report detailed information in their annual reports and for Early and Periodic Screening, Diagnostic and Treatment Services (EPSDT) reporting purposes on, for example, the number of children by age group receiving various types of dental care. Information on dental providers and covered dental services will be available to the public via the federal Insure Kids Now website and hotline. The child health quality improvement activities described above will include measurement of dental treatment and services to maintain dental health. GAO will conduct a study on children's access to dental care under Medicaid and CHIP. The report on this study will include recommendations for federal and state actions to address barriers to dental care, and the feasibility and appropriateness of using qualified mid-level providers to improve access. Children who are enrolled in a group health plan or employer-sponsored health insurance are not eligible for full CHIP coverage. Under Medicaid, beneficiaries may have such private coverage. With respect to beneficiary cost-sharing, states that implement CHIP Medicaid expansions must follow the cost-sharing rules of the Medicaid program. For states that implement CHIP through a separate state program, the maximum allowable amounts vary by family income level, and aggregate cost-sharing may not exceed 5% of family income for the year. CHIPRA also provides a state option under separate CHIP programs, subject to certain conditions, to provide dental-only supplemental coverage to children enrolled in group or employer coverage who otherwise meet CHIP eligibility criteria. The provision allows states to provide dental coverage consistent with the new dental benchmark benefits plans or cost-sharing protections for dental coverage applicable under CHIP. States may set the upper income level for this new benefit up to the level otherwise applicable under their separate CHIP programs. States are not allowed to offer dental-only supplemental coverage unless (1) the state has implemented the highest income eligibility permitted in federal CHIP statute (or a waiver) as of January 1, 2009; (2) the state does not limit acceptance of applications for children or impose any enrollment caps, waiting lists, or similar eligibility limitations under CHIP; and (3) the state provides benefits to all children in the state who apply for and meet the eligibility standards. In addition, states may not provide more favorable dental coverage or related cost-sharing protections for children provided dental-only supplemental coverage than the dental coverage or related cost-sharing protections for CHIP children eligible for the full range of CHIP benefits. States would have the option to not apply an eligibility waiting period for children provided dental-only supplemental coverage. Section 502. Mental health parity in CHIP plans. Medicaid and CHIP state plans may define what constitutes mental health benefits (if any). Group health plans are prohibited from imposing annual and lifetime dollar limits on mental health and substance abuse benefits that are more restrictive than those applicable to medical and surgical coverage. Similarly, group health plans may not impose more restrictive treatment limits (e.g., total outpatient hospital visits or inpatient days) or cost-sharing requirements on mental health or substance abuse coverage compared to medical and surgical services. Under Medicaid, most individuals under age 21 receive comprehensive basic screening services (i.e., well-child visits, immunizations) as well as dental, vision and hearing services, through the Early and Periodic Screening, Diagnostic and Treatment Services (EPSDT) benefit. In addition, EPSDT guarantees access to all federally coverable services necessary to treat a problem or condition among eligibles. CHIPRA ensures that, in the case of a state CHIP plan that provides both medical and surgical benefits and mental health or substance use disorder benefits, such a plan must ensure that the financial requirements and treatment limitations applicable to such mental health or substance use disorder benefits comply with the requirements of Section 2705(a) of the Public Health Service Act in the same manner as such requirements apply to a group health plan. Generally, this means that the financial requirements and treatment limits applicable to mental health or substance use disorder benefits must be no more restrictive than the financial requirements and treatment limitations applicable to substantially all medical and surgical benefits covered under the state CHIP plan. In addition, there can be no separate cost-sharing requirements or treatment limitations applicable only to mental health or substance use disorder benefits. State CHIP plans that include coverage of EPSDT services (as defined in Medicaid statute) are deemed to satisfy this mental health parity requirement. Section 503. Application of prospective payment system for services provided by Federally-Qualified Health Centers and Rural Health Clinics. Under Medicaid law, payments to Federally Qualified Health Centers (FQHCs) and Rural Health Clinics (RHCs) are based on a prospective payment system. Beginning in FY2001, per visit payments were based on 100% of average costs during 1999 and 2000 adjusted for changes in the scope of services furnished. (Special rules applied to entities first established after 2000.) For subsequent years, the per visit payment for all FQHCs and RHCs equals the amounts for the preceding fiscal year increased by the percentage increase in the Medicare Economic Index applicable to primary care services, and adjusted for any changes in the scope of services furnished during that fiscal year. In managed care contracts, states are required to make supplemental payments to the facility equal to the difference between the contracted amount and the cost-based amounts. CHIPRA requires states that operate separate and/or combination CHIP programs to reimburse FQHCs and RHCs based on the Medicaid prospective payment system. This provision applies to services provided on or after October 1, 2009. For FY2009, $5 million is appropriated (to remain available until expended) for grants to states with separate CHIP programs for expenditures related to transitioning to a prospective payment system for FQHCs/RHCs under CHIP. Finally, the Secretary is required to report to Congress (by October 1, 2011) on the effects (if any) of the new prospective payment system on access to benefits, provider payment rates, or scope of benefits. Section 504. Premium grace period. No statutory provision specifies a grace period for payment of CHIP premiums. Federal regulations require states' CHIP plans to describe the consequences for an enrollee or applicant who does not pay required premiums and the disenrollment protections adopted by the state. These protections must include the following: (1) the state must give enrollees reasonable notice of and an opportunity to pay past due premiums prior to disenrollment; (2) the disenrollment process must give the individual the opportunity to show a decline in family income that may qualify the individual for lower or no cost-sharing; and (3) the state must provide the enrollee with an opportunity for an impartial review to address disenrollment from the program, during which time the individual will continue to be enrolled. CHIPRA requires states to provide CHIP enrollees with a grace period of at least 30 days from the beginning of a new coverage period to make premium payments before the individual's coverage may be terminated. Within 7 days after the first day of the grace period, the state must provide the individual with notice that failure to make a premium payment within the grace period will result in termination of coverage and that the individual has the right to challenge the proposed termination pursuant to applicable federal regulations. This provision is effective for new coverage periods beginning on or after the date of enactment of this act. Section 505. Clarification of coverage of services provided through school-based health centers. A number of coverable benefits are listed in the CHIP statute, such as "clinic services (including health center services) and other ambulatory health care services." CHIPRA provides that nothing in Title XXI shall be construed as limiting a state's ability to provide CHIP for covered items and services furnished through school-based health centers. The provision also adds a definition for "school-based health center" to include a health care clinic that (1) is located in or near a school facility of a school district or board of an Indian tribe (IT) or tribal organization (TO); (2) is organized through school, community, and health provider relationships; (3) is administered by a sponsoring facility (e.g., hospital, public health department, community health center, nonprofit health care agency, school or school system, or a program administered by the Indian Health Service or Bureau of Indian Affairs, or operated by an IT or TO); (4) provides primary health services through health professionals to children in accordance with state and local law, including laws relating to licensure and certification; and (5) satisfies such other requirements as a state may establish for the operation of such a clinic. Section 506. Medicaid and CHIP Payment and Access Commission.14 CHIPRA establishes a new federal commission, called the Medicaid and CHIP Payment and Access Commission, or MACPAC. This commission will engage in a number of activities. MACPAC will review program policies under both Medicaid and CHIP affecting children's access to benefits, including (1) payment policies, including the process for updating fees for different types of providers, payment methodologies, and the impact of these factors on access and quality of care; (2) the interaction of Medicaid and CHIP payment policies with health care delivery generally; and (3) other policies, including those relating to transportation and language barriers. The commission will make recommendations to Congress concerning such access policies. Beginning in 2010, by March 1 of each year, the commission will submit a report to Congress containing the results of these reviews and MACPAC's recommendations regarding these policies. Also beginning in 2010, by June 1 of each year, the commission will submit another report to Congress containing an examination of issues affecting Medicaid and CHIP, including the implications of changes in health care delivery in the United States and in the market for health care services. MACPAC must also create an early warning system to identify provider shortage areas or other problems that threaten access to care or the health care status of Medicaid and CHIP beneficiaries. In addition, if the Secretary of HHS submits a report to Congress (or any such committee) that is required by law and that relates to access policies, including payment policies, under Medicaid or CHIP, a copy of that report must also be submitted to MACPAC. MACPAC will review such a report and submit written comments, along with any recommendations, to the House Committee on Energy and Commerce and the Senate Finance Committee not later than six months after the date of submittal of the Secretary's report to Congress. MACPAC would also be required to consult periodically with the chairmen and ranking minority Members of these two congressional committees regarding MACPAC's agenda and progress toward achieving that agenda. MACPAC may conduct additional reviews, and submit additional reports to these congressional committees on such topics relating to Medicaid and CHIP as requested by such chairmen and Members, and as MACPAC deems appropriate. In addition, MACPAC must transmit to the Secretary a copy of each report submitted to Congress, and must make such reports available to the public. With respect to each recommendation made in reports by MACPAC, each commission member must vote on said recommendation, and MACPAC must include, by member, the results of that vote in the report containing that recommendation. Before making any recommendations, MACPAC must examine the budget consequences of such actions, directly or through consultation with appropriate experts. MACPAC will be composed of 17 members appointed by the Comptroller General. Additional provisions in P.L. 111-3 further define (1) qualifications for commission members, (2) length of tenure (three years) and procedures for filling vacancies, (3) compensation for members, (4) designation of a chairman and vice chairman among members, and (5) meetings. The provision also allows the commission to establish a paid, professional staff to assist in the commission's work. MACPAC will have the power to obtain official data from any department or agency of the U.S. government that is necessary to enable it to carry out its mission. MACPAC must (1) utilize existing information where possible, collected by its own staff or under other arrangements; (2) carry out, or award grants or contracts, for original research when existing information is inadequate; and (3) adopt procedures to allow submission of information by outside parties for MACPAC's use. The Comptroller General must have unrestricted access to the work of the commission, immediately upon request, and MACPAC may be subject to periodic audits by the Comptroller General. With respect to funding, MACPAC must submit requests for appropriations in the same manner as the Comptroller General submits such request, but amounts appropriated to MACPAC must be separate from amounts appropriated for the Comptroller General. In addition, the provision authorizes to be appropriated such sums as may be necessary to carry out the provisions of this section. The provision also requires the Comptroller General to appoint the initial members of the commission no later than January 1, 2010. Finally, not later than January 1, 2010, and annually thereafter, the Secretary of HHS, in consultation with the Secretaries of the Treasury and Labor, and the states, must submit an annual report to Congress on the financial status of, enrollment in, and spending trends for Medicaid for the fiscal year ending on September 30 of the preceding fiscal year. TITLE VI-PROGRAM INTEGRTITY AND OTHER MISCELLANEOUS PROVISIONS Subtitle A-Program Integrity and Data Collection. Section 601. Payment error rate measurement ("PERM"). Federal agencies are required to annually review programs that are susceptible to significant erroneous payments, and to estimate the amount of improper payments, to report those estimates to Congress, and to submit a report on actions the agency is taking to reduce erroneous payments. On August 21, 2007, CMS issued a final rule for PERM for Medicaid and CHIP (effective October 1, 2007) which responded to comments received on an interim final rule, and included some changes to that interim final rule. Assessments of payment error rates related to claims for both fee-for-service and managed care services, as well as eligibility determinations are made. A predecessor to PERM, called the Medicaid Eligibility Quality Control (MEQC) system, is operated by state Medicaid agencies for similar purposes. CHIPRA includes a number of detailed requirements with respect to the applicability of PERM requirements to CHIP. For example, the provision requires that the final PERM rule include (1) clearly defined criteria for errors for both states and providers, (2) a clearly defined process for appealing error determinations by review contractors, and (3) clearly defined responsibilities and deadlines for states implementing corrective action plans. The new law also requires the Secretary to review the MEQC requirements with the PERM requirements and coordinate consistent implementation of both sets of requirements, while reducing redundancies. The Secretary is also required to establish state-specific sample sizes for application of PERM requirements to CHIP. This activity would begin with the first fiscal year that begins on or after the date on which the new final rule is in effect for all states. In establishing such sample sizes, the Secretary must minimize the administrative cost burden on states under Medicaid and CHIP, and must maintain state flexibility to manage these programs. The new final rule must be promulgated not later than six months after the enactment of CHIPRA. Finally, the new law applies a federal matching rate of 90% to expenditures related to administration of PERM requirements applicable to CHIP. The provision also excludes from the 10% cap on CHIP administrative expenses all expenditures related to administration of PERM requirements applicable to CHIP. Section 602. Improving data collection. Under prior law, the Secretary of Commerce was required to make appropriate adjustments to the Current Population Survey (CPS), which is the primary data source for determining states' current law CHIP allotments, (1) to produce statistically reliable annual state data on the number of low-income children who do not have health insurance coverage; (2) to produce data that categorizes such children by family income, age, and race or ethnicity; and (3) where appropriate, to expand the sample size used in the state sampling units, to expand the number of sampling units in a state, and to include an appropriate verification element. For this purpose, $10 million was appropriated annually, beginning in FY2000. CHIPRA provides $20 million for FY2009 and each subsequent year thereafter to produce these data for CHIP purposes. In addition to the prior-law requirements of the appropriation, for data collection beginning with FY2009, in consultation with the Secretary of HHS, the Secretary of Commerce is required to (1) make adjustments to the CPS to develop more accurate state-specific estimates of the number of children enrolled in CHIP or Medicaid, (2) make adjustments to the CPS to improve the survey estimates used to determine the child population growth factor in the new financing structure under CHIPRA and any other necessary data, (3) include health insurance survey information for the American Community Survey (ACS) related to children, and (4) assess whether estimates from the ACS produce more reliable estimates than the CPS for the child population growth factor in the new CHIP financing structure established under this new law. On the basis of that assessment, the Commerce Secretary will recommend to the HHS Secretary whether ACS estimates should be used in lieu of, or in some combination with, CPS estimates for these purposes. If such a recommendation is made, a period for transition may be established and implemented in a manner designed to avoid adverse impacts on states. Section 603. Updated Federal evaluation of CHIP. The Secretary of HHS was required to conduct an independent evaluation of 10 states with approved CHIP plans, and to submit a report on that study to Congress by December 31, 2001. Ten million dollars was appropriated for this purpose in FY2000 and was available for expenditure through FY2002. The 10 states chosen for the evaluation were to be ones that utilized diverse approaches to providing CHIP coverage, represented various geographic areas (including a mix of rural and urban areas), and contained a significant portion of uninsured children. A number of matters were included in this evaluation, including (1) surveys of the target populations; (2) an evaluation of effective and ineffective outreach and enrollment strategies, and identification of enrollment barriers; (3) the extent to which coordination between Medicaid and CHIP affected enrollment; (4) an assessment of the effects of cost-sharing on utilization, enrollment and retention; and (5) an evaluation of disenrollment or other retention issues. CHIPRA requires the Secretary of HHS to conduct a new, independent federal evaluation of 10 states with approved CHIP plans, directly or through contracts or interagency agreements, as before. The new evaluation must be submitted to Congress by December 31, 2011. Ten million dollars would be appropriated for this purpose in FY2010 and made available for expenditure through FY2012. The prior-law language for the types of states to be chosen and the matters included in the evaluation also apply to this new evaluation. Section 604. Access to records for IG and GAO audits and evaluations. Every third fiscal year (beginning with FY2000), the Secretary (through the Inspector General of the Department of Health and Human Services) must audit a sample from among the states with an approved CHIP state plan that does not, as a part of that plan, provide health benefits coverage under Medicaid. The Comptroller General of the United States must monitor these audits and, not later than March 1 of each fiscal year after a fiscal year in which an audit is conducted, submit a report to Congress on the results of the audit conducted during the prior fiscal year. Under CHIPRA, for the purpose of evaluating and auditing CHIP (both separate CHIP programs and Medicaid expansions under CHIP), the Secretary, the Office of Inspector General, and the Comptroller General must have access to any books, accounts, records, correspondence, and other documents that are related to the expenditure of federal CHIP funds and that are in the possession, custody, or control of states, political subdivisions of states, or their grantees or contractors. Section 605. No Federal funding for illegal aliens; disallowance for unauthorized expenditures. CHIPRA restates prior law that federal funding for individuals who are not lawfully residing in the United States is not allowed, and that the law provides for the disallowance of federal funding of erroneous expenditures under Medicaid and CHIP. Subtitle B-Miscellaneous Health Provisions Section 611. Deficit Reduction Act technical corrections. Under the Early and Periodic Screening, Diagnostic and Treatment (EPSDT) benefit under Medicaid, most individuals under age 21 must have access to comprehensive basic screening services (e.g., well-child visits including age-appropriate immunizations) as well as dental, vision, and hearing services. In addition, EPSDT guarantees access to all federally coverable services necessary to treat a problem or condition among eligible individuals. The Deficit Reduction Act of 2005 (DRA; P.L. 109-171 ) gave states the option to provide Medicaid to state-specified groups through enrollment in benchmark and benchmark-equivalent coverage that is nearly identical to plans available under SCHIP. This law identified a number of groups as exempt from mandatory enrollment in benchmark or benchmark-equivalent plans. These groups may be enrolled in such plans on a voluntary basis. One such exempted group was children in foster care receiving child welfare services under Part B of title IV of the Social Security Act and children receiving foster care or adoption assistance under Part E of such title. For any child under age 19 in one of the major mandatory and optional eligibility groups in Medicaid, wrap-around benefits to the DRA benchmark and benchmark-equivalent coverage include EPSDT. The provision in CHIPRA identifies specific sections of prior Medicaid law (instead of all of Title XIX as specified in DRA) that will be disregarded in order to provide benchmark benefit coverage. It also specifies that an individual's entitlement to EPSDT services remains intact under the benchmark benefit package option under DRA. The provision also makes a correction to the reference to children in foster care receiving child welfare services in P.L. 109-171 . Lastly, the provision requires the Secretary of HHS to publish on the CMS website the list of provisions in Title XIX that do not apply in order to enable a state to provide benchmark coverage under Medicaid on the date that such approval is given (rather than within 30 days of such approval). It also requires the Secretary to publish these same findings in the Federal Register within 30 days of the date of approval. The effective date of these provisions is the same as the original DRA provision (i.e., March 31, 2006). Section 612. References to title XXI. A provision in P.L. 106-113 directed the Secretary of HHS or any other federal officer or employee, with respect to references to the program under Title XXI, in any publication or official communication, to use the term "SCHIP" instead of "CHIP" and to use the term "State children's health insurance program" instead of "children's health insurance program." A provision in CHIPRA repeals this section of P.L. 106-113 . Section 613. Prohibiting initiation of new health opportunity account demonstration programs. The Deficit Reduction Act of 2005 allowed the Secretary of HHS to establish no more than 10 demonstration programs within Medicaid for Health Opportunity Accounts (HOAs). HOAs were used to pay (via electronic funds transfers) health care expenses specified by the state. CHIPRA prohibits the Secretary of HHS from approving any new Health Opportunity Account demonstrations as of February 4, 2009. Section 614. Adjustment in computation of Medicaid FMAP to disregard an extraordinary employer pension contribution. The federal medical assistance percentage (FMAP) is the rate at which states are reimbursed for most Medicaid service expenditures. It is based on a formula that provides higher reimbursement to states with lower per capita incomes relative to the national average (and vice versa). When state FMAPs are calculated by HHS for the upcoming fiscal year, the state and U.S. per capita income amounts used in the formula are equal to the average of the three most recent calendar years of data on per capita personal income available from the Department of Commerce's Bureau of Economic Analysis (BEA). BEA revises its most recent estimates of state per capita personal income on an annual basis to incorporate revised and newly available source data on population and income. It also undertakes a comprehensive data revision every few years that may result in upward and downward revisions to each of the component parts of personal income, one of which is employer contributions for employee pension and insurance funds. In describing its 2003 comprehensive revision, BEA reported that upward revisions to employer contributions for pensions beginning with 1989 were the result of methodological improvements and more complete source data. A provision in CHIPRA makes an adjustment in the computation of Medicaid FMAP to disregard an extraordinary employer pension contribution. For the purposes of computing Medicaid FMAPs beginning with FY2006, any significantly disproportionate employer pension or insurance fund contribution will be disregarded in computing state per capita income, but not U.S. per capita income. A significantly disproportionate employer pension and insurance fund contribution is defined as any identifiable employer contribution towards pension or other employee insurance funds that is estimated to accrue to residents of such state for a calendar year (beginning with calendar year 2003) if the increase in the amount so estimated exceeds 25% of the total increase in personal income in that state for the year involved. For estimating and adjusting an FMAP already calculated as of the date of enactment for a state with a significantly disproportionate employer pension and insurance fund contribution, the Secretary must use the personal income data set originally used in calculating such FMAP. If in any calendar year the total personal income growth in a state is negative, an employer pension and insurance fund contribution for the purposes of calculating the state's FMAP for a calendar year shall not exceed 125% of the amount of such contribution for the previous calendar year for the state. No state would have its FMAP for a fiscal year reduced as a result of the application of this provision. Not later than May 15, 2009, the Secretary must submit to Congress a report on the problems presented by the current treatment of pension and insurance fund contributions in the use of Bureau of Economic Affairs calculations for the FMAP and for Medicaid and on possible alternative methodologies to mitigate such problems. Section 615. Clarification treatment of regional medical center. The states and federal government share in the cost of the Medicaid program. Sometimes hospitals fund the state share of some of its own Medicaid payments, thereby ensuring that federal matching funds will be available even if the state cannot pay its share. Such "intergovernmental transfers" of certified public expenditures made by those types of health care providers to fund the non-federal share of states' Medicaid expenditures are allowable but only under certain circumstances. Some of those circumstances are described in detailed federal regulations. Other limitations are based on recent CMS administrative actions. For example, CMS has denied federal matching payments when the state share was comprised of payments transferred from out-of-state hospitals. A provision in CHIPRA prohibits the Secretary from denying federal matching payments when the state share has been transferred from or certified by a publicly owned regional medical center located in another state (and meeting certain additional criteria identified below) if the Secretary determines that the use of such funds is proper and in the interest of the Medicaid program. Such a publicly owned regional center (1) provides level 1 trauma and burn care services; (2) provides level 3 neonatal services; (3) is obligated to serve all patients, regardless of ability to pay; (4) is located within an SMSA that includes at least 3 states; (5) provides services as a tertiary care provider for patients residing within a 125-mile radius; and (6) meets Medicaid's disproportionate share hospital definition in at least one state other than the state in which it is located. Section 616. Extension of Medicaid DSH allotments for Tennessee and Hawaii.16 When establishing hospital payment rates, state Medicaid programs are required to recognize the situation of hospitals that provide a disproportionate share of care to low-income patients with special needs. Such "disproportionate share hospital (DSH) payments" are subject to statewide allotment caps. Allotments for Tennessee and Hawaii, however, are equal to zero because the states operate their state Medicaid programs under the provisions of a Section 1115 research and demonstration waiver. Such waivers allow for states to waive various provisions of Medicaid law specified in Title XIX (such as the requirement to make DSH payments) to conduct demonstrations as long as the demonstrations are likely to assist in promoting the objectives of the Medicaid program. Congress has enacted special DSH provisions for Tennessee and Hawaii in the past. Tennessee's allotments were set at $30 million for each of FY2007 through FY2009, and one-quarter of that amount was made available for the first quarter of FY2010. Hawaii's allotments were also set at $10 million for each of FY2007 through FY2009, and $2.5 million was made available for the first quarter of FY2010. Both states have, in addition, been allowed to submit state plan amendments describing their methodologies for distributing such payments for the Secretary's approval. A provision in CHIPRA extends the special DSH allotment arrangements for Tennessee and Hawaii through a portion of FY2012. Allotment amounts would be equal to $30 million for Tennessee for each full fiscal year—2010 and 2011—and one-quarter of that amount would be available for the first quarter of FY2012. Hawaii's $10 allotment would be extended for each full fiscal year—2010 and 2011—and $2.5 million would be available for the first quarter of FY2012. Section 617. GAO report on Medicaid managed care payment rates.18 A provision in CHIPRA requires GAO to submit a report to the Senate Finance Committee and the House Energy and Commerce Committee that analyzes the extent to which state payment rates for Medicaid managed care organizations are actuarially sound. This report will be due not later than 18 months after the date of enactment of this act. Subtitle C-Other Provisions Section 621. Outreach regarding health insurance options available to children. CHIPRA establishes a task force, consisting of the Administrator of the Small Business Administration (SBA) and the Secretaries of HHS, Labor, and the Treasury, to conduct a nationwide campaign of education and outreach for small businesses regarding the availability of coverage for children through private insurance, Medicaid, and CHIP. The campaign includes information regarding options to make insurance more affordable, including federal and state tax deductions and credits and the federal tax exclusion available under employer-sponsored cafeteria plans; it also includes efforts to educate small businesses about the value of health insurance coverage for children, assistance available through public programs, and the availability of the hotline operated as part of the Insure Kids Now program at HHS. The task force will be allowed to use any business partner of the SBA, enter into a memorandum of understanding with a chamber of commerce and a partnership with any appropriate small business or health advocacy group, and designate outreach programs at HHS regional offices to work with SBA district offices. It requires the SBA website to prominently display links to state eligibility and enrollment requirements for Medicaid and CHIP, and requires a report to Congress every two years. Section 622. Sense of the Senate regarding access to affordable and meaningful health insurance coverage. CHIPRA establishes a Sense of the Senate—The Senate finds the following: (1) there are approximately 45 million Americans currently without health insurance; (2) more than half of uninsured workers are employed by businesses with less than 25 employees or are self-employed; (3) health insurance premiums continue to rise at more than twice the rate of inflation for all consumer goods; (4) individuals in the small group and individual health insurance markets usually pay more for similar coverage than those in the large group market; and (5) the rapid growth in health insurance costs over the last few years has forced many employers, particularly small employers, to increase deductibles and co-pays or to drop coverage completely. The Senate (1) recognizes the necessity to improve affordability and access to health insurance for all Americans; (2) acknowledges the value of building upon the existing private health insurance market; and (3) affirms its intent to enact legislation this year that, with appropriate protection for consumers, improves access to affordable and meaningful health insurance coverage for employees of small businesses and individuals by—(A) facilitating pooling mechanisms, including pooling across State lines; and (B) providing assistance to small businesses and individuals, including financial assistance and tax incentives, for the purchase of private insurance coverage. TITLE VII-REVENUE PROVISIONS Section 701. Increase in excise tax rate under tobacco products. The source of revenue for CHIPRA would be an increase in tobacco excise taxes. The vast majority of tobacco taxes are on cigarettes, which account for 97% of federal tobacco tax revenue. Under prior law, excise taxes on cigarettes and other tobacco products included the following rates: federal cigarette taxes: $0.39 per pack; small cigars: $.04 per package of 20; large cigars: 20.719% of sales price, not to exceed $48.75 per 1,000 units (i.e., a maximum tax of almost $.05 per cigar); chewing tobacco: $.01 per ounce; snuff: $.04 per ounce; and pipe and roll-your-own tobacco: $.07 per ounce. There are also taxes on cigarette paper and cigarette tubes. These taxes are imposed per pound and under prior law the rates were as follows: (1) $0.195 for chewing tobacco, (2) $0.585 for snuff, and (3) $1.0606 for pipe and roll-your-own tobacco. There are also taxes on large cigarettes that are essentially non-existent (although a tax is necessary for administrative reasons). CHIPRA increases taxes on cigarettes and tobacco-related products (effective April 1, 2009) to the following rates: federal cigarette taxes would be increased to $1.0066 per pack; small cigars would have their taxes increased to the same level as cigarettes; large cigars would be subject to a tax of 52.75% of sales price with a maximum of $0.4026 per cigar; chewing tobacco would be increased to approximately $.03 per ounce (and $0.5033 per pound); snuff would be increased to $.09 per ounce ($1.51 per pound); pipe tobacco would be increased to $.18 per ounce ($2.8311 per pound); roll-your-own tobacco would be increased to $1.55 per ounce ($24.78 per pound); cigarette papers taxes would rise from $1.22 per 40, to $3.15; cigarette tubes would rise from $2.44 to $6.30. CHIPRA also includes provisions affecting floor stock taxes that would apply to items removed from the manufacturer before the April 1, 2009, effective date, and subsequently sold after that date. The person holding the items on April 1, 2009, will be liable, and there will be a $500 credit per person. (A person is considered to be a controlled group. For example, a corporation cannot receive the $500 credit for each of its subsidiaries.) The floor stocks tax will also apply to products in a foreign trade zone (i.e., imports). The purpose of the floor stock tax will be to prevent the stockpiling of tobacco products before April 1, 2009, the effective date for future sales. Section 702. Administrative improvements. CHIPRA imposes regulatory and reporting requirements on manufacturers and importers of processed tobacco other than the tobacco products subject to excise taxes, and expands the definition of roll–your-own tobacco to include tobacco that could be used to make cigars. Section 703. Treasury study concerning magnitude of tobacco smuggling in the United States. CHIPRA expands the scope of penalties for not paying the tobacco-related tax, clarifies the statute of limitations, and mandates a study of tobacco smuggling. Section 704. Time for payment of corporate estimated taxes. Under prior law, quarterly estimated corporate tax payments due in July, August, and September of 2013 are 120% of the normal required payment, with the next such payment reduced accordingly. CHIPRA increases the ratio to 120.5% and shifts $300 million of corporate taxes from FY2014 to FY2013. The prior-law 120% withholding provision does not apply to firms with assets of less than $1 billion, and the withholding increase under CHIPRA will not alter that exemption. Appendix. A Summary of Major CHIP Legislation During the 110th and 111th Congresses19 During the 110 th Congress, a number of CHIP bills saw legislative action. A majority of the CHIP changes enacted in public laws included provisions to add additional appropriations to CHIP, but did not make any major substantive changes to the program. The 110 th Congress enacted provisions to address certain states' shortfalls in FY2007 federal CHIP funding (U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, P.L. 110-28 ); provide temporary FY2008 appropriations for CHIP through December 31, 2007 through continuing resolutions ( P.L. 110-92 , P.L. 110-116 , P.L. 110-137 , P.L. 110-149 ); and provide additional appropriations through March 31, 2009 (The Medicare, Medicaid, and CHIP Extension Act of 2007, P.L. 110-173 ). The 110 th Congress also considered CHIP reauthorization legislation that would have made important changes to Medicaid and CHIP. Numerous bills were introduced, and two that were passed by Congress ( H.R. 976 and H.R. 3963 ) were vetoed by President Bush. Table A-1 includes a timeline of the legislative floor action on the major CHIP reauthorization bills during the 110 th and 111 th Congresses. Overview of the Vetoed H.R. 3963 and H.R. 976 The 110 th Congress's H.R. 976 (CHIPRA I) and H.R. 3963 (CHIPRA II) shared many common elements, including national allotment appropriations totaling $61.4 billion over five years (which represented an increase of $36.2 billion over the prior law baseline of $25.2 billion), distributed to states and territories using a new formula primarily based on their past and/or projected federal CHIP spending; a new contingency fund (for making payments to states for certain shortfalls of federal CHIP funds), which would have received deposits through a separate appropriation each year through FY2012 and made payments of up to 20% of the available national allotment for CHIP; new performance bonus payments (for states exceeding certain child enrollment levels and states that implement certain outreach and enrollment initiatives), which were to be funded with an FY2008 appropriation of $3 billion and deposits of certain unspent CHIP funds through FY2012; additional grants for outreach and enrollment that would have totaled $100 million each year through FY2012; provisions to remove barriers to enrollment; provisions related to benefits (e.g., dental, mental health, and Early and Periodic, Screening, Diagnosis and Treatment [EPSDT]); provisions to eliminate barriers to providing premium assistance; provisions to strengthen quality of care and health outcomes of children; program integrity and miscellaneous provisions, including some that affect the Medicaid program; and tobacco tax changes. Cost estimates from the Congressional Budget Office (CBO) indicated that H.R. 976 would have increased outlays by $34.9 billion over 5 years and by $71.5 billion over 10 years, and H.R. 3963 would have increased outlays by $35.4 billion over 5 years and by $71.5 billion over 10 years. Costs in both bills would have been offset by an increase in the federal tobacco tax (mostly from an increase in the federal tax by 61 cents per pack of cigarettes) and other changes, which the Joint Committee on Taxation (JCT) estimated would have increased on-budget revenue by $35.5 billion over 5 years and by $71.7 billion over 10 years. According to the Congressional Budget Office (CBO), the two vetoed CHIPRA bills both would have increased average monthly FY2012 Medicaid and CHIP enrollment by 5.8 million, for a total of 34.1 million projected enrollees. In both bills, about 80% of the increased enrollment would have occurred among current eligibility groups, rather than new ones.

The Children's Health Insurance Program Reauthorization Act of 2009 (H.R. 2, CHIPRA) was first passed in the House on January 14, 2009, and an amended version was passed in the Senate on January 29, 2009. On February 4, 2009, the House passed H.R. 2 as amended by the Senate and later that day President Obama signed the bill into law as P.L. 111-3. One of the provisions of CHIPRA permits using CHIP as the program's acronym, instead of SCHIP. This report reflects this change, using CHIP instead of SCHIP. The overall structure of CHIPRA is similar to its two predecessors, H.R. 976 and H.R. 3963 from the 110th Congress. This report summarizes changes to prior law made by CHIPRA, and provides a brief legislative history of the major State Children's Health Insurance (CHIP) reauthorization bills in the 110th and 111th Congresses. This report reflects the provisions at the time of CHIPRA's enactment. It is meant to serve as a historical reference to the complete set of provisions included in the law, as of February 4, 2009. It will not be updated to capture subsequent legislative changes, program guidance, public notices, or rulemaking. Key statutory changes affecting the CHIPRA provisions are listed in the subsection titled "The Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA)" and are further identified through footnotes tied to the relevant provisions. However, these changes are not reflected in provision descriptions included in the body of this report. (For a current description of program rules and state activity, see CRS Report R43627, State Children's Health Insurance Program: An Overview.)

Introduction Following several high-profile train incidents, Congress passed the Rail Safety Improvement Act of 2008 (RSIA08; P.L. 110-432 ), which mandated positive train control (PTC) on many passenger and freight railroads by December 31, 2015. The law does not describe PTC in technical terms, but defines it as a risk mitigation system that could prevent train incidents by automatically stopping trains when a collision or derailment is imminent. After freight and commuter railroads raised concerns about their ability to meet the 2015 deadline, Congress extended the deadline by three years to December 31, 2018, or up to two years beyond that for certain qualifying railroads ( P.L. 114-73 ). As of July 2018, it appears that all railroads will seek qualification for extending the deadline. While PTC promises benefits in terms of safety, its implementation entails substantial costs and presents a variety of other policy-related issues. These include the interoperability of individual railroads' systems, access to sufficient radio spectrum to support PTC, the possibility that PTC could be a barrier to market entry, and the suitability of PTC to passenger terminal environments. Rail Safety and PTC The United States railroad network comprises both freight and passenger operations. The seven largest operators by revenue, known as the Class I freight railroads, own about two-thirds of the nation's 140,810 miles of trackage (see Figure 1 ). These companies include BNSF, Union Pacific (UP), Norfolk Southern (NS), Kansas City Southern (KCS), Canadian Pacific (CP), Canadian National (CN), and CSX Transportation (CSXT). Most of the remaining trackage is controlled by Class II or regional freight railroads; Class III or short-line railroads; state and local government agencies; and Amtrak, the federally owned passenger operator. In many situations, both passenger and freight railroad companies operate over track owned by other railroads. This may occur under orders issued by the federal Surface Transportation Board or under voluntary agreements between carriers. Amtrak also has the right to operate trains using its own equipment over freight lines. The majority of freight railroad lines have a single track with passing sidings at various locations to allow trains to pass. Trains may operate in either direction along a track. High-volume corridors may have multiple tracks that typically operate in a single direction to increase both operating capacity and safety. Signal Systems For safety purposes, train dispatchers and signals along the track provide the engineer with the authority to travel on a certain track segment to prevent collision with other trains. Some long stretches of track in remote areas use only one main line without any signalization. This is called "dark territory," comprising about 40% of the North American rail network. In this case, railroads rely on communications with dispatchers to provide authority. Dispatchers are also responsible for assigning priority when more than one train requires use of a particular segment of track. On signaled track, track is separated into blocks by trackside or overhead signals that indicate to an engineer whether the train can proceed (and at what speed) or must stop before it enters the next block. Given the long stopping distance required by trains, a prior signal actually informs the engineer about the indication on the next signal. This system is called automatic block signal (ABS), and is generally the most sophisticated signal system used by freight railroads where PTC has not been installed. Since 1947, it has been required for freight trains traveling 50 or more miles per hour (mph) and passenger trains traveling 60 mph or more. Railroads have different operating rules regarding how and under what circumstances the conductor must call out signals to the engineer. Intercity and commuter passenger trains often incorporate additional features in their signal systems. A "cab signal" system relays external signal information to control displays inside the engineer's cab via an electric current that travels along the rails and is picked up by a receiver on the locomotive. The cab signal is helpful when fog, sun, or track curvature hinders or delays visual sighting of wayside signals. It also increases track utilization, as the engineer can adjust train speed in between signals. An "automatic train stop" (ATS) or an "automatic train control" (ATC) system can override the engineer's control of a train if a wayside signal indication is not acknowledged by the engineer. These devices are installed along the tracks, and trip a train's brakes when an engineer fails to respond to a wayside signal. Cab signals, ATS, and ATC were developed beginning in the early 1900s, and have been required by federal regulations since 1947 for passenger trains traveling over 79 mph (see text box). Rail-Related Fatalities Most rail-related fatalities are caused by pedestrians trespassing on railroad tracks or motor vehicles being hit at grade crossings. Train derailments and collisions, which PTC is designed to prevent, cause relatively few fatalities. Over a 10-year period ending in February 2016, there were 7,695 rail-related fatalities: 58% were due to trespassing (4,458 fatalities), 37% occurred at grade-crossings (2,838 fatalities), 2% were railroad workers (181 fatalities), and 1% were railroad passengers (75 fatalities). Only a portion of these passenger deaths were due to train derailments or collisions. Although preventing grade-crossing incidents is not specifically addressed in the PTC mandate of RSIA08, this could be achieved technically within the PTC framework by installing sensors at crossings that would engage the brakes of an oncoming train if a crossing gate is not working properly or if a vehicle is detected on the tracks. While this may require further investment on the part of the railroads and may not be implementable by the deadline, it may offer more significant gains in terms of safety than train collision prevention alone. Once PTC is implemented, Congress has requested the FRA to study the effectiveness of PTC technology in preventing grade-crossing incidents. Train Incidents and PTC Legislation While most railroad incidents are minor, several high-profile incidents led Congress to mandate PTC. In 2005, a train carrying chlorine gas was improperly diverted onto a side track by a manual switch left in the wrong position. Another train was parked on the side track. As a result of the collision, chlorine gas was released from one derailed car, killing nine people and forcing the evacuation of 5,400 people within a mile radius of the incident for two weeks. This incident occurred in dark territory. It was among the factors leading to introduction of the Federal Railroad Safety Improvement Act of 2007 ( H.R. 2095 , S. 1889 ) in the 110 th Congress, which would have mandated implementation of PTC in specific circumstances. In 2008, the head-on collision of a Metrolink commuter train and a Union Pacific freight train in Chatsworth, CA, led to 25 fatalities and over 100 injuries. That crash occurred on a section of track on which no cab signal, ATS, or ATC system was installed, leaving the commuter train engineer completely dependent on his sightings of the wayside signals. Reportedly, the cost of also equipping freight locomotives with automatic signaling technology was one reason a new system had not been installed. The cause of the accident was determined to be negligence by the commuter train engineer—it is believed he missed a red signal while texting. PTC was specifically identified by the NTSB as a technology that could have prevented Chatsworth and other similar incidents by providing a safeguard against human error. The Chatsworth accident on September 12, 2008, expedited the legislative process, and the bill mandating PTC was signed into law October 16, 2008, as the Railroad Safety Improvement Act of 2008 (RSIA08). RSIA08 requires "each Class I railroad carrier and each entity providing regularly scheduled intercity or commuter rail passenger transportation" to implement PTC on all segments or routes of railroad tracks that (a) carry frequent passenger or commuter service, or (b) carry more than 5 million gross tons of freight per year and also are used for transporting toxic-by-inhalation hazardous materials (TIH). At the time the law was signed, this mandate covered approximately 70,000 miles of railroad track. During the FRA rulemaking process, it became apparent that rail companies could change the routes of trains carrying TIH to avoid the PTC requirement on some track segments. A Senate bill was introduced to forgo mandatory PTC implementation on lines that will not be transporting passengers or hazardous materials by the end of 2015. This was estimated to eliminate the PTC mandate on 10,000 of the 70,000 track-miles initially covered. The bill was not enacted, but the FRA approved such a change in its amended final rule, effective July 13, 2012. The American Short Line and Regional Railroad Association proposed several changes to the FRA final rule, including eliminating the PTC requirement for trains traveling less than 20 miles on PTC-required track and extending the deadline for Class II and III railroads to employ PTC-equipped locomotives until 2020. The FRA approved these changes in an amended final rule. In the 112 th Congress, bills to delay the PTC implementation deadline were considered in both houses of Congress. As approved by the Senate, the Moving Ahead for Progress in the 21 st Century Act (MAP-21; S. 1813 ) would have allowed the U.S. Department of Transportation (DOT) to extend the December 31, 2015, deadline for any railroad in one-year increments until December 31, 2018, if it deemed full implementation infeasible and if the railroad had made a good-faith effort to comply. The bill would have allowed use of Railroad Rehabilitation and Improvement Financing (RRIF) for PTC implementation. The American Energy and Infrastructure Jobs Act of 2012 ( H.R. 7 ), which was adopted by the House Transportation and Infrastructure Committee but was not approved by the House of Representatives, would have extended the deadline for PTC implementation to December 31, 2020, and would have allowed railroads to adjust TIH routes until 2020 to reduce the extent of track affected by the PTC mandate. The bill also would have allowed railroads to implement alternative strategies on track that does not transport passengers where the "alternative risk reduction strategy that would reduce the risk of release of poison- or toxic-by-inhalation hazardous materials to the same extent the risk of a release of poison- or toxic-by-inhalation hazardous materials would be reduced if positive train control were installed on those tracks." While the provision would have allowed flexibility on the part of the railroads, alternative safety measures might interfere with the goal of interoperability and could raise costs for smaller railroads that might need to conform to multiple safety systems. The final version of the 2012 surface transportation bill, signed by President Obama on July 6, 2012, as P.L. 112-141 , did not change existing law concerning PTC. The derailment of a Metro-North commuter train in the Bronx, NY, on December 1, 2013, renewed calls for PTC implementation. Four passengers died and 60 to 70 passengers were injured in this derailment. The train traveled at 82 mph over a straight section of track with a 70-mph speed limit, but then derailed as it entered a curve with a 30-mph speed limit. According to one report, although this section of Metro-North's network was equipped with a cab signal/ATS/ATC system, Metro-North's version of this system was designed to prevent collisions with other trains, and did not restrict speeds when no other trains posed a danger (as was the case with the derailed train). In other words, the backup safety signal system was designed strictly to ensure train separation and did not include a speed control element. Other commuter railroads (New Jersey Transit and Southeastern Pennsylvania Transportation Authority, for example), as well as Amtrak on the Northeast Corridor, had a system that would have restricted train speed in this instance. The FRA ordered Metro-North to add speed control to its signal system and to station a second crew member with train control duties at certain locations until it did so. The commuter rail incidents at Chatsworth, CA, and the Bronx, NY, revealed significant disparities among signal system capabilities deployed by commuter operators. While these two incidents intensified calls for PTC installation, neither railroad had fully deployed long-standing signal technology that could also reduce the risk of collisions and derailment. On May 12, 2015, an Amtrak train derailed at a curve in Philadelphia, killing eight passengers. The train was travelling at 106 mph, while the curve had a speed limit of 50 mph. The NTSB's May 2016 report determined that the engineer had been distracted by dispatch calls about a nearby train being hit by projectiles and likely thought the train had traveled beyond the curve, where the speed limit is 110 mph. The NTSB noted that PTC would have prevented this incident. Amtrak had not installed automatic train control technology on this portion of track based on a risk analysis. It has since installed PTC on all segments of the Northeast Corridor that it owns, including the segment on which this incident occurred. At an NTSB forum on PTC held February 27, 2013, BNSF Railroad, Amtrak, the Alaska Railroad, and Metrolink Commuter Railroad were identified by an FRA official as the only railroads that were perhaps on schedule to meet the December 31, 2015, deadline. One topic of discussion at the forum regarded the allowances the FRA was making in implementing PTC because of the deadline. The complexity of testing the numerous subsystems, spectrum availability in urban areas, and "back office" software interoperability were some of the difficulties that the railroads identified. The Positive Train Control Enforcement and Implementation Act of 2015 ( P.L. 114-73 ), enacted October 29, 2015, extended the deadline for PTC implementation from December 31, 2015, to December 31, 2018. The three-year extension was thought necessary after most freight railroads and commuter railroads stated that they would not be able to meet the 2015 deadline. Congress also allowed the 2018 deadline to be extended up to another two years, provided that a railroad's modified implementation schedule was approved by the FRA and it had installed all the necessary PTC hardware and acquired the necessary radio spectrum by December 31, 2018. Two accidents resulting in passenger fatalities, the December 18, 2017, derailment of an Amtrak passenger train near DuPont, WA, on track owned by the regional transit agency, and the February 4, 2018, crash between an Amtrak train and a stationary freight train on South Carolina track owned by CSX Corp., occurred in locations where PTC installation was in progress but the system was not yet operational. The Basics of PTC PTC is defined in federal law as a "system designed to prevent train-to-train collisions, over-speed derailments, incursions into established work zone limits, and the movement of a train through a switch left in the wrong position." The federal government has imposed no specific technical requirements, allowing railroads to adopt whatever PTC systems seem best suited to their particular needs. However, all PTC systems share certain characteristics, including use of radio communication to provide in-cab signals to the train engineer and the ability for the dispatcher to stop a train in an emergency. Most U.S. railroads currently are implementing what is referred to as an "overlay-type" system, in which the sensors, signals, and transponders are installed over existing track. The network operating center sends one-way communication in the form of speed restrictions and moving authorities to a train as it passes over a transponder embedded in the track. This information requires integration with existing signals, switches, sensors, and other wayside infrastructure. The network operating office does not track real-time train location, but rather receives notice whenever a train passes the wayside infrastructure. Figure 2 illustrates PTC hardware and communication pathways in an overlay-type system architecture. Communication between wayside infrastructure, transponders, and trains is delivered through analog radio signal. Wireless communication options that provide greater data transfer capability, such as Wi-Fi, are not currently practical. Equipment on the train receives information from transponders to alert the train operator to current and upcoming signals, movements, and work zones. The train has equipment capable of superseding train engineer authority, so that the PTC system can slow or stop the train to prevent incident in the event of human error. A more expansive variant of an overlay-type system is communications-based train control (CBTC). CBTC is a more sophisticated computer-aided dispatching framework which requires train information to be sent to a central location, which then disseminates the information to all entities in the network. In this architecture, Global Positioning System (GPS) is used to track train location and speed, with other instrumentation providing location and speed coverage when the GPS cannot locate a signal. These additional components provide greater precision as well as system redundancy in the event of failure. Similarly, GPS and radio communication similar to cell phone technology can be used to identify work zone locations along specific lengths of track. CBTC is based on digital rather than analog technology, facilitating interoperability among systems used by different railroads. With CBTC, central control automatically tracks the movements of all the trains in the network, sends speed restrictions and movement authorities to individual trains, and checks for potential derailment and collisions (see Figure 3 ). The system uses location and speed information to determine headway distance and the necessary braking distance required to prevent potential incidents. Braking distance can be several miles for large freight trains and is dependent on factors such as train speed, reaction time, wheel-rail friction, brakes wear, track conditions, track grading, mass, and mass distribution of the train. All these variables are processed with a complex braking algorithm designed to ensure an emergency stop prior to a collision without excessive speed restriction leading to inefficient operation. The greater capability of CBTC makes it suitable for very high speed passenger lines, and CBTC is being instituted on some European rail lines for that reason. It has also been adopted by New York City Transit and the Southeastern Pennsylvania Transportation Authority. CBTC also has the potential to allow for driverless trains. However, the system requires seamless communication coverage along the entirety of PTC-equipped track, as temporary communication loss can pose safety risks. The need for constant communication also requires significant investment in either radio towers or fixed transponders. These requirements raise the capital cost, making CBTC more expensive than an overlay-type system. The CBTC system potentially offers greater business benefits to railroad operators than an overlay-type system. For example, the real-time, two-way communication of train locations combined with speed restrictions and moving authorities can lead to more efficient scheduling, increased capacity, and fuel savings. Nonetheless, U.S. railroads appear to have concluded that the advantages of communication-based train control are not worth the additional cost of installing it at the present time. It is important to note that both overlay-type systems and CBTC systems are designed principally to reduce collisions between trains. The systems do not address intrusion into railroad right-of-way. Currently, there is no requirement that they be capable of detecting and notifying trains about crossing-gate failures, vehicles blocking tracks, or trespassers. However, such capabilities could be incorporated into PTC systems in the future. Implementation Based on progress reports submitted by railroads to the FRA, the FRA surmises that only four railroads (BNSF and Union Pacific, and the Los Angeles and Philadelphia area commuter railroads) will likely have fully installed the necessary PTC equipment by the end of 2018, but even these railroads would likely need an extension because other railroads operating over their lines would not be fully PTC-compliant. As of June 30, 2018 (latest data available), PTC was operating on 66% of the freight route miles required to have PTC and 2% of the passenger network. PTC was installed and operable on 93% of the freight locomotives and 73% of the passenger locomotives. Among the larger commuter railroads, the FRA deemed that Caltrain, Maryland Area Regional Commuter, and New Jersey Transit were at risk of not qualifying for a deadline extension because these railroads had installed less than 90% of the PTC hardware required (as of June 30, 2018). Most of the current PTC projects rely on fixed transponders in conjunction with GPS with one-way information communication to the trains to fulfill the baseline PTC requirements. Only a few systems involve two-way communication with real-time information and computer-aided dispatch. The smaller railroad companies and commuter lines, in most cases, are relying on the Class I railroads to implement PTC before investing in their own systems due to the high risk and the cost of developing their own systems. In the United States, precursors to full PTC capability were developed voluntarily prior to the 2008 mandate. Development of radio-based CBTC systems and coordinated wayside systems used to locate and communicate with trains began in 1983. Although systems developed by the Association of American Railroads and Burlington Northern Railroad achieved technical success, both systems were functional only in fully signalized territory and were deemed not economically viable to deploy on a nationwide scale. In 1991, Amtrak adopted an automatic train control (ATC) system along the tracks it owns in the Northeast Corridor. That system, as discussed above, repeated signalization in the cab and required the train engineer to acknowledge and enforce the speed limit given by the signals to reduce human error. That system was later upgraded with the Advanced Civil Speed Enforcement System, using transponders to send signals to trains and to enforce speed restrictions and stop orders. Amtrak began transitioning to radio-based communication in 2009 to incorporate work zone safety measures required by RSIA08. In 1999, CSX Transportation began development of a PTC system that uses GPS combined with fixed infrastructure at switching points to provide exact track location information, specifically on parallel lines. This method is particularly useful to improve safety on long stretches of non-signalized track. CSXT is now modifying this architecture to meet the full requirements of PTC. BNSF, Union Pacific, Norfolk Southern, and Chicago's Metra commuter line are planning implementation of similar systems. Norfolk Southern's system is expected to provide for computer-aided dispatch over small segments of track. Overseas Experience Passenger train incidents overseas with train control systems already installed may provide lessons for implementation of PTC in the United States. After a deadly commuter train derailment in Japan in 2005, an audit found that the maximum speed calibrated on many curves to trigger the automatic train control system had been set too high to prevent derailments. After 40 passengers were killed in a train collision in China in 2011, it was discovered that its train control system had not been sufficiently tested. Investigations following an overspeed incident in Spain in 2013 that killed 79 passengers found that the train control system had been turned off on a second set of locomotives because it was not functioning properly. Similarly, the train control system had been turned off on a German commuter locomotive so that it could make up time, which is believed to have contributed to its collision with another train in February 2016. Cost and Benefits In 2009, the FRA estimated the total capital cost of wayside, on-board, radio, and office equipment necessary for full PTC deployment on all affected railroads to be in excess of $10 billion. It projected annual maintenance costs of $850 million. In recent years, fixed-capital investment by U.S. railroads has been around $15 billion annually, of which about $10 billion has been for structures and $5 billion for equipment. The estimated capital cost of meeting the PTC mandate is thus almost equal to the railroads' total capital spending in a single year. The four largest railroad companies account for almost all of the estimated 60,000 miles of Class I track that fall under the PTC mandate. In 2017, CSX estimated its cost of installing PTC to be $2.4 billion, of which $1.8 billion had been expended through 2016, while as of 2018 Union Pacific estimated its total cost for PTC to be $2.9 billion, of which $2.3 billion had been spent by the end of 2016. Smaller freight companies often share track with the Class I railroads. While this presents interoperability challenges, there is opportunity to use the PTC type approvals from the larger companies' development efforts to save cost. This is also the case with shared passenger rail in the Northeast Corridor. Despite this advantage, the infrastructure cost alone for just two of the five largest transit agencies operating on the corridor, Metro-North in the New York area and the Southeastern Pennsylvania Transportation Authority in the Philadelphia area, has been estimated at $350 million and $100 million, respectively. As the FRA has stated (see text box), the expense of PTC could constrain commuter rail development, diverting commuters to less safe forms of transportation. Commuter railroads' cost for installing PTC is likely to be borne primarily by state or local governments. However, the federal government has provided assistance. This includes a $967 million RRIF loan to the Metro-North and Long Island commuter railroads for PTC implementation, $382 million in combined RRIF/Transportation Infrastructure Finance and Innovation Act (TIFIA) loans to the Massachusetts Bay Transportation Authority, $199 million in FY2017 in the FAST Act ( P.L. 114-94 , §3028), and $250 million in grants provided in the Consolidated Railroad Infrastructure and Safety Improvement (CRISI) program (funding is not restricted to just commuter railroads). In March 2018, the DOT Inspector General issued a report reviewing how railroads had spent federal funding provided for PTC implementation. Some shippers believe that since the majority of the investment in PTC will come directly from the railroad companies, these costs will likely be passed to customers. They expect price increases due to the cost of PTC implementation, especially if the rail companies are unable to realize business benefits from the new systems. The Chlorine Institute, a trade organization representing the chlorine industry, expects the railroad companies to raise costs disproportionately for shipments of toxic-by-inhalation hazardous materials (TIH), as concern about the safety of TIH transport is perceived as a source of the PTC mandate. Safety Benefits from PTC-Preventable Incidents Based on analysis of past PTC-preventable incidents, the FRA estimated in 2009 that $90 million in annual safety benefits will be realized after full implementation of PTC. Safety benefits are calculated by estimating the cost of incidents that are likely to be prevented by PTC, including fatalities and injuries, equipment damage, track damage, off-track damage, hazardous material cleanup, evacuations, wreck cleanup, loss of freight, and freight delay. According to a 1999 FRA estimate, between 1987 and 1997 an annual average of 7 fatalities, 22 injuries, $20 million in property damages, and evacuations of 150 people due to potential hazardous material release could have been prevented by PTC. Although many serious incidents due to error by train engineers or dispatchers could be prevented by PTC, PTC is expected to prevent less than 2% of the approximately 2,000 railroad collisions and derailments that occur annually. The majority of these 2,000 incidents occur in rail yards and are generally less severe than PTC-preventable incidents. While the costs and safety benefits are projected with some confidence, there is disagreement regarding the potential business and social benefits of PTC. This makes a full cost-benefit analysis of PTC-related issues difficult. Business and social benefits are expected to come from increased railroad efficiency, reductions in logistical costs, and diversion of freight from truck to rail. However, these benefits are predicated on the functionality of full computer-based train control and not PTC alone. Computer-aided dispatch has the potential to increase capacity and reduce fuel consumption. This can reduce railroad operating costs, lead to faster, less expensive delivery, and induce demand from truck freight. This then may lead to social benefits such as reductions in fuel consumption and truck accidents. The FRA projects $4 billion in potential annual business benefits a decade after full PTC implementation. The overlay system without CBTC capability currently planned by the railroads is expected to offer little or no business benefit to the railroads. A possible exception is the role PTC could have in discussions about the appropriate size of train crews. The Class I freight railroads generally run trains with two-person crews, but PTC might facilitate one-person crews. However, the FRA has recently proposed a rule requiring two-person crews. The social benefits of the overlay system are likely to come largely from the anticipated reduction in incidents. Policy Issues Interoperability The freight rail transportation network has two primary components: the track and the freight service. In some cases, the service is provided by the same company that owns the track. However, since shippers' needs do not correspond to railroads' track ownership, freight operators trade trackage or haulage rights and share revenue from the shipper. FRA regulations require that railroads' PTC systems be interoperable so that any train operating on PTC-equipped track can communicate with the host railroad's PTC system. Prior to RSIA08, several railroad companies were developing communication-based train control independently for their own business reasons, and were not concerned about interoperability. The federal mandate has required changes in these plans in the interest of interoperability. UP, CSXT, and NS have received FRA "type approvals" for Interoperable Electronic Train Management Systems (I-ETMS) in which the PTC system itself is approved for development. This makes it likely that the systems installed by these railroads will be highly compatible. BNSF, which has a precursor ETMS system in place, has type approval for that system, which is to be updated to I-ETMS when software becomes available. Interoperability issues pertain to passenger service as well. In the Northeast Corridor, Amtrak operates on Amtrak-owned track and track owned by regional transit authorities and vice versa. Amtrak began PTC development prior to RSIA08 and has provided the PTC standard and type approval for transit authorities utilizing the corridor. The freight companies and Amtrak are now working to ensure interoperability between their respective systems. In Europe, achieving interoperability in train control systems has been a decades-long challenge among the different national railroad passenger networks attempting to cross borders. Avoiding Barriers to Market Entry There are several ways the PTC mandate could be used as a barrier to market entry for the railroads. First, installing track will now be more expensive due to the need to incorporate PTC wayside equipment, which is expected to add approximately $50,000 per mile to the $1 million to $3 million per mile cost of installing new rail lines. On-board PTC equipment is expected to cost around $55,000 per locomotive, which represents only a minor increase in the cost of a new $2 million locomotive but is substantial compared to the $75,000 cost of used locomotives operated by some short line railroads. A passenger rail operator providing or proposing service over freight-owned track that otherwise would not be required to install PTC may require the passenger railroad to pay for the cost of installing PTC on the freight locomotives also. In addition to capital costs, operating and maintenance costs will increase as well. This could be a barrier to both railroad expansion and startup services. Another barrier to market entry could arise from the need for interoperability and spectrum compatibility. Hypothetically, if two rail networks have different PTC systems because they do not currently share track or services, it may be cost prohibitive to implement a new service over these two lines. Similarly, one company could upgrade or modify its PTC system, forcing further investment by other companies using its track. Also, if the radio spectrum licenses are owned by certain railroads or a consortium of railroads, they could dictate leasing prices to operate necessary PTC systems on that spectrum for a new railroad or service which is not part of the consortium. Control of spectrum and interoperability issues with PTC could be used as tools to prevent new services on existing lines or even using an interoperable spectrum on new lines. The possibility that PTC could impede competition may be of particular concern for short line and regional railroads which operate on Class I track. Class I railroads have a legal obligation to accommodate short line railroads, but in some cases may be reluctant to allow short line trains on their networks. The president of the American Short Line and Regional Railroad Association issued the following testimony to the Surface Transportation Board: Differential pricing of certain routes or products by class I carriers ... ha[s] eliminated marginal customers who may be a small railroad's only source of business on its line, effectively putting the small railroad out of business. Some small railroads who want to provide service to new customers meet resistance from connecting carriers whose marketing plans are inconsistent with the small railroad's proposed business. At this point, concerns that PTC could create barriers to railroad competition are hypothetical, as no specific complaints are known to have been presented to the FRA or to the Surface Transportation Board, which oversees certain rail competition issues. PTC Requirements Within Passenger Terminals The September 29, 2016, crash of a New Jersey Transit train beyond its end of line track bumper post in Hoboken, N.J., killing one commuter and injuring more than 100 others, raised discussion of PTC requirements within passenger terminals. The driver of this train apparently fell asleep momentarily as the train reached the end of the platform. Current FRA regulations allow an exception to PTC installation in passenger terminals under certain conditions, one of which is terminals with a maximum train speed of 20 mph. A February 2018 NTSB board meeting discussing this and a similar incident noted that PTC is not a technology well-suited to a terminal environment, due to the extremely short stopping distances and the inability for trains in tunnels to send and receive GPS signals. The NTSB recommended that the FRA examine other technologies under development that may be able to provide a backup speed check within terminals.

The Rail Safety Improvement Act of 2008 (RSIA08) requires implementation of positive train control (PTC) on railroads which carry passengers or have high-volume freight traffic with toxic- or poisonous-by-inhalation hazardous materials. PTC is a communications and signaling system that has been identified by the National Transportation Safety Board (NTSB) as a technology capable of preventing incidents caused by train operator or dispatcher error. PTC is expected to reduce the number of incidents due to excessive speed, conflicting train movements, and engineer failure to obey wayside signals. It would not prevent incidents due to trespassing on railroads' right-of-way or at highway-rail grade crossings, where the vast majority of rail-related fatalities occur, and might not work well in some passenger terminal areas. Under RSIA08, PTC is required on about 60,000 miles of railroad track. The Federal Railroad Administration (FRA) estimates full PTC implementation will cost approximately $14 billion. Progress among railroads in installing and operating PTC is mixed: a few large freight and commuter railroads show substantial progress while many others show much less progress. Federal funding provided thus far includes about $2 billion in loans and grants, mostly for commuter lines. After freight and commuter railroads raised concerns about their ability to meet the December 31, 2015, deadline in RSIA08, Congress extended the deadline by three years to December 31, 2018, or up to two years beyond that for certain qualifying railroads (P.L. 114-73). A July 2018 FRA report indicates that possibly all railroads will seek to qualify for an extension beyond the December 31, 2018, deadline, mostly for completing testing of their PTC systems. PTC uses signals and sensors along the track to communicate train location, speed restrictions, and moving authority. If the locomotive is violating a speed restriction or moving authority, on-board equipment will automatically slow or stop the train. A more expansive version of PTC, called communications-based train control (CBTC), would bring additional safety benefits plus business benefits for railroad operators, such as increased capacity and reduced fuel consumption. However, CBTC is not currently being installed by any U.S. railroad, due to the additional cost and the challenge of meeting implementation deadlines. In addition to funding requests for maintaining the PTC systems, Congress may be confronted with issues related to interoperability and barriers to market entry as railroads work toward implementing PTC.

Crop Insurance Background Federal crop insurance policies are marketed and serviced by private insurance companies. In purchasing a policy, a producer growing an insurable crop may select a level of crop yield and price coverage and pay a portion of the premium, which increases as the levels of yield and price coverage rise. The remainder of the premium is covered by the federal government. Coverage is made available through various insurance products, including crop-specific revenue insurance, which allows a participating producer to insure a target level of crop revenue rather than just production levels. According to the USDA, the federal crop insurance program provided coverage in 2007 to over 100 crops covering more than three-fourths of planted acreage in the country. Although the list of covered commodities has grown in recent years, 80% of total policy premiums (and federal subsidies) are accounted for by just four commodities—corn, soybeans, wheat, and cotton. Because the program is not subject to periodic reauthorization, major changes to the crop insurance program usually are not addressed in the context of an omnibus farm bill. Over the past 25 years, the program has been subject to three major legislative enhancements (in 1980, 1994, and 2000), each of which has pumped additional federal dollars into the program in order to enhance farmer participation levels in anticipation of precluding the demand for ad hoc disaster payments. Since the last major modification in 2000, the federal subsidy to the crop insurance program has averaged about $3.25 billion per year, up from an annual average of $1.1 billion in the 1990s and about $500 million in the 1980s. Nearly two-thirds of the current federal spending is used to subsidize insurance policy premiums, and the balance primarily covers the government share of program losses and reimburses participating private insurance companies for their administrative and operating expenses (see Table 1 ). Although the scope of the program has widened significantly over the past 25 years, the anticipated goal of crop insurance replacing disaster payments has not been achieved. In virtually every crop year since 1988, Congress has provided ad hoc disaster payments to farmers with significant weather-related crop losses. These have been made available primarily through emergency supplemental appropriations, and, until recently, regardless of whether a producer had an active crop insurance policy. The exception to the historical pattern is the FY2007 supplemental appropriations act ( P.L. 110-28 , as amended by the FY2008 Consolidated Appropriations Act), which is expected to provide an estimated $2.4 billion in crop disaster payments for 2005, 2006, or 2007 crop losses, but only to those producers who held an active crop insurance policy or enrolled in the noninsured assistance program in the year of the crop loss. Since FY1989, total disaster payments have amounted to more than $20 billion, or just over $1 billion per year. Over the past six years (FY2001-FY2006), the federal cost of the crop insurance program combined with ad hoc supplemental disaster payments has averaged $4.5 billion per year (see Figure 1 ). For a summary of all agricultural disaster assistance provided by Congress since 1988, see CRS Report RL31095, Emergency Funding for Agriculture: A Brief History of Supplemental Appropriations, FY1989-FY2009 . Crop Insurance And Disaster Provisions in the 2008 Farm Bill The following sections review the major crop insurance and disaster assistance provisions of the enacted 2008 farm bill ( P.L. 110-246 ) and the major issues that shaped the debate. See the Appendix , below, for a comparison of the crop insurance and disaster assistance provisions in the enacted 2008 farm bill, with the House- and Senate-passed versions of the farm bill and previous law. Reducing Crop Insurance Program Costs Because of the rising cost of the crop insurance program, many policymakers viewed the program as a potential target for spending reductions, whereby savings could be used to fund new initiatives in various other titles of the farm bill. Consequently, Title XII of the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 , the 2008 farm bill) contains several revisions to the crop insurance program, most of which are designed to reduce program costs. For all crop insurance provisions in Title XII, the Congressional Budget Office (CBO) estimates net budget outlay savings of $3.9 billion over 5 years (FY2008-FY2012), or $5.6 billion over 10 years (FY2008-FY2017), relative to the March 2007 baseline which was the official budget scoring benchmark for the bill. Timing of Crop Insurance Payments Approximately $2.8 billion of this estimated five-year savings is attributable to changes in the timing of premium receipts from farmers, and payments to the participating insurance companies. None of these revisions would directly affect the final monetary amounts for participating farmers or insurers, but would still be scored as savings within the five-year horizon of the bill. Essentially, these 2008 farm bill provisions (Sec. 12007 and Sec. 12015) will allow USDA to collect two crop years of premiums in 2012, and delay the 2012 payment of reimbursements and underwriting gains into the next fiscal year. Insurance Company Reimbursements and Loss Sharing Although crop insurance is sold and serviced by private insurance companies, the federal government absorbs a large portion of program losses and reimburses the companies for their administrative and operating (A&O) expenses. Loss sharing and A&O reimbursements currently are spelled out in a Standard Reinsurance Agreement (SRA) between USDA and the private companies. Under the SRA, the reimbursement rate for A&O expenses currently averages 22% to 24% of total premiums. The 2008 farm bill (Sec. 12016(E)) reduces the A&O reimbursement rate by 2.3 percentage points beginning with the 2009 reinsurance year (July 1, 2008). This reduction can be restored in any state that experiences a loss ratio of 1.2 or greater (i.e., when total indemnity payments to farmers are more than 20% greater than total premiums). The farm bill (Sec. 12016(F)) also reduces the A&O reimbursement rate to 12% for any plan of insurance that is based on area-wide losses. CBO estimates that these provisions will save $618 million over five years. A House provision to require the insurance companies to share more of their underwriting gains with the federal government was not included in the final version of the bill. The conferees did adopt a provision (Sec. 12017) that allows USDA to renegotiate the SRA once every five years beginning with the 2010-2011 reinsurance year. During the farm bill debate, the Administration and others contended that the private insurance companies should be required to absorb more of the program losses, and that the reimbursement rate for company A&O expenses needed to be reduced as a means of reducing federal costs. Proponents for change point out that A&O reimbursements to the companies have doubled over the last seven years (see Table 1 ), mainly because farmers have been buying up to higher levels of insurance coverage, causing total premiums to rise. Since A&O reimbursements are based on a percentage of total premiums (and premiums have been rising significantly in tandem with crop prices), the Administration contends that the companies are being overcompensated for their expenses. The private crop insurance companies contend that any reductions in the A&O reimbursement will negatively impact the financial health of the crop insurance industry and possibly jeopardize the delivery of crop insurance, particularly in high-risk areas. Farmer Subsidy and Costs Under the crop insurance program, farmers pay no premium for CAT coverage (which is 100% subsidized by the government), and are encouraged to purchase higher levels of coverage. On average, about 50% of the premium is subsidized by the government for this buy-up coverage. For farmers whose crops are not covered by crop insurance, they are offered the equivalent of CAT coverage under a separate Noninsured Assistance Program (NAP), and pay an administrative fee for this coverage. A number of provisions are included in the 2008 farm bill that require participating farmers to share more in program costs, including (1) an increase in the fee paid by farmers for both catastrophic (CAT) coverage and NAP to $300 per crop per county, from the previous $100 fee (Sec. 12006); and (2) a 4 percentage point reduction in the rate of premium subsidy received by farmers for policies based on area-wide losses (Sec. 12012). The 2008 farm bill (Sec. 12003) also requires USDA to operate the crop insurance program so that the anticipated loss ratio is 1.0 (i.e., total indemnity payments equal to total premiums), compared with the then-current statutory loss ratio requirement of 1.075. To achieve the new lower ratio could mean somewhat higher premiums for farmers. Crop Production on Native Sod In an attempt to protect and preserve virgin prairie, the 2008 farm bill added a provision (Sec. 12020) that declares that any parcel of native sod greater than 5 acres that is cultivated for production of an annual crop after May 22, 2008, is ineligible for federal crop insurance and noninsured crop disaster assistance during the first five crop years of planting. However, the governors for states within the Prairie Pothole National Priority Area are given the discretion of electing whether this provision is effective for their state. Waste, Fraud, and Abuse For many years, policymakers have been concerned about waste, fraud, and abuse within the federal crop insurance program. The Agricultural Risk Protection Act (ARPA) of 2000 ( P.L. 106-224 ) contained several provisions designed to enhance USDA's recognition of and response to challenges to program compliance and integrity. In response to the ARPA requirements, USDA used "data mining" techniques to compile an annual list of producers who either exhibit high loss ratios (i.e., high indemnity payments relative to total premiums), exhibit high frequency and severity of losses, or are suspected of poor farming practices that might contribute to production losses. USDA estimates that the use of the spot-check list has prevented between $70 million and $110 million each year in improper payments. Mandatory funding authorized by ARPA for data mining and other ARPA-related program integrity activities expired at the end of FY2005. A general provision in the FY2008 Consolidated Appropriations Act ( P.L. 110-161 ) allows USDA to use up to $11.166 million in mandatory funds in FY2008 to strengthen its ability to reduce waste, fraud, and abuse within the crop insurance program. However, future funding for this activity was uncertain. The 2008 farm bill (Sec. 12021) authorizes up to $4 million annually for data mining activities beginning in FY2009, and authorizes $15 million annually for four years (FY2009-FY2013) to upgrade USDA's computer technology for crop insurance. Agricultural Disaster Assistance During the 2007-2008 farm bill debate, some policymakers wanted to make permanent in the farm bill some level of disaster payments to supplement the crop insurance program. Supporters say that ongoing farm disaster programs do not adequately address emergency needs when a major disaster strikes and that USDA should have at its disposal a permanent source of disaster funds in the same manner as the Federal Emergency Management Administration (FEMA). Questions in the debate included how such a program would be funded given current budget constraints, and whether the permanent availability of disaster payments would adversely affect participation in the crop insurance program, and possibly encourage production on high-risk lands. Title XV (Sec. 15101) of the 2008 farm bill authorizes a series of new disaster programs through September 30, 2011, the largest of which is a supplemental revenue assistance payment program for crop producers. Supplemental Crop Revenue Assistance Program (SURE) The SURE program is designed to compensate eligible producers for a portion of crop losses that are not eligible for an indemnity payment under the crop insurance program (i.e., the portion of losses that is part of the deductible on the policy.) An eligible producer can receive a payment equal to 60% of the difference between a target level of revenue and the actual total farm revenue for the entire farm. The target level of revenue would be based on the level of crop insurance coverage selected by the farmer, thus increasing if a farmer opts for higher levels of coverage. (See the box in this report for a description of how the guarantee level and total farm revenue are defined by the statute.) To be eligible for a payment, a producer must be either in or contiguous to a county that has been declared a disaster area by either the President or the Secretary of Agriculture. Payments are limited so that the disaster program guarantee level cannot exceed 90% of what income likely would have been in the absence of a natural disaster. The producer also must have at least the minimum level of crop insurance (CAT) coverage for insurable crops and participate in the NAP program for non-insurable crops. The statute made an exception for the 2008 crop year by allowing producers who did not purchase crop insurance or NAP coverage in advance to be eligible for the program, as long as they pay the equivalent administrative fee for coverage within 90 days of enactment. Some farm groups have raised concerns about the delayed timing of payments under SURE. Final payments for crop losses cannot be determined until after the marketing year since a portion of the disaster payment formula is based on the national average market price of the commodity for the year in which the loss was incurred. For example, since the 2008 marketing year for corn and soybeans ends September 30, 2009, any eligible SURE payments for 2008 losses cannot be made until late October 2009 at the earliest. Consequently, some farm groups have asked USDA to make more timely payments under the new program by providing advance payments until the final payment levels can be determined. To date, program regulations have not been released. Other Authorized Disaster Programs In addition to the supplemental crop revenue assistance payment program described above, the 2008 farm bill also authorizes and funds four smaller disaster programs: (1) Livestock Indemnity Payments, which compensate ranchers at a rate of 75% of market value for livestock mortality caused by a disaster; (2) Livestock Forage Disaster Program, to assist ranchers who graze livestock on drought-affected pastureland or grazing land; (3) Emergency Assistance for Livestock, Honey Bees and Farm Raised Fish, which will provide up to $50 million to compensate these producers for disaster losses not covered under other disaster programs; and (4) Tree Assistance Program, for orchardists and nursery growers who can receive a payment to cover 70% of the cost of replanting trees or nursery stock following a disaster (up to $100,000 per year per producer). Disaster Program Funding All five of these farm bill disaster programs will receive funding through a newly authorized Agricultural Disaster Relief Trust Fund within the U.S. Treasury. The Trust Fund will receive the equivalent of 3.08% of the amount received each year (FY2008-2011) in U.S. Customs receipts collected on certain goods. The Congressional Budget Office (CBO) estimates the combined total costs to be $3.8 billion over the four-year life of the programs, relative to the March 2007 budget baseline. Of this total, CBO estimates that supplemental crop revenue assistance will cost $1.7 billion over the four years, or an average of $425 million per year. Another $1.6 billion would cover increased crop insurance and NAP costs associated with the crop insurance and NAP purchase requirement. The balance of $500 million would cover the combined estimated cost of the other four disaster programs. If the cost of the programs exceeds the level of funding provided through Customs receipts, the 2008 farm bill gives the Trust Fund the authority to borrow from the Treasury such sums as necessary to meet its obligations. Appendix. Major Crop Insurance and Disaster Assistance Provisions in the Enacted 2008 Farm Bill

The federal government has relied primarily on two policy tools in recent years to help mitigate the financial losses experienced by crop farmers as a result of natural disasters—a federal crop insurance program and congressionally mandated ad-hoc crop disaster payments. Congress has made several modifications to the crop insurance program since the 1980s, in an effort to forestall the demand for supplemental disaster payments. Although the scope of the crop insurance program has widened significantly over the past 25 years, the anticipated goal of crop insurance replacing disaster payments has not been achieved. The federal crop insurance program is permanently authorized and hence does not require periodic reauthorization; however, some modifications were made to it in the context of the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the 2008 farm bill). Some policymakers viewed the projected baseline outlays for the crop insurance program as a potential target for program cost reductions, and proposed using these savings to fund new initiatives in various other titles of the farm bill. Consequently, many of the new crop insurance provisions are cost-saving measures. According to Congressional Budget Office estimates, the crop insurance provisions (Title XII) in the 2008 farm bill will reduce program baseline outlays by $3.9 billion over the five-year period of the bill (FY2008-FY2012). Much of the savings ($2.8 billion) is achieved through a change in the timing of crop insurance payments and receipts that will not directly affect the final monetary amounts for participating farmers or insurance companies. The rest of the savings is generated through increased fees paid by farmers for catastrophic coverage and a reduction in reimbursements to the participating insurance companies for their operating expenses, among many other provisions. To address concerns about program waste, fraud, and abuse, the farm bill also authorizes up to $4 million annually for data mining activities beginning in FY2009. Separately, Title XV of the 2008 farm bill authorizes a new trust fund with projected costs of $3.8 billion for providing agricultural disaster assistance available on an ongoing basis over the next four years through five new programs. The largest program is a supplemental revenue assistance payment program for crop producers that is designed to compensate eligible producers for a portion of crop losses that are not eligible for an indemnity payment under the crop insurance program. To be eligible for a payment, a producer must be either in or contiguous to a county that has been declared a disaster area by either the President or the Secretary of Agriculture. An eligible producer also is required to have purchased crop insurance in advance of a disaster. However, the statute makes an exception for the 2008 crop year by allowing uninsured producers to be eligible, as long as they pay the equivalent administrative fee for coverage within 90 days of enactment. For a description of all crop insurance provisions in the enacted 2008 farm bill, and a comparison of the provisions with the House- and Senate-passed versions of the bill and previous law, see the Appendix at the end of this report.

Introduction According to the estimates by the Department of Homeland Security (DHS), some 11.4 million unauthorized immigrants were living in the United States in 2012. The Pew Research Center's unauthorized alien population estimate for 2012 was 11.2 million, which included some 8.1 million unauthorized workers in the U.S. civilian workforce. It is widely believed that most unauthorized aliens enter and remain in the United States in order to work. Six years ago, in 2009, DHS issued new guidance on immigration-related worksite enforcement—the enforcement of prohibitions on the employment of unauthorized aliens in the United States. In the words of DHS at the time, the 2009 guidance "reflects a renewed Department-wide focus targeting criminal aliens and employers who cultivate illegal workplaces by breaking the country's laws and knowingly hiring illegal workers." Under this guidance, promoting compliance also has taken on a larger role in DHS's worksite enforcements efforts. Questions arise as to how rigorous and effective DHS's worksite enforcement efforts are and have been in past years. The department maintains data on several measures that can be used to examine the performance of its worksite enforcement program. Enforcement activity by the Department of Labor (DOL) is also relevant to a discussion of federal efforts to address unauthorized employment. DOL, which is responsible for enforcing minimum wage, overtime pay, and related requirements, focuses a significant percentage of its enforcement resources on low-wage industries that employ large numbers of immigrant—and presumably large numbers of unauthorized—workers. DHS Enforcement Section 274A of the Immigration and Nationality Act (INA) prohibits employers from employing individuals who they know are not authorized to work. More specifically, the INA Section 274A provisions, sometimes referred to as employer sanctions, make it unlawful for an employer to knowingly hire, recruit or refer for a fee, or continue to employ an alien who is not authorized to be so employed. These provisions also make it unlawful for an employer to hire an individual for employment without examining documents to verify the new hire's identity and work eligibility, and completing and retaining verification forms, known as I-9 forms. These verification procedures, commonly referred to as the I-9 process or the I-9 requirements, are separate from the largely voluntary E-Verify electronic employment eligibility verification system, which is administered by DHS's U.S. Citizenship and Immigration Services (USCIS). Enforcement of the prohibitions on unauthorized employment in INA Section 274A—or worksite enforcement—has been the job of DHS's U.S. Immigration and Customs Enforcement (ICE) since 2003. Worksite enforcement is one component of ICE's responsibility to enforce federal immigration laws within the United States, known as interior enforcement. Employers violating the INA Section 274A prohibitions on unlawful employment may be subject to civil and/or criminal penalties. The federal government's approach to immigration-related worksite enforcement has changed over the years. In 1999, for example, the Immigration and Naturalization Service (INS) unveiled an interior enforcement strategy, which, as explained by an INS official at the time, gave priority in the area of worksite enforcement to two types of cases: (1) criminal employer cases, in which there was a pattern or practice of knowingly employing unauthorized workers, and (2) cases of employers who abused their workers and who violated multiple laws. In the aftermath of the September 11, 2001, terrorist attacks, interior enforcement priorities again shifted. Resources were redirected from traditional program areas, including worksite enforcement, to national security-related investigations, and the primary focus of worksite enforcement became removal of unauthorized workers from critical infrastructure facilities such as airports and military bases. Under the worksite enforcement guidance issued in 2009, homeland security remains a primary concern of ICE's worksite enforcement program. As described by ICE: "Investigations involving national security, public safety or those associated with our critical infrastructure and key resources sectors receive top priority." According to ICE, the agency also prioritizes criminally prosecuting employers who "utilize unauthorized workers as a business model," "mistreat their workers," or "engage in human smuggling or trafficking," among other violations. In recent years, ICE also has placed "increased emphasis on compliance and outreach" in conducting worksite enforcement. It has increased its use of inspections, or audits, of business owners' I-9 records (see above) to determine whether they are in compliance with employment eligibility verification laws and regulations. In addition, the agency promotes the ICE Mutual Agreement between Government and Employers (IMAGE) program as a way to reduce unauthorized employment. Penalties As discussed above, employers who violate INA prohibitions on the unlawful employment of aliens may be subject to civil and/or criminal penalties. Civil Penalties Under INA Section 274A, civil money penalties can be imposed for failing to comply with the I-9 employment verification requirements and for knowingly hiring, recruiting or referring for a fee, or continuing to employ an unauthorized alien. A person or entity determined to have violated the I-9 requirements may be subject to a fine of not less than $110 and not more than $1,100 for each individual with respect to whom a violation occurred after September 29, 1999. A person or entity found to have engaged in hiring, recruiting, referring, or employing violations may be subject to a cease and desist order and to fines, as follows: for a first offense, not less than $275 and not more than $2,200 for each unauthorized alien with respect to whom the offense occurred before March 27, 2008, and not less than $375 and not more than $3,200 for each unauthorized alien with respect to whom the offense occurred on or after March 27, 2008; for a second offense, not less than $2,200 and not more than $5,500 for each unauthorized alien with respect to whom the offense occurred before March 27, 2008, and not less than $3,200 and not more than $6,500 for each unauthorized alien with respect to whom the offense occurred on or after March 27, 2008; and for more than two offenses, not less than $3,300 and not more than $11,000 for each unauthorized alien with respect to whom the third or later offense occurred before March 27, 2008, and not less than $4,300 and not more than $16,000 for each unauthorized alien with respect to whom the third or subsequent offense occurred on or after March 27, 2008. If ICE believes that an employer has committed a civil violation, the agency may issue the employer a Notice of Intent to Fine (NIF). A NIF may result in a Final Order for civil money penalties, a settlement, or a dismissal. Criminal Penalties Under INA Section 274A, employers convicted of having engaged in a pattern or practice of knowingly hiring or continuing to employ unauthorized aliens may face criminal fines and/or imprisonment. They may be fined not more than $3,000 for each unauthorized alien with respect to whom the violation occurred and/or imprisoned for not more than six months for the entire pattern or practice. Criminal investigations may result in employers and other individuals being charged with crimes other than unlawful employment, such as document fraud or harboring unauthorized aliens, and being subject to the relevant penalties for those violations. Program Performance A variety of measures can be used to assess the performance of the DHS worksite enforcement program. Over the years, such assessments have been complicated by data reporting problems, the existence of conflicting data, and other issues. Unless otherwise noted, all data presented here were provided directly to the Congressional Research Service (CRS) by ICE. The paucity of comparable and/or reliable data for the pre-ICE worksite enforcement program, as indicated by ICE to CRS, however, limits the ability to place the recent performance data in historical context. Administrative Fines As discussed above, INA Section 274A establishes civil penalties for violations of the I-9 requirements and for unlawful employment. Table 1 provides annual data on Final Orders for civil money penalties (also known as civil or administrative fines) for FY1999 through FY2014. It shows that after increasing between FY1999 and FY2000, the number of Final Orders and associated administrative fines decreased from FY2000 to FY2004. In FY2006, both measures equaled "0." Since FY2006, both measures have posted gains. Table 1 reflects changes over the years in the use of administrative fines as an enforcement tool. As noted above, the new DHS worksite enforcement strategy makes increased use of civil fines. In written testimony for a 2009 House hearing, Marcy Forman, then director of the ICE Office of Investigations, discussed ICE's renewed focus on civil fines: In crafting our worksite enforcement strategy, ICE has restructured the worksite administrative fine process to build a more vigorous program. ICE has established and distributed to all field offices guidance about the issuance of administrative fines and standardized criteria for the imposition of such fines. We expect that the increased use of the administrative fines process will result in meaningful penalties for those who engage in the employment of unauthorized workers. Despite the increases in recent years, however, the number of Final Orders for civil money penalties remains very low relative to the number of U.S. employers. Employers receiving Final Orders in FY2014, as shown in Table 1 , represent less than .02% of U.S. employers. Administrative and Criminal Arrests Administrative and criminal arrests are other measures of worksite enforcement activity. Administrative arrests are for civil violations of the INA, such as being illegally present in the United States. Only a noncitizen can be the subject of an administrative arrest, which represents an initial step in the process of removing an alien from the United States. It seems reasonable to assume that most individuals arrested on administrative charges are non-managerial employees. Criminal arrests include arrests for illegal hiring as well as for identity theft, alien harboring, money laundering, and other criminal violations. Citizens and noncitizens alike can be the subject of criminal arrests, as can non-managerial employees, managerial employees, and employers. During each year from FY2003 to FY2008, as shown in Table 2 , the number of administrative and criminal arrests in worksite enforcement operations increased; some of the yearly changes, as from FY2005 to FY2006, were marked. In 2008 congressional testimony, then-DHS Secretary Michael Chertoff highlighted the number of administrative and criminal arrests in worksite enforcement operations in FY2007 as evidence of the progress being made by ICE on the worksite enforcement front. Between FY2008 and FY2009, as indicated in Table 2 , the number of individuals arrested on administrative and criminal charges plummeted. Since FY2011, there has been a steady decline in the number of both types of arrests. The reasons for the overall decreases in administrative and criminal arrests between FY2008 and FY2014 are unclear, but they may reflect, to some degree, ICE's stated renewed focus on employers. In his 2011 House testimony, then-ICE Deputy Director Kibble responded to concerns expressed by some Members of Congress about the diminished number of administrative arrests in worksite enforcement operations: The number of administrative arrests at worksites cannot, and should not, be considered in a vacuum. For the past two years, our worksite efforts have been part of a broader enforcement strategy that has seen the removal of more individuals from the United States than at any other time in the agency's history. ICE is apprehending, detaining, and removing an unprecedented number of individuals who are unlawfully present in the country—regardless of where they are apprehended. ICE worksite enforcement arrest statistics for FY2009 and FY2010 provided to CRS contain employment position titles for most individuals who were arrested on administrative or criminal charges. Of the 1,647 total worksite enforcement administrative arrests in FY2009, employment position information is available for 1,153 individuals. Non-managerial employees accounted for 1,112 of these 1,153 arrests (96%), while managerial employees with position titles that included owner, manager, and corporate official accounted for the remaining 41 arrests (4%). Of the 1,217 total administrative arrests in FY2010, employment position information is available for 897 individuals. Non-managerial employees accounted for 821 of these 897 arrests (92%), while managerial employees accounted for the remaining 76 arrests (8%). With respect to worksite enforcement criminal arrests, employment position information is available for 403 of the 444 individuals arrested on criminal charges in FY2009. These 403 individuals included 289 non-managerial employees (72%) and 114 managerial employees with position titles that included owner, manager, and corporate official (28%). Of the 448 individuals arrested on criminal charges in FY2010, employment position information is available for 385. Non-managerial employees accounted for 189 of these 385 arrests (49%), while managerial employees accounted for 196 criminal arrests (51%). Thus, while the number of overall criminal arrests in worksite enforcement operations was quite similar between FY2009 and FY2010, the number of managerial employees among the arrestees increased from 114 to 196. This increase, which is in line with ICE's stated focus in the worksite enforcement area on criminally investigating and prosecuting employers who knowingly employ unauthorized workers, follows a decline in criminal arrests among managerial employees between FY2008 and FY2009. The comparable number of managerial employee criminal arrests in FY2008 was 135, according to ICE. The representation of managerial employees among those criminally arrested varied in FY2012 and FY2013. For FY2012, as for FY2010, it seems that about half of the individuals criminally arrested in connection with worksite enforcement investigations were managerial employees. According to ICE, 240 of the 520 individuals arrested on criminal charges in FY2012 were owners, managers, supervisors, or human resources personnel. For FY2013, managerial employees accounted for about 40% of criminal arrests in connection with worksite enforcement investigations. ICE reports that 179 of the 452 individuals arrested on criminal charges in FY2013 were owners, managers, supervisors, or human resources personnel. Viewed more broadly, ICE administrative and criminal arrests in worksite enforcement operations represent a very small percentage of the potential population of violators. For example, Table 2 shows a high of 5,184 administrative arrests in worksite operations in FY2008. That year, according to the Pew Research Center, there were an estimated 8.3 million unauthorized aliens in the U.S. civilian labor force. With respect to criminal arrests, the potential population of employers and workers committing worksite-related criminal violations is not known. Criminal Prosecutions and Fines Table 3 provides data on criminal prosecutions related to worksite enforcement investigations for FY2005-FY2014. These data, which include employers and managerial and non-managerial employees, build on the criminal arrest data in Table 2 . As shown in Table 3 , the number of criminal indictments and criminal convictions rose steadily from FY2005 until FY2008. Both measures then fell markedly between FY2008 and FY2009 and have followed no consistent pattern since. It is difficult to draw direct conclusions from these data about the worksite enforcement program in any particular year. One reason for this is that there can be time lags between arrests, indictments, and convictions. Table 4 provides data on criminal fines and forfeitures related to worksite enforcement investigations that were imposed in FY2003-FY2014. ICE characterizes these data as follows: Criminal fines and forfeitures include fines imposed by a U.S. District Court as a result of a criminal conviction, seizures made by ICE and forfeited to the U.S. government, payments made to ICE in lieu of the seizure and forfeiture of real or personal property, and restitution payments made by an employer to their unauthorized alien employees as a result of labor law violations. As shown in Table 4 , worksite enforcement-related criminal fines and forfeitures have varied dramatically during the FY2003-FY2014 period, although they have remained well above the FY2003 level in all subsequent years. In light of the various types of fines and forfeitures (as indicated in the above description from ICE) and associated time lags, which presumably help explain the great annual variability, it may be that the total for any particular year is less significant than the fact that criminal fines and forfeitures were being pursued. In summary, the data presented here offer an available, but limited, means to examine the performance of ICE's worksite enforcement program. Some measures, namely Final Orders issued and administrative fines imposed, followed a downward trend after 2000 and then an upward trend after FY2006. Other measures, namely administrative arrests, criminal arrests, criminal indictments, and criminal convictions, registered increases from the initial years included here until FY2008, followed by significant decreases from FY2008 to FY2009. From FY2011 to FY2014, there was a steady decrease in both administrative and criminal arrests, while the yearly changes in criminal arrests and criminal indictments did not follow a consistent pattern. The FY2014 values for all four measures were below the FY2011 levels. The data on criminal fines and forfeitures imposed, the remaining measure, reveal no discernible pattern. More generally, the values of the various measures for the years shown seem quite small relative to the estimated size of the unauthorized workforce. DOL Enforcement While the authority to enforce the INA employer sanctions provisions rests with DHS, INA Section 274A does grant DOL the authority to review I-9 verification forms (see above). Under INA Section 274A(b)(3), employers must make completed I-9 forms available to DOL officers for inspection. DOL has separate authority to enforce federal labor laws, including the Fair Labor Standards Act (FLSA), which establishes minimum wage, overtime pay, youth employment, and other standards. The Wage and Hour Division (WHD) of the DOL Employment Standards Administration (ESA) administers and enforces the FLSA with respect to private sector workers, state and local government employees, and certain federal employees. Historically, DOL officials have been cautious about delving into questions of work authorization in their labor standards investigations because of concerns that it "might impede their ability to gain the trust of illegal aliens who may be the victims of labor violations and potential witnesses against employers." DOL and DHS signed a memorandum of understanding (MOU) on worksite enforcement in March 2011 that delineates the enforcement roles of each agency and the ways in which they will work together to further their respective missions. The MOU summarizes the importance of enforcing worksite-related labor and immigration laws, as follows: Effective enforcement of labor law is essential to ensure proper wages and working conditions for all covered workers regardless of immigration status. Effective enforcement of immigration law is essential to protect the employment rights of lawful U.S. workers, whether citizen or non-citizen, and to reduce the incentive for illegal migration to the United States. The MOU seeks to avoid conflicts in the worksite enforcement activities of DOL and DHS. As part of the MOU, ICE agrees not to conduct civil worksite enforcement activities at a worksite that is the subject of an existing DOL investigation of a labor dispute, except as specified. A labor dispute is defined in the MOU as a dispute between employees and managers/owners over employee rights, including the right to be paid the minimum wage, a promised or contracted wage, or overtime; the right to work in a safe workplace; and the right not to be subject to unlawful discrimination. Under the MOU, ICE can conduct worksite enforcement activities during a pending labor dispute in certain circumstances, such as when the Director of ICE determines that the enforcement activity is independently necessary to further an investigation concerning national security, the protection of critical infrastructure, or other federal crimes. ICE and DOL also agree as part of the MOU to work together to prevent manipulation of the enforcement process. To this end, ICE agrees to act to "thwart attempts by other parties to manipulate its worksite enforcement activities for illicit or improper purposes." DOL agrees to assist ICE in these efforts by sharing relevant information. Compliance Activities in Low-Wage Industries While DOL's direct role in immigration-related worksite enforcement is quite limited, some maintain that the agency helps reduce unauthorized employment indirectly through its enforcement of labor laws. This argument is premised on the belief that many employers who employ unauthorized aliens also violate labor laws. A 2007 paper by Georgetown University's Institute for the Study of International Migration (ISIM) notes that employers have different propensities to hire unauthorized workers, and describes a category of employers that "knowingly hire[s] unauthorized workers to exploit their labor." According to the paper, "such employers may pay salaries in cash, failing to pay their share of social security taxes; and they may seek unauthorized workers because they are less likely to complain about ill treatment." Thus, with respect to unauthorized employment, enforcement of minimum wage, overtime, and other statutory requirements may serve as a means of reducing the economic incentives to hire unauthorized workers and thus result in decreased demand for these workers. Some other observers, such as former WHD Administrator Maria Echaveste, however, point out the limitations of using labor law enforcement to address unauthorized employment. They argue that many employers who hire unauthorized immigrants do not violate wage and hour laws. According to Echaveste: I know firsthand that many employers who comply with other labor standards still hire the undocumented. Many businesses pay the minimum wage and have barely tolerable working conditions because there are sufficient undocumented workers willing to accept those terms. If we care about low-income workers in this country, we need to create pressure to improve their economic condition by reducing the supply of unauthorized workers. To the extent that some employers of unauthorized aliens violate labor standards, WHD's compliance activities in low-wage industries may be particularly relevant to efforts to reduce unauthorized employment, as these industries may employ significant numbers of unauthorized aliens. Table 5 provides data on WHD investigations in nine low-wage industries in FY2014. That year, as indicated in Table 5 , WHD collected $79.1 million in back wages for FLSA overtime and minimum wage violations for about 109,000 workers. Top industries in terms of both the amount in back wages collected and the number of employees receiving back wages were restaurants and health care. Table 6 provides data on low-wage industry cases and back wage collections for FLSA overtime and minimum wage violations for FY2003-FY2014. As shown in Table 6 , the number of cases in low-wage industries generally decreased between FY2003 and FY2010 and then increased, reaching a high point in FY2013. This was followed by a drop between FY2013 and FY2014 that put the number of cases in FY2014 below the FY2003 level. Back wage collections and the number of employees receiving back wages registered greater overall increases than did the number of cases between FY2003 and FY2012, when both back wage measures reached high points. Despite subsequent decreases in both measures, the FY2013 and FY2014 values for both back wage collections and the number of employees receiving back wages were well above the FY2003 levels. More generally, though, when considered in the larger context of the potential number of employers in these low-wage industries that may be violating FLSA requirements with respect to unauthorized workers, or workers generally, the numbers in Table 5 and Table 6 , as in the ICE data tables, are relatively small. Conclusion The data provided here on Final Orders, administrative fines, administrative and criminal arrests, criminal indictments and prosecutions, and criminal fines offer a way to assess DHS's worksite enforcement strategy over the years and in its current form. More broadly, it can be argued that the ultimate test for any approach to worksite enforcement by DHS or DOL is whether it helps reduce the size of the unauthorized labor force in the United States.

Under current Department of Homeland Security (DHS) guidance on immigration-related worksite enforcement, the agency uses available civil and administrative tools, including civil fines and debarment, to penalize and prevent unlawful employment. According to 2012 estimates, there are some 8.1 million unauthorized workers in the U.S. civilian labor force. DHS's U.S. Immigration and Customs Enforcement (ICE) is responsible for immigration-related worksite enforcement, or enforcement of the prohibitions on unauthorized employment in Section 274A of the Immigration and Nationality Act (INA). The INA Section 274A provisions, sometimes referred to as employer sanctions, make it unlawful for an employer to knowingly hire, recruit or refer for a fee, or continue to employ an alien who is not authorized to be so employed. Today, ICE's worksite enforcement program is focused primarily on cases that involve critical infrastructure facilities and cases involving employers who commit "egregious" violations of criminal statutes and engage in worker exploitation. Employers who violate INA prohibitions on the unlawful employment of aliens may be subject to civil monetary penalties and/or criminal penalties. Criminal investigations may result in defendants being charged with crimes beyond unlawful employment and being subject to the relevant penalties for those violations. Various measures are available to examine the performance of ICE's worksite enforcement program. They include Final Orders for civil monetary penalties, administrative fines, administrative arrests, criminal arrests, criminal indictments, criminal convictions, and criminal fines and forfeitures. In addition to examining annual changes and trends in the various performance measure data, these data can be considered in relation to the estimated size of the unauthorized workforce or the potential number of employers employing these workers. When considered in this context, ICE's worksite enforcement program can seem quite limited. Enforcement activity by the Department of Labor (DOL) is also relevant to a discussion of federal efforts to curtail unauthorized employment. DOL, which is responsible for enforcing minimum wage, overtime pay, and related requirements, focuses a significant percentage of its enforcement resources on low-wage industries that employ large numbers of immigrant—and presumably large numbers of unauthorized—workers.

Background Food fraud, or the act of defrauding buyers of food and food ingredients for economic gain—whether they be consumers or food manufacturers, retailers, and importers—has vexed the food industry throughout history. Some of the earliest reported cases of food fraud, dating back thousands of years, involved olive oil, wine, spices, and tea. These same products continue to be associated with fraud, along with a range of other products. Overall, foods and food ingredients commonly associated with food fraud include olive oil, fish, honey, milk and dairy products, meat products, grain-based foods, fruit juices, wine and alcoholic beverages, organic foods, spices, coffee, and tea, and some highly processed foods. It is not known conclusively how widespread food fraud is in the United States or worldwide. In part, this is because those who commit fraud do not intend to cause physical harm and want to avoid detection. Most incidents go undetected since they usually do not result in a food safety risk and consumers often do not notice a quality problem. Moreover, as the motivation to commit fraud is illicit monetary gain, the type of food that might be or become adulterated is a secondary consideration (i.e., it could be any type of food or food ingredient); rather, it is the opportunity or feasibility of committing fraud that generally triggers the fraud. Although the vast majority of food fraud incidents do not pose a public health risk, there have been fraud cases that have resulted in actual or potential public health risks. Perhaps the most widely cited, high-profile cases have involved the addition of melamine to high-protein feed and milk-based products to artificially inflate protein values in products that may have been diluted. For example, in 2007, evidence emerged that adulterated pet food ingredients from China had caused the deaths of a large number of dogs and cats in the United States. This was followed by reports that melamine-contaminated baby formula had sickened an estimated 300,000 Chinese children, killing a reported 6 infants. Evidence now suggests that safety risks associated with melamine-tainted feed date back to 2003, and that melamine was first reported to be added to artificially increase protein content in feed as far back as 1982. Reports also indicate fish and seafood fraud may be widespread in some markets, consisting mostly of the mislabeling or substitution of a higher-valued species with something different from and inferior to the expected species, possibly with a fish species which could be associated with some types of food poisoning or exposure to certain allergens. Similarly, substitution of olive oil with other types of seed, legume, or nut oils could have unintended consequences, if consumed by those with certain food allergies. Some cases might not initially appear to involve intentional adulteration, except on closer examination. Charges of fraud were part of the federal criminal indictment charging former officials of the Peanut Corporation of America with numerous offenses in connection with the Salmonella outbreak in 2009—which killed 9 people and sickened 700—since company officials were found to have sold and distributed product known to be contaminated. That case resulted in one of the largest product recalls in U.S. history, including 3,912 products that contain peanut butter and peanut paste ingredients, such as cookies, crackers, cereal, candy, ice cream, pet treats, and other foods, which were manufactured by more than 200 companies. Risks from other types of fraudulent foods are not as well-documented and may be less immediate or may never be known. Generally, only those who have knowledge of the fraud are those who commit the fraud. In some cases, independent tests might uncover fraud. For example, FDA testing upon import has documented the presence of unapproved chemicals in honey, which have triggered import alerts. Reports indicate that honey from China may contain certain unapproved antibiotics or other agricultural chemicals. Reports also indicate that some fruit juices may be made from or diluted with juice from rotten fruit and may contain toxic mold. In recent years, fraud involving the addition of certain food processing aids (known as "clouding agents") has raised concern given the potential public health risks and reportedly increased use in certain highly processed foods. Some fraud cases might only be uncovered following an investigation in the wake of a public health event, such as when pet food adulterated with melamine caused the deaths of dogs and cats in the United States. Some fraud cases, however, might never be discovered even though they could contribute to chronic long-term health consequences. Other food fraud concerns might not result in a public health or food safety crisis, but instead deprive the food buyer of the product they think they are getting. Most food fraud cases involve the substitution of a high-value product with a less expensive or lower quality alternative. Such cases include cheaper products mislabeled as extra virgin olive oil from Italy, wild Alaskan salmon, caviar, and pomegranate juice or juices from other "super" fruit. In another example, in Europe in early 2013, it was reported that products labeled as containing beef were found to actually contain 80%-100% horsemeat, which the meat supplier had knowingly failed to report to local authorities. Although the horsemeat incident ultimately did not result in public health consequences, initial concerns about potential health risks due to, for example, phenylbutazone resulted in a substantial expenditure of public resources over the course of the investigation. Such cases also erode consumer confidence and may cause other concerns for a variety of societal or cultural reasons. The Grocery Manufacturers Association (GMA) estimates that fraud may cost the global food industry between $10 billion and $15 billion per year, affecting approximately 10% of all commercially sold food products. However, most researchers acknowledge that the full scale of food fraud "may be unknown or even possibly unknowable" even though the number of documented incidents is "most likely a fraction of the true number of incidents, since the goal of adulteration for economic gain is not to be detected." Compared to the trillions of dollars spent on food and food ingredients globally each year, however, "the prevalence of food fraud is ultimately very low." Fraud resulting in a food safety or public health risk event, however, could have significant financial or public relations consequences for a food industry or company. GMA estimates that fraud costs food businesses in terms of lost sales, estimated between 2% and 15% of annual revenues, as well as possible bankruptcies if adverse public health consequences occur. The text box on the next page describes some of the types of foods and food ingredients associated with fraud based on available research and information. Addressing food fraud concerns has become exceedingly complicated by rising U.S. imports and increased globalization of the world's food and agricultural supplies. Increasingly, multiple product ingredients and inputs are sourced from a range of countries, both in terms of individually sourced products and ingredients between individual food companies/importers as well as in terms of internally sourced products from foreign-owned entities within a larger multinational company (such as global sourcing between parent and subsidiary). It is difficult to detect and trace not only the source of unintentional contamination and related food safety concerns, but it is often more difficult to detect and trace-back instances of intentional product fraud, especially in highly processed foods with multiple ingredients and inputs from multiple suppliers. This report provides an overview of issues pertaining to food fraud and "economically motivated adulteration" or EMA, a category within food fraud. First, the report provides general background information on food fraud and EMA, including how it is defined and the types of fraud, as well as how food fraud fits into the broader policy realm of food safety, food defense, and food quality. Second, the report provides available information about foods and ingredients with reported cases of fraud from two databases: (1) the United States Pharmacopeial Convention (USP) Food Fraud Database and (2) the National Center for Food Protection and Defense (NCFPD) EMA Incident Database. Finally, the report describes previous and ongoing federal and congressional actions to address food fraud. Existing Definitions There is no statutory definition of food fraud or "economically motivated adulteration" or EMA of foods or food ingredients, which is generally considered a subset of food fraud. However, the U.S. Food and Drug Administration (FDA) adopted a "working definition" for an April 2009 public meeting to raise awareness and solicit public input regarding economically motivated adulteration of FDA-regulated products. For the purposes of the workshop, FDA defined "economically motivated adulteration" as the: fraudulent, intentional substitution or addition of a substance in a product for the purpose of increasing the apparent value of the product or reducing the cost of its production, i.e., for economic gain. EMA includes dilution of products with increased quantities of an already-present substance (e.g., increasing inactive ingredients of a drug with a resulting reduction in strength of the finished product, or watering down of juice) to the extent that such dilution poses a known or possible health risk to consumers, as well as the addition or substitution of substances in order to mask dilution. Other countries generally also do not have established legal definitions of food fraud. A recent European Union (EU) report on food fraud states the EU laws do not provide for a "generally acknowledged definition of food fraud" despite an extensive legislative framework focused on food safety. The only general guideline is found in EU regulations requiring that food labeling, advertising, presentation, and packaging "shall not mislead consumers." However, these requirements reportedly vary among EU member states and food fraud in Europe remains largely undetected, similar to that in the United States. The United Kingdom's Food Standards Agency (FSA) describes "food fraud" as the deliberate placement on the market, for financial gain, with the intention of deceiving the consumer, covering two main types of fraud. These include the sale of food which is unfit and potentially harmful as well as the deliberate misdescription of food, such as products substituted with a cheaper alternative. Researchers and industry groups actively working in this area have myriad definitions of food fraud and EMA. Broadly speaking, food fraud is a type of product fraud. According to food safety researchers at Michigan State University's (MSU's) Food Fraud Initiative: Food fraud is a collective term used to encompass the deliberate and intentional substitution, addition, tampering, or misrepresentation of food, food ingredients, or food packaging; or false or misleading statements made about a product for economic gain. The United States Pharmacopeial Convention (USP) states: Food fraud in the context of food ingredients refers to the fraudulent addition of non-authentic substances or removal or replacement of authentic substances without the purchaser's knowledge for economic gain of the seller. It is also referred to as economic adulteration, economically motivated adulteration, intentional adulteration, or food counterfeiting. In this context, "adulterant" is defined as "the undesirable substance" or "fraudulently added material" in a fraudulent food or food ingredient. In the case of food fraud, the adulterants used often are unconventional and designed to avoid detection through routine inspection. According to researchers at the National Center for Food Protection and Defense (NCFPD) at the University of Minnesota: Economically motivated adulteration (EMA) is the intentional sale of substandard food or food products for the purpose of economic gain. Common types of EMA include intentional substitution of an authentic ingredient with a cheaper product, dilution with water or other substances, flavor or color enhancement using illicit or unapproved substances, and substitution of one species with another. The Grocery Manufacturers Association (GMA) provides the following definitions of "economic adulteration" as part of its report on consumer product fraud in the food, beverage, and consumer product industry: Economic adulteration is defined as the intentional fraudulent modification of a finished product or ingredient for economic gain through the following methods: unapproved enhancements, dilution with a lesser-value ingredient, concealment of damage or contamination, mislabeling of a product or ingredient, substitution of a lesser-value ingredient or failing to disclose required product information. These definitions broadly reference three types of fraud, as defined by USP and other university researchers, namely: complete or partial replacement of a food ingredient or valuable authentic constituent with a less expensive substitute (or alternative animal species in the case of some meat and fish); addition of small amounts of a non-authentic substance to mask inferior quality ingredient (or excess packing ingredients, including water and ice); and removal or intentional omission of an authentic and valuable constituent in a food product or food ingredient. Also included are false claims and non-declarations based either on geographic, species, botanical, varietal origin, and production processes in order to provide economic benefit through the substitution of a particular food or food ingredient with a lower priced or a lower quality ingredient. Fraud may also be motivated in cases where a particular food or food ingredient is in short supply, triggering the motivation to substitute one input for another. In other cases false declarations of origin are intended to evade taxes and tariffs in importing countries. Food fraud also includes smuggling, tampering, and stolen goods. The text box on the next page provides more detailed information. Risks to Food Protection Figure 1 provides a matrix of food protection risk and illustrates how food fraud fits into the broader policy realm of food safety, food defense, and food quality. Although these concepts may not always fit neatly into these categories and there may be overlap across these categories, this matrix provides a useful, and widely cited, framework for differentiating among these food protection areas. In general, food fraud and food defense (agro-terrorism) are both intentional. Food fraud is always economically motivated. Motivation in the case of food defense includes the intention to inflict public harm or threaten consumers, and is considered to be food fraud. Food fraud usually is perpetrated by actors normally involved in the food chain that have regular access to the food product (e.g., manufacturers or distributors). Problems with food defense usually are perpetrated by outsiders, including terrorists, who do not normally have access to the food product. NCFPD reports that most incidents of food fraud generally do not result in public health harm; however, sometimes perpetrators of food fraud "make mistakes and unintended health consequences result." Table 1 contrasts the different types of food-related risks, and provides examples, causes and motivations, primary and secondary effects, and also types of public health risks. In contrast, problems with food safety and food quality are unintentional. Both food quality and food safety incidents may result in an economic impact to a particular food or food ingredient industry, for example, due to reduced purchases or brand equity, but also from product recalls, process controls, and liability in the case of food safety. Food safety concerns can also cause a threat to public health and create public fear. Adulteration will cause a loss of the consumer's trust in the food supply chain, and a loss in trust among regulators, industry, and U.S. trading partners, and may result in market and trade disruptions. Unintentional adulteration involving food quality concerns might also occur due to environmental factors, and packaging, storage, and distribution issues, among other factors. Available Data and Information Repositories Review of Available Database Information Efforts are ongoing to compile and capture current and historical data on food fraud and EMA incidents through the creation of databases and repositories. Although the information in these databases is not comprehensive and may contain certain limitations, it does represent the best information available and provides a first step to understand the scope and scale of food fraud as a way to further detect, combat, and prevent future fraud. The information contained in these databases is from the University of Minnesota as well as the United States Pharmacopeial Convention (USP), a long-standing scientific nonprofit organization. In addition, researchers from Michigan State University conducted further analysis of the USP databases, along with USP researchers. These databases provide a relatively new resource to examine food fraud incidents, and were first published starting in 2012 and 2013. Since then, information from these databases has been published in peer reviewed journal articles and presented at professional conferences by both academic researchers and industry leaders. Nevertheless, because there is no single comprehensive surveillance system to detect food fraud in the United States or worldwide, it is not possible to know what portion of food fraud incidents may be captured by these databases, and whether or not the information in these databases represents the universe of potential food fraud incidents. Information in these databases also has been widely cited by academic researchers, government officials, and the media to rank the leading foods and food ingredients that are most often associated with fraud. For example, information in the USP Food Fraud Database was used by the European Parliament to help identify the leading fraudulent foods, as part of its recent draft report calling for increased oversight of food fraud. NDFPD's database, and preliminary analysis of information obtained from USP's database, was originally funded by the U.S. Government through funding from the Department of Homeland Security (DHS), FDA, and the U.S. Department of Agriculture (USDA), as well as funding from the private sector. USP's database and related activities are self-funded and provided in accordance with USP's mission to support public health, and are not supported by funding from any outside agency. The two available databases are: 1. United States Pharmacopeial Convention (USP) Food Fraud Database, and 2. National Center for Food Protection and Defense (NCFPD) EMA Incident Database. USP's database is open and publicly accessible; NCFPD's databases are accessible upon request. Information in these databases is from available scholarly journal articles and industry analyses and lab tests (where available), as well as media reports, about foods and food ingredients that are vulnerable to fraudulent manipulation. These records are based on English-language scholarly and/or media sources. Both databases are largely global in scope and broadly represent fraud in foods and food ingredients sold commercially worldwide. Undoubtedly the information in these databases does not capture all cases of food fraud and EMA, or incidents that may occur in small-scale markets or on a non-commercial scale or incidents that may or may not be reported in various non-English speaking information outlets. Since those who commit fraud actively seek to avoid detection, some food fraud and EMA cases might not be captured in either database. In fact, in some cases, records in the database may be more reflective of where research is being conducted or where resources have been dedicated in a concerted effort to root out fraud, rather than provide an exhaustive accounting of all fraud cases. Differences between these two databases, including how they were compiled and the type of records they reference, among other things, may result in differences in how different foods and food ingredients may be ranked in terms of their susceptibility to food fraud and EMA. These databases do not address fraud involving "dietary supplements." Dietary supplements are a special category of food that includes finished products (e.g., a vitamin D tablet) that contain one or more "dietary ingredients" or are components of those finished products (e.g., vitamin D added to a food product such as breakfast cereal). Like food fraud, fraud involving dietary supplements is a type of product fraud with documented concerns involving public health risks. Additional research in this area is currently being considered, including development of a database of reported cases of dietary supplement fraud. USP Food Fraud Database The United States Pharmacopeial Convention (USP) Food Fraud Database is a public database that catalogues available analytical methods to detect and identify problematic food ingredients, which in turn provides a repository for ingredient fraud reports. The database is comprised of both "scholarly" and "media" reports from available food science scholarly sources (and undocumented industry analyses, where available) and mainstream English-language media. The database is not an "incidents" database where individual records have been further grouped by source and time period, but instead it catalogues reports involving detection methods and analyses of food fraud incidents. As a result, information in the database may be more representative of foods that are the most researched, and not necessarily foods that are the most adulterated. The USP database is organized by food ingredient categories and identifies the type of adulterant reported for each documented record and broadly classifies each record by the type of fraud (e.g., addition, replacement, removal), but does not provide other information such as where the product was originally produced. The initial version of the database was published in 2012 in the USP's 8 th Edition of the Food Chemicals Codex and was accompanied by initial analyses of the database records published in the April 2012 issue of the Journal of Food Science , with the support of researchers at the MSU's Food Fraud Initiative. Initial funding for MSU's contribution to the manuscript was provided by the National Center for Food Protection and Defense (NCFPD) through DHS, with other funding from FDA and USDA. The USP database was updated in 2013 and now covers the period from 1980 through 2012, and contains nearly 2,100 records. NCFPD EMA Incident Database The National Center for Food Protection and Defense (NCFPD) EMA Incident Database is another database, which differs in that it catalogs isolated EMA incidents and is available to authorized users upon request. (NCFPD is a University of Minnesota-led consortium and has been a Homeland Security Center of Excellence since July 2004.) As part of the database, an "incident" is defined as: a documented, isolated occurrence of EMA in a single food product or group of associated food products occurring within a defined time frame and with a distinct group of perpetrators. Incidents that are difficult to isolate to a specific time frame and/or group of perpetrators, or with characteristics common to multiple perpetrators, are entered as a single incident. For example, the melamine adulteration of infant formula in China in 2007-2008 is recorded as one incident. Individual records therefore have been further grouped by adulterant (e.g., melamine) and time period when the incident is estimated to have occurred. The database records also do not include information on issues that might be of concern but that remain undocumented in the public domain. The database tracks EMA incidents in food products since 1980. There were 1,054 records in the database in mid-2012, covering 302 incidents. The EMA Incident Database identifies the type of adulterant reported for each documented incident and classifies each by the type of adulteration (including substitution/dilution, unapproved additives, mislabeling, transshipment/origin masking, and port shopping), and also provides information on where the product was originally produced based on an examination of the available information. Initial analyses of the EMA Incidents Database records were published in the April 2013 issue of the Journal of Food Protection . The database and related work to develop predictive models and case studies are intended to help characterize discrete EMA incidents to better understand the incentive behind the adulteration, including the adulterant used, how the adulteration was discovered, and how to detect and deter future incidents and protect the U.S. food supply from deliberate or intentional acts of contamination or tampering. In addition to the EMA Incidents Database, NCFPD is also developing an EMA Susceptibility Database that includes evaluations of the monographs in the USP Food Chemicals Codex for susceptibility to EMA. NCFPD is also working with DHS on other projects, including development of an assessment tool to determine and document the most critical food and agriculture infrastructure at the state level. Leading Reported Types of Fraud These available databases provide information on the types of foods and food ingredients associated with food fraud. How these products and ingredients are ranked, however, may differ considerably among various reports. Specifically, overall product rankings of the leading reported fraudulent foods and food ingredients may differ depending on: database referenced (i.e., whether USP or NCFPD database); source or type of records referenced (i.e., in the USP database, ranking differs based on whether compiled from the "scholarly" or "media" or total records; in the NCFPD database, ranking is based on number of "incidents"); time period (1980 through 2010 or 1980 through 2012); and organization compiling the data (i.e., whether conducted by USP or NCFPD, or whether conducted by an outside organization using data from one of the databases). USP Food Fraud Database The initial version of the United States Pharmacopeial Convention (USP) Food Fraud database published in 2012 covered both "scholarly" and "media" records from 1980 through 2010, and was accompanied with analysis conducted by researchers at MSU and USP. This first version of the database consisted of a total of 1,305 records covering 361 discrete food ingredients that were based on 660 references ( Table 2 ). Records in the USP database indicate that the leading reported types of fraud by specific ingredient among the database's scholarly records (1980-2010) were olive oil (16%), milk (14%), honey (7%), saffron (5%), orange juice (4%), coffee (3%), and apple juice (2%). Figure 2 provides a consolidated breakdown by major food ingredient category. By major food ingredient, oils (24%), milk (14%), and spices (11%) account for nearly 50% of all reported cases. Records in the USP database indicate that the leading reported types of fraud by specific ingredient among the database's media records (1980-2010) were fish (9%), honey (6%), olive oil (4%), chili powder (4%), milk (3%), black pepper (3%), and caviar (2%). Figure 3 provides a consolidated breakdown by major food ingredient category whereby natural flavoring complexes (30%) and spices (19%) account for nearly 50% of all reported cases. The 2013 updates to the USP Food Fraud Database added another 792 records from 264 additional references to the database, consisting mostly of new information published in 2011 and 2012. This raised the total number to 2,097 records, based on 924 references ( Table 2 ). Figure 4 provides a breakdown by major food ingredient category, according to the databases' scholarly records following the 2013 database updates. By individual food and food ingredients, the leading reported types of fraudulent foods were olive oil, milk, saffron, honey, coffee, tea, fish, clouding agents, and black pepper. Among the new reports examined, many of the most-represented products in the database were all among the top fraudulent products reported in the initial version of the database (such as milk, fish, turmeric, chili powder, and cooking oil); however, many products were not among the top products, such as shrimp, lemon juice, maple syrup, and clouding agents. The 2013 updates to the USP database highlight a number of continuing and emerging issues. As reported by USP, among the leading reported types of fraud in the updated 2013 database are "watered-down and urea adulterated fluid milk in India, dilution of milk powder with fillers such as maltodextrin in South America and replacement of milk fat with vegetable oil in South America," as well as "olive oil replaced with other, less-expensive vegetable oils," and so-called "gutter oil" (waste oil repurposed as cooking oil) was documented in China. The updated USP database also documents examples of the dilution or replacement of spices with less-expensive spices or fillers. The updated USP database also highlighted increasing reports of seafood fraud, reflecting previous reports by Oceana and Consumers Union. Of particular concern is mislabeled fish sold in the marketplace that may cause known public health risks. These include the fish escolar ( Lepidocybium flavobrunneum ), often labeled as white tuna or butterfish, which is banned in some countries due to concerns that its high content of waxy esters may cause some types of food poisoning including gempylotoxism. Another is puffer fish ( Lagocephalus scleratus ), often mislabeled as monkfish to evade import and other restrictions, and which is known to cause tetrodotoxin poisonings. The updated USP database also highlighted emerging concerns about food fraud involving "clouding agents." Specifically, the USP database documents cases involving the fraudulent addition of the plasticizer Di(2-ethylhexyl) phthalate (DEHP) and other related phthalates as a substitute for more expensive palm oil or other allowed food ingredients in fruit juices, jams, and other products. DEHP might also be used in food contact materials, such as seals and packaging. DEHP is associated with public health risks, including cancer and reproductive concerns. The scope of the fraud involving clouding agents covers 877 food products from 315 companies, with 206 products exported to a reported 22 countries. Given the potential public health concerns, USP states that clouding agents might be considered the "2011 equivalent to the melamine scandal involving Chinese milk products from a few years ago." NCFPD EMA Incident Database As of November 2013, about 300 "incidents" since 1980 are accessible in the National Center for Food Protection and Defense (NCFPD) EMA Incident Database. Previous analyses of the incidents in the database were based on 137 incidents. CRS analysis presented here is based on information from 302 incidents accessed in the EMA Incident Database, as well as other updated databases information from NCFPD. As already noted, an incident is "a documented, isolated occurrence of EMA in a single food product or group of associated food products occurring within a defined time frame and with a distinct group of perpetrators." Figure 5 provides a breakdown of EMA incidents by major food ingredient category, according to the database. By individual food and food ingredients, the leading reported types of fraudulent foods were (1980 to date) fish and seafood (31%), oils and fats (11%), alcoholic beverages (8%), meat and meat products (7%), dairy products (6%), and about 5% each for grains and grain products, and honey and other natural sweeteners. Figure 6 provides a breakdown of EMA incidents by type of adulteration, as reported in the database. Cases of EMA due to substitution or dilution accounted for 65% of the incidents, followed by 13% due to the presence of an unapproved additive. Other incidents are attributable to counterfeit goods (9%), misbranding (7%), transshipment or masking origin of product (5%), and the intentional distribution of a potentially hazardous substance (less than 1%), among other miscellaneous or unknown types of adulteration (less than 1%). Figure 7 provides a breakdown of EMA incidents by location where the product is identified as being produced, as reported in the database. Among its data, the EMA Incident Database documents where the fraudulent product was originally produced based on an examination of the available information. Although the database is not restricted to conditions in the United States and is broadly reflective of fraud globally, the incidents captured in the database are based on English-language sources and may not be representative of conditions across all global commercial markets. In addition, information in the database by location produced may mask substantial differences among countries and regions (both globally and within a particular country) in terms of their ability and dedication to detect fraud. No two countries or regions scrutinize food fraud in the same way. For example, as noted by researchers at NCFPD, the relatively greater number of reported fish and seafood cases is, in part, attributable to enhanced surveillance and detection by Florida's Department of Health. This further reinforces the idea that a possible limitation of either database is that the available information may at times be more reflective of where research is being conducted or where resources have been dedicated to detect fraud. Despite these caveats, the EMA Incidents Database indicates that nearly 30% of the EMA incidents documented involved products that were produced in the United States. Most of these were incidents involving mislabeled fish. China and India accounted for another 14% and 13%, respectively, of the documented EMA incidents. Other countries in Asia accounted for another 5% of the incidents. Combined, the European Union countries accounted for about 15% of the documented incidents, along with another 3% attributable to other non-EU European countries. About 7% of the incidents were reported to have been produced in the Middle East and Africa ( Figure 7 ). Differences in Product Ranking among Databases Reported rankings of foods and food ingredients associated with food fraud based on the USP Food Fraud Database and the NCFPD EMA Incident Database often differ. As illustrated above, how these fraudulent foods and food ingredients are ranked will differ depending on which database is referenced (i.e., whether USP or NCFPD database) and which type of record is referenced (i.e., whether based on "scholarly" or "media" or EMA "incidents"), and time period. Rankings also differ within a database. For example, as reported in the 2013 food fraud report by the European Parliament, the "top ten products that are most at risk of food fraud" using data in the initial USP database (1980-2010) are identified (in descending order) as olive oil; fish; organic foods; milk; grains; honey and maple syrup; coffee and tea; spices (such as saffron and chili powder); wine; and certain fruit juices. Comparisons, shown in Table 3 , are intended to illustrate why different reports provide differing rankings of foods associated with fraud. The prominence of "organic foods" in the European study may be explained by the decision to distinguish organically certified products separately from all reported foods categorized by food ingredient category (which include both organic and conventionally produced foods and food ingredients). The overall prominence of "fish" in the European study may also be explained in that products may have been ranked across all records and not separated according to "scholarly" versus "media" records. Although these compilations were derived from the same database, this example illustrates why some reported compilations differ from others. Federal Activities Involving Food Fraud In the United States, no single federal agency and no single U.S. law or statute directly addresses food fraud or "economically motivated adulteration" of food and food ingredients. Instead, food fraud and intentional adulteration of food is broadly addressed through food safety authorities and border protection and import authorities and activities. Accordingly, FDA and USDA are the principle federal agencies that are working to protect the food supply from food safety risks, including both unintentionally and intentionally introduced contamination, in conjunction with enforcement of FDA and USDA laws by the U.S. Department of Homeland Security (DHS) as part of its border inspections. FDA and USDA are the leading food safety regulatory authorities. FDA, an agency of the Department of Health and Human Services (HHS), is responsible for ensuring the safety of all domestic and imported food products (except for most meats and poultry). USDA's Food Safety and Inspection Service (FSIS) regulates most meat and poultry and some egg products. However, the boundaries between the two agencies' jurisdictions are complex and often at odds with commonplace distinctions among food groups. The laws that grant these and other federal agencies authority over foods and food ingredients also provide these agencies with the authority to govern the labeling of these products, which might also act as a further deterrent to food fraud in some cases. Other federal agencies also provide product quality standards and grading, including FDA, USDA's Agricultural Marketing Service (AMS), and the National Marine Fisheries Service (NMFS), which is part of the U.S. Department of Commerce's National Oceanic and Atmospheric Administration (NOAA). State and local food safety authorities assist the federal agencies with inspection, outbreak response, and other food safety functions, among other functions. Import security measures by FDA and USDA are conducted in conjunction with border inspections by the Customs and Border Protection (CBP), which is part of DHS. Other agencies also have played a role in food fraud prevention. The U.S. Department of Justice (DOJ) has actively pursued a number of food fraud cases in the U.S. courts involving a range of products and resulting in criminal convictions in some cases. In the high-profile case involving the Peanut Corporation of America, company executives were indicted in early 2013 with federal criminal charges that included fraud, conspiracy, and the introduction of adulterated food into interstate commerce with the intent to defraud or mislead. USDA's National Organic Program (NOP) has taken numerous enforcement actions against companies involving false labeling claims on organic foods, and a number of advocacy groups have filed lawsuits involving concerns about the validity of organic claims. NOAA also has conducted federal investigations and taken enforcement actions involving seafood labeling and misbranding. The text box below provides a comparison of FDA and USDA responsibilities for food safety and regulations, and responsibilities of other federal agencies. The federal government also has helped fund some of the ongoing research. These efforts were developed with the support of funding from DHS, FDA, and USDA. In addition, FDA is developing a number of tools and guidance materials for the food industry to address intentional adulteration as part of its food defense strategy. The U.S. Government Accountability Office (GAO) has conducted a series of investigations into food fraud cases, including fruit juice and seafood. GAO's most recent report addressed a wider range of fraudulent foods and issued more broad-based recommendations. GAO's recommendations involving food fraud addressed the need for improved cross-agency communication and coordination and enhanced information sharing and transparency. Other recommendations called for the creation of an information clearinghouse and the need for increased oversight and inspections, and increased risk-based testing, in some cases. A 2013 report by the U.S. International Trade Commission (USITC) cited research indicating that current standards for extra virgin olive oil are widely unenforced and result in a wide range of olive oil qualities to be labeled as "extra virgin" oil. The study further concluded that this may lead to adulterated and mislabeled product, which could further weaken the competitiveness of U.S.-produced olive oil in the domestic market. In Europe, in the wake of the horsemeat scandal, some countries have debated the need for tougher laws to protect consumers against food fraud. The European Parliament released its draft report regarding food fraud in October 2013, calling for increased enforcement and oversight regarding fraud prevention through the food supply chain. HHS, Food and Drug Administration Laws governing FDA's authority over both unintentional and intentional adulteration of both domestic and imported food—namely, the Federal Food, Drug, and Cosmetic Act—provide the agency with some of the necessary tools to pursue activities that ensure against fraud of foods and food ingredients under its jurisdiction. Food Safety Authorities FDA has primary responsibility for the safety of most—about 80%-90%—of all U.S. domestic and imported foods. The FDA is responsible for ensuring that all domestic and imported food products—except for most meats and poultry—are safe, nutritious, wholesome, and accurately labeled. Examples of FDA-regulated foods are produce, dairy products, and processed foods. FDA also has oversight of all seafood and shellfish products, and most fish products. FDA has jurisdiction over meats from animals or birds that are not under the regulatory jurisdiction of FSIS. FDA shares some responsibility for the safety of eggs with FSIS. FDA has jurisdiction over establishments that sell or serve eggs or use them as an ingredient in their products. As described in a Memorandum of Understanding between FDA and FSIS: FDA is responsible for implementing and enforcing the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301, et seq .), the Public Health Service Act (42 U.S.C. 201, et seq .), the Fair Packaging and Labeling Act (15 U.S.C. 1451 et seq .), and parts of the Egg Products Inspection Act. In carrying out its responsibilities under these acts, FDA conducts inspections of establishments that manufacture, process, pack, or hold foods, with the exception of certain establishments that are regulated exclusively by FSIS. FDA also inspects vehicles and other conveyances, such as boats, trains, and airplanes, in which foods are transported or held in interstate commerce. "Prohibited" Acts FDA's food safety authorities rest primarily with the Federal Food, Drug, and Cosmetic Act (FFDCA), as amended, requiring that foods be safe, wholesome, and accurately labeled. "Prohibited" acts are listed in FFDCA Section 301 (21 U.S.C. §331). Along with other specified prohibited acts, the law provides that introducing adulterated or misbranded food into commerce; adulterating or misbranding food that is in commerce; or the receipt and delivery of adulterated or misbranded food in commerce is prohibited. As such, under FFDCA, two of the basic statutory components are "adulteration" and "misbranding." FDA-regulated foods may be deemed adulterated or misbranded for a variety of statutorily prescribed reasons. For example, food may be deemed adulterated if it contains an added poisonous or deleterious substance or an unsafe food additive or if the food was prepared, packed, or held under unsanitary conditions whereby it may have become contaminated or may have been rendered injurious to health. Persons who violate FFDCA by, for example, introducing an adulterated or misbranded product into interstate commerce are subject to criminal and civil penalties. According to FFDCA Section 402(a) (21 U.S.C. §342[a]), a food shall be deemed to be "adulterated" (and therefore prohibited) if it bears or contains or has any added "poisonous or deleterious substance" which may be "injurious to health" or is considered unsafe under the law, unless specifically exempted. Adulteration also covers food that consists of a "filthy, putrid, or decomposed substance," or if it is otherwise unfit for food or "if it has been prepared, packed, or held under insanitary conditions," or if it otherwise poses a risk to consumer health. Perhaps more specific to food fraud, although generally less noted, FFDCA Section 402(b) (21 U.S.C. §342[b]), are foods deemed to be adulterated given the "absence, substitution, or addition of constituents" including: if any valuable constituent has been in whole or in part omitted or abstracted therefrom; or (2) if any substance has been substituted wholly or in part therefor; or (3) if damage or inferiority has been concealed in any manner; or (4) if any substance has been added thereto or mixed or packed therewith so as to increase its bulk or weight, or reduce its quality or strength, or make it appear better or of greater value than it is. Accordingly, a food may be deemed adulterated if it is missing a "valuable constituent" or if substances have been substituted wholly or in part or where damage or inferiority has been concealed in any matter, including cases where substances are added to "increase its bulk or weight" or make it appear to be higher quality. Under FFDCA, introducing misbranded food into commerce, misbranding food that is in commerce, or the receipt and delivery of misbranded food in commerce is also prohibited. FFDCA Section 403 (21 U.S.C. §343) defines a number of conditions under which a food would be deemed to be misbranded. A food is deemed misbranded if it has a false or misleading label, is offered for sale under another name, is an imitation of another food, or is in a "misleading container" that is "made, formed, or filled to be misleading," among other types of misrepresentative packing or labeling. Similar to the definition of adulteration, numerous specific types of misbranding are also defined. These include, among others, failure to disclose specific additives or allergens in the food, and failure to provide required nutritional information. (In addition to FFDCA, FDA has regulatory authority under the Fair Packaging and Labeling Act [FPLA, 15 U.S.C. §1451 et seq. ]. FPLA establishes requirements for package labels of all consumer goods, including most foods.) Violating the misbranding or adulteration provisions of FFDCA may invoke criminal penalties and/or product seizures. Under FFDCA Section 303 (21 U.S.C. §333), in general, any person who commits a prohibited act under FFDCA may be subject to civil or criminal penalties, including imprisonment, fines, or both. Criminal penalties provided for in FFDCA are adjusted by 18 U.S.C. Sections 3559 and 3571. Certain exceptions may be made, including for the misbranding of foods. FFDCA Section 304 (21 U.S.C. §334) also provides that FDA may order the administrative detention of foods, if a food is suspected to be adulterated or misbranded based on an inspection, examination, or investigation. Although fraudulent activities may be illegal and enforceable under the FFDCA, FDA might not take enforcement in some cases. Practically speaking, it may not be possible for FDA and DOJ to prosecute every instance of food fraud given each agency's myriad other responsibilities and limited personnel and resources. Also, oftentimes inadequate evidence exists to effectively enforce against all alleged or suspected cases of fraud. Other Agency Authorities and Activities FFDCA Section 415 (21 U.S.C. §350d) requires FDA to oversee the registration of both domestic and foreign food facilities, which was part of the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 ("Bioterrorism Act"). Under the act, facilities that manufacture, process, pack, or hold food for human or animal consumption in the United States must be registered with FDA. Domestic facilities must register whether or not food from the facility enters interstate commerce. Foreign facilities must register unless food from that facility undergoes further processing (including packaging) by another foreign facility before the food is exported to the United States. FDA also must be given advance notice on shipments of imported food. These registration and prior notification requirements might act as a further deterrent to food fraud in some cases. Table 4 shows available data on the total number of registered domestic and foreign food facilities. The number of registered food facilities—both domestic and foreign—more than doubled from 2004 to 2012, the most recent available data. Of the total number of registered facilities with FDA in 2012 (nearly 450,000), a reported 171,552 were domestic facilities and 278,307 were foreign facilities ( Table 4 ). Finally, FFDCA also broadly provides for FDA to establish voluntary food quality and grading standards, and product standards of identity (FFDCA §401 [21 U.S.C. §341]). Although not regulatory in nature, and not intended to address potential food safety or food fraud concerns, food quality and grading standards provide a product benchmark for certain foods or food ingredients. Specifically, FFDCA directs FDA to establish definitions and standards for food to "promote honesty and fair dealing" for the benefit of consumers. Under the statute, FDA is authorized to establish regulations "for any food ..., a reasonable definition and standard of identity, a reasonable standard of quality, and reasonable standards of fill" of the container for any food. FDA has established roughly 300 identity standards in 20 categories of food, consisting of a range of processed foods and meat, dairy, and seafood products, as well as preserved and processed fruit and vegetable products and juices. Standards of identity cover mostly processed and value-added foods for a wide range of FDA-regulated food products. Potential Role of the Food Safety Modernization Act FDA has taken a series of internal actions to address intentional adulteration, including EMA. In April 2009, FDA conducted a public meeting to raise awareness and solicit public input regarding economically motivated adulteration of FDA-regulated products. FDA also established, in September 2011, an internal workgroup comprised of staff from all FDA product centers (covering both food and non-food products regulated by FDA), FDA's Office of Regulatory Affairs (ORA), and the Office of the Commissioner. The workgroup includes risk managers, economists, regulatory counsel, policy analysts, and scientists, and uses a multidisciplinary collaborative approach to capitalize on commonalities among FDA's product centers. Part of the workgroup's mission is to address recommendations regarding EMA from the U.S. Government Accountability Office (GAO) that called for improved cross-agency communication and enhanced information sharing and transparency with stakeholders, including the regulated community. FDA reportedly is also considering another GAO recommendation that would establish an information clearinghouse so stakeholders could share information about products that may be susceptible to economic adulteration. The 111 th Congress amended FFDCA by passing a comprehensive food safety law, the Food Safety Modernization Act (FSMA, P.L. 111-353 ). FSMA aims to prevent both intentional and unintentional introduced contamination of foods through a variety of strategies to prevent food contamination and through enhanced regulatory authorities. FDA has not yet implemented many of the law's major provisions. FSMA provides for increased food risk protection by creating mechanisms whereby food companies are required to identify and implement preventive controls to ensure adulterated products are not sold and then share their plan with the FDA to ensure compliance with good manufacturing practices. Having such controls in place would also allow companies to consider their responsibility regarding potentially adulterated foods involving the "absence, substitution, or addition of constituents." Some speculate that provisions under FSMA will likely result in increased detection and prevention of adulterated foods by the food companies, both under FFDCA Section 402(a) (21 U.S.C. §342[a]) and FFDCA Section 402(b) (21 U.S.C. §342[b]). Since FDA could not possibly enforce every instance of food adulteration, such industry controls will be instrumental in helping to combat future adulteration before it ever reaches the marketplace. FSMA does not directly address EMA; however, some of its provisions may have application to EMA even though some of these provisions may have originated as part of an overall food defense strategy. These FSMA provisions include: FSMA S ection 103 (Hazard Analysis and Risk-Based Preventive Controls). FSMA requires preventive controls for human food by domestic and foreign firms that manufacture, process, pack, or hold human food. Among the requirements are written plans that identify hazards, specify the steps that will be put in place to minimize or prevent those hazards, identify monitoring procedures, and record monitoring results and specify what actions will be taken to correct problems that arise. These regulations would address, among other things, "hazards that occur naturally, may be unintentionally introduced, or may be intentionally introduced, including by acts of terrorism." As part of its proposed rule published in January 2013, FDA states that intentional hazards, such as EMA, might require separate agency action. As part of the proposed rulemaking, FDA also has requested public comment on if and how it should address EMA: FDA tentatively concludes that intentional hazards, which are not addressed in traditional HACCP or other food safety systems, likely will require different kinds of controls and would be best addressed in a separate rulemaking ... We request comment on whether to include potential hazards that may be intentionally introduced for economic reasons ... [and] on when an economically motivated adulterant can be considered reasonably likely to occur. FSMA S ection 106 (Protection Against Intentional Adulteration). FSMA requires FDA to issue regulations to protect against the intentional adulteration of food, such as "specifying appropriate science-based mitigation strategies or measures to prepare and protect the food supply chain from intentional adulteration at specific vulnerable points." The proposal for this rulemaking was published in December 2013, and is the first time FDA has proposed a regulatory approach for preventing intentional adulteration of food. FSMA S ection 108 (National Agriculture and Food Defense Strategy). FSMA requires that the Secretaries of Health and Human Services and Agriculture develop a National Agriculture and Food Defense Strategy, implementation plan, and research agenda. This strategy and the accompanying documents have not yet been published. FSMA Title 3 (Improving the Safety of Imported Food). To the extent that food fraud may be attributable to foods imported into the United States, FSMA provides for a series of requirements to ensure the safety of imported foods. Tightened import requirements may act to limit future fraud, or lend greater credibility to foods and food ingredients that are imported under these requirements. FSMA also recognizes "third party" audits or certifications, and several such entities have already started to address food fraud both in term of identifying terms or assessing implementation actions such as vulnerability assessments. FDA's proposed rules were published in July 2013. FSMA S ection 402 (Employee Protections). FSMA expands protections for employees (whistleblowers) who provide information relating to FFDCA violations, such as testifying, assisting, or participating in a proceeding on such a violation, refusing to participate in an activity that may violate FFDCA. FSMA S ection 201(b) (Annual Report Regarding Food). FSMA requires FDA to submit an annual to report to Congress, covering efforts to coordinate and cooperate with other federal agencies with responsibilities for food inspections, and report information regarding facility inspections and facility registrations, among other things. FDA has been working with other federal agencies to coordinate and cooperate on food safety activities. According to FDA's most recent report on these types of activities, for example, FDA and the Department of Defense have "information-sharing networks and processes on facility audits and inspections, recalls, import alerts, laboratory findings and methods, and other food protection procedures." FDA officials have indicated that obtaining additional data and information would likely require enhanced public and private partnerships. Import Authorities Import security measures by FDA are conducted in conjunction with border inspections by CBP. As part of this responsibility, importers of foreign food are responsible for verifying that the products obtained from foreign processors are in compliance with U.S. laws. FDA's surveillance of imported foods consists of reviews of prior notice data, reviews of customs entry forms, physical or sensory analysis, sample collections for laboratory analysis, and detention without physical examination. As required by the Bioterrorism Act, FDA must have received a notice for articles of food being imported or offered for import into the United States, prior to importation (FFDCA §801(m) [21 U.S.C. §381(m)]). Prior notice is required to enable the food to be inspected at U.S. ports of entry, and FDA must refuse admission to food imported or offered for import if the notice was not submitted or if the notice was deficient. Additionally, FDA may hold food at the port of entry if it is imported or offered for import by a person who was debarred under FFDCA or if it was imported or offered for import from a foreign facility that has not registered with the FDA. FDA screens the electronic shipping records of all imported food products before they enter the United States. From these records, the agency selects products for physical examination and/or testing to determine whether they contain adulterants. Under FFDCA Section 801 (21 U.S.C. §381), FDA has the authority to refuse entry of any food import if it appears to be adulterated, misbranded, or in violation of U.S. law. In such cases, FFDCA generally provides that such a food article must be refused admission into the United States, with few exceptions, "if it appears from the examination of such samples or otherwise" that it has been "manufactured, processed, or packed under insanitary conditions," or it is "forbidden or restricted in sale in the country in which it was produced or from which it was exported," or it is "prohibited from introduction or delivery for introduction into interstate commerce under section 301(ll)" (FFDCA §801(a)). FDA actions on suspect imported products may be implemented through FDA's "Import Alerts." An alert can be issued for an import from a manufacturer, shipper, grower, geographical area, or country. An active import alert provides a signal to border inspectors to look more closely at a particular product, or a range of products from a particular producer, shipper, or importer. If the problem or condition exists on a wide scale, FDA may be instructed to detain all products of a certain kind coming from a country or a region of a country. Products that may be subject to refusal based on existing evidence (such as a history of violations) can be detained at the border and refused admission into U.S. commerce unless the importer is able to demonstrate that the products are in compliance. Import alerts may allow U.S. authorities (typically the U.S. Treasury has delegated its authority via DHS to the Customs and Border Protection) to detain, without physically examining, products that either have or potentially could violate FFDCA. Detention without physical examination (DWPE), formerly known as "automatic detention," was developed to address recurrent violations. In FY2011, FDA reports that it physically examined (conducted field exams or analyzed samples of U.S. food imports under its jurisdiction) 243,400 food and feed import lines. This was out of a total of 10.4 million food import lines for FY2011. Hence, FDA physically examined 2.3% of all shipments. As noted by FDA, this physical examination was in addition to FDA's electronic screening of all import lines against a variety of risk criteria. As part of FDA's screening process, it implemented its Predictive Risk-based Evaluation for Dynamic Import Compliance Targeting (PREDICT) information technology system that helps target high-risk products before they enter the United States. Widely cited previous estimates of FDA food safety inspections of foreign facilities indicate that the rate of such inspections was even lower: GAO reported that, in 2000, FDA inspections covered only about 1% of the food imported under its jurisdiction. Changes to FDA's import regime under FSMA are expected to further address some of these concerns. USDA, Food Safety and Inspection Service Similar to laws governing FDA that may be broadly construed to provide the agency's authority over both unintentional and intentional adulteration of the food supply, the principal food safety laws governing USDA—namely, the Federal Meat Inspection Act and the Poultry Products Inspection Act—might likewise allow USDA to pursue activities to ensure against fraud of meat and poultry products under USDA's jurisdiction. Food Safety Authorities Excluding FDA-regulated foods, FSIS is responsible for the safety of the remaining roughly 10%-20% of foods covered by the U.S. food safety system, including meat and poultry and some egg products. As described in a Memorandum of Understanding between FDA and FSIS, FSIS's jurisdiction is as follows: FSIS is responsible for implementing and enforcing the Federal Meat Inspection Act (21 U.S.C. 601, et seq .), the Poultry Products Inspection Act (21 U.S.C. 451, et seq .), and parts of the Egg Products Inspection Act (21 U.S.C. 1031, et seq .). In carrying out its responsibilities under these acts, FSIS places inspectors in meat and poultry slaughterhouses and in meat, poultry, and egg processing plants. FSIS also conducts inspections of warehouses, transporters, retail stores, restaurants, and other places where meat, poultry, and egg products are handled and stored. In addition, FSIS conducts voluntary inspections under the Agriculture Marketing Act (7 U.S.C. 1621, et seq .). The Federal Meat Inspection Act (FMIA) of 1906, as amended, requires USDA to inspect all cattle, sheep, swine, goats, horses, mules, and other equines slaughtered and processed for human consumption. The Poultry Products Inspection Act (PPIA) of 1957, as amended, gives USDA the authority to inspect poultry meat. The PPIA mandates USDA inspection of any domesticated birds (chickens, turkeys, ducks, geese, guineas, ratites [ostrich, emu, and rhea], and squab [pigeons up to one month old]) intended for use as human food. The Egg Products Inspection Act, as amended, provides USDA authority to inspect liquid, frozen, and dried egg products. Each of these laws also contain provisions governing USDA's authority to label food products under its jurisdiction. Under the authority of the Agricultural Marketing Act of 1946 as amended, USDA's FSIS may provide voluntary inspection for buffalo, antelope, reindeer, elk, migratory waterfowl, game birds, and rabbits. This type of inspection is performed by FSIS on a fee-for-service basis. However, these meat and poultry species are still within the purview of FDA under FFDCA, whether or not inspected under the voluntary FSIS program. FDA has jurisdiction over meat products from such species in interstate commerce, even if they bear the USDA inspection mark. FDA also has jurisdiction over shell eggs. In addition, the 2008 farm bill requires that FSIS inspect and grade farmed catfish products. Meat and poultry animals and products undergo continuous (i.e., 100%) inspection, which may in turn act as a deterrent to fraud in some cases. FSIS inspects all meat and poultry animals to look for signs of disease, contamination, and other abnormal conditions, both before and after slaughter ("antemortem" and "postmortem," respectively), on a continuous basis—meaning that no animal may be slaughtered and dressed unless an inspector has examined it. One or more federal inspectors are on the line during all hours the plant is operating. Processing plants visited once every day by an FSIS inspector are considered to be under continuous inspection in keeping with the laws. Inspectors monitor operations, check sanitary conditions, examine ingredient levels and packaging, review records, verify food safety plans, and conduct statistical sampling and testing of products for pathogens and residues during their inspections. FSIS is responsible for certifying that foreign meat and poultry plants are operating under an inspection system equivalent to the U.S. system before they can export their product to the United States. Meat and poultry imports are 100% visually inspected (process-based, documentation, labeling), although physical inspections of imports may be more random. FSIS conducts evaluations of foreign meat safety programs and visits establishments to determine whether they are providing a level of safety equivalent to that of U.S. safeguards. No foreign plant can ship meat or poultry to the United States unless its country has received such an FSIS determination. About 1,100 of the establishments under the jurisdiction of FSIS either slaughter, or slaughter and process livestock, or poultry. More than 4,000 facilities only process meat and poultry, and about 80 process egg products. In addition to inspecting domestic meat, poultry, and egg establishments, FSIS also performs re-inspections of imported meat, poultry, and egg products at about 140 import re-inspection facilities. "Prohibited" Acts FMIA and PPIA also authorize USDA to regulate labeling and packaging of meat, poultry, or processed parts to prevent false or misleading marks, labels, or containers (FMIA, 21 U.S.C. §607 and PPIA, 21 U.S.C. §457). Similar to FFDCA, both FMIA and PPIA also disallow certain "prohibited" acts that involve products for use as human food that are "adulterated or misbranded at the time of such sale, transportation, offer for sale or transportation, or receipt for transportation" or products "required to be inspected ... unless they have been so inspected and passed" (FMIA, 21 U.S.C. §10; PPIA, 21 U.S.C. §458). FSIS is responsible for developing the labeling policy to determine that meat or poultry products are wholesome, not adulterated, and properly marked, labeled, and packaged. FMIA and PPIA both define "misbranded" foods as bearing a false or misleading label, or foods that are "offered for sale under the name of another food," or are "an imitation of another food, unless its label bears, in type of uniform size and prominence," or if "its container is so made, formed, or filled as to be misleading, or is otherwise misrepresented" (21 U.S.C. §§ 453 and 601). An "adulterated" food bears or contains any "poisonous or deleterious substance which may render it injurious to health" or otherwise poses a risk to consumer health. Perhaps more specific to food fraud, both FMIA and PPIA also define adulteration to include the following: if any valuable constituent has been in whole or in part omitted or abstracted therefrom; or if any substance has been substituted, wholly or in part therefor; or if damage or inferiority has been concealed in any manner; or if any substance has been added thereto or mixed or packed therewith so as to increase its bulk or weight, or reduce its quality or strength, or make it appear better or of greater value than it is. Accordingly, similar to FFDCA, a food may be deemed adulterated if a "valuable constituent" is missing or if substances have been substituted wholly or in part or where damage or inferiority has been concealed in any matter, or if substances have been added to "increase its bulk or weight" (such as packing water or ice) or to raise the perceived quality of the product. Moreover, FMIA and PPIA and federal meat and poultry inspection regulations (9 C.F.R. §§301.2 and 381.1, respectively) define "meat," "meat food product," "livestock," "poultry," and "poultry product" and do not include species of livestock or poultry other than those specifically listed. FSIS verifies the labeling, conducts species testing, and monitors the movement in commerce of all meat and poultry food products produced under federal inspection. This includes all meat and poultry products as well as other meat products (such as horsemeat and meat from various other exotic animals) produced in or imported into the United States. FSIS claims that its stringent inspection process, testing capabilities, and labeling requirements effectively prevent cases such as those that occurred in the EU earlier in 2013, where horsemeat was labeled and sold as the meat of another species. FSIS claims it "conducts species tests on meat and poultry products that are produced domestically and that are imported to the United States" which are "capable of detecting beef, sheep, swine, poultry, deer and horse." Other Agency Authorities and Activities Finally, FMIA and PPIA also broadly provide for FSIS to establish voluntary standards for meat and poultry products (FMIA, 21 U.S.C. §607[c]; and PPIA, 21 U.S.C. §457[b]). Although not regulatory in nature, and not intended to address potential food safety or food fraud concerns, food quality and grading standards provide a product benchmark for certain foods or food ingredients. Specifically, both FMIA and PPIA direct USDA to establish "definitions and standards of identity or composition" for meat and poultry products. Standards of identity cover a wide range of raw, cooked, cured, and processed meat and poultry products and ingredients for USDA-regulated food products. Import Authorities Similar to that for FDA, various import security measures by USDA are conducted via various enforcement and border inspection activities by CBP. As part of this responsibility, importers of foreign food are responsible for verifying that the products obtained from foreign processors are in compliance with U.S. laws. DHS, Customs and Border Protection CBP enforces FDA and USDA regulations at ports of entry. Import security measures, in conjunction with existing CBP border inspections, are intended to address concerns about possible contaminated food imports. CBP is responsible for monitoring goods and materials in cargo shipments coming into the United States at all U.S. ports of entry, and is a regular part of inspection procedures carried out at every port of entry nationwide. CBP's border inspections are intended to address concerns about possible contaminated food imports and are not specifically designed to address intentional contamination of food and food ingredients. CBP agriculture specialists prevent the entry of harmful plant and animal pests and diseases and confront emerging threats in agro- and bioterrorism, as well as ensure that the required permits, sanitary certificates (for animal products), and phytosanitary certificates (for plant products) accompany each product shipment. As part of its role in enforcing plant and animal regulations, CBP has the authority to detain, where necessary, imported or exported products pending their clearance by agency inspectors. CBP was created in 2003 through a merger of the former U.S. Customs Service and the agricultural inspection portion of USDA's Animal and Plant Health Inspection Service (APHIS). Imported products must meet the same standards as domestic goods, and must contain informative and truthful labeling in English. Existing U.S. trade laws, such as general requirements under the Tariff Act of 1930 (19 U.S.C. § 1304), require all imported articles to be marked with the English name of the country of origin. Other labeling requirements also apply under other laws that govern both FDA and USDA. For example, FDA requirements under FFDCA require that a food label must contain specified information. However, as noted by FDA, "The law does not specifically require that the country of origin statement be placed on the PDP [the principal display panel, PDP, or the label panel], but requires that it be conspicuous." Certain labeling requirements for meat and poultry products are also required within laws administered by FSIS. Only plants in countries certified by USDA to have inspection systems equivalent to those in this country are eligible to export products to the United States. Regulations require that country of origin appear in English on containers of all meat and poultry products entering the United States. Other USDA-administered programs also provide for additional country-of-origin requirements for certain types of foods. Other Federal Food Quality or Food Safety Programs A number of other federal agencies are involved in various food quality and food safety programs. Although these programs are not primarily focused on food fraud, product inspections under these programs might be leveraged to broadly address fraud concerns. In some cases concerns related to fraud are often a component of these programs. In other cases, such as in USDA's program certifying products that are organically produced, enforcement against fraudulent documents and certification is central to the program. Increased inspection and oversight as part of a program's product quality and marketing grades and standards may act as an added deterrent or improve detection if fraudulent marketing or related activities are happening. USDA, Agricultural Marketing Service Product Quality, Grading, and Standards AMS is primarily responsible for product quality and marketing grades and standards for a range of foods, including dairy products, fruits and vegetables, livestock, meat, poultry, seafood, and shell eggs. However, AMS administers the egg surveillance program that inspects egg facilities quarterly to insure that egg handlers maintain required records and properly dispose of restricted eggs. AMS also certifies quality programs and conducts quality grading services, generally user fee-funded. These programs are generally voluntary in nature, and in most cases do not directly address adulteration of food and food ingredients. USDA programs establishing quality grade standards to encourage uniformity and consistency in commercial practices are provided for under the Agricultural Marketing Act of 1946 (7 U.S.C. §1621). AMS develops quality grade standards for commodities as needed by the agriculture and food industry for a range of products, including cotton; dairy products; fresh and processed fruits and vegetables (and fruits and vegetables for processing); nuts and other specialty crops; livestock (including wool and mohair); poultry and eggs (including rabbits); and tobacco. Under federal-state agreements, AMS-licensed state employees work where needed: in fields during harvest; at land, sea, and air ports of entry; and at packing houses, processing plants, warehouses, and federal and federal-state terminal markets. Grading is paid for by user fees and is voluntary unless the commodity is regulated for quality under a marketing order or agreement, subject to export requirements, or purchased by USDA or another federal agency for distribution (e.g., through the school lunch program or the military). Shipments of any imported commodity whose domestic production is under a marketing order or agreement must receive AMS grading to assure that the produce is comparable to the U.S. grade, size, quality, and maturity requirements. Certified Organically Produced AMS also oversees and enforces the USDA organic certification program, the National Organic Program (NOP). NOP is authorized under the Organic Foods Production Act of 1990, and the program's labeling and certification requirements are enforceable, and address concerns about fraud through product mislabeling. NOP regulations require that agricultural products labeled as "organic" originate from farms or handling operations certified by a state or private entity that has been accredited by USDA. Administered by AMS, NOP is a regulatory program that became operational in 2002, establishing a voluntary production and handling certification program. The program specifies the methods, practices, and materials that may be used and how certified organic production is to be grown, raised, and processed. A central part of the NOP's stated mission is to "ensure the integrity" of USDA-certified organic products according to national standards for organically produced agricultural products that "assure consumers that products with the USDA organic seal meet consistent, uniform standards." Since there are no tests that prove whether a food or ingredient is organically produced, certification relies on having the proper paperwork showing that processes were followed. Using fraudulent documents or certification to market, label, or sell non-organic (conventionally produced) food and food ingredients as USDA-certified "organic" is a violation of U.S. law and federal National Organic Program (NOP) regulations, punishable by fines of up to $11,000 for each violation. NOAA, National Marine Fisheries Service NOAA's National Marine Fisheries Service (NMFS) administers a number of seafood and fisheries safety and sanitation programs. NMFS's voluntary seafood and fisheries safety inspection program focuses on marketing and product quality under the authority of the Agricultural Marketing Act of 1946 (7 U.S.C. §1621 et seq .). The program offers additional levels and types of inspection that exceed FDA requirements, which program participants also must meet. Examples include onsite NOAA inspections during production hours, certification that plants or vessels meet specified sanitation requirements, quality inspections of individual product lots, and/or laboratory testing of products, among other services. NMFS works with FDA, which helps provide training and other technical assistance to NMFS. As part of its guidance, NOAA identifies common seafood fraud consisting of the addition of water or ice to add weight to the product; use of masking agents (such as carbon monoxide in tuna) that may give the fish added color or make it seem much fresher than it actually is; and also seafood substitution or labeling and selling a less expensive fish product as a more expensive product. Under the program, NMFS inspects a reported 20% of the seafood consumed in the United States. Industry generally contracts with NMFS to provide the service, and NMFS personnel may inspect fishing vessels and processing plants to ensure that sanitary practices are in keeping with FDA standards. These services are provided on a fee-for-service basis and entitle participants to use various official grading and labeling marks, which are viewed as making their products more attractive to buyers. Exporters are often users of these services, in part because of foreign buyer requirements. NMFS may also periodically evaluate products at processing facilities for general condition, wholesomeness, and proper grading and labeling; and they may sample products for chemical and microbiological contamination, decomposition, and species identification. In addition, NOAA works with FDA and other federal agencies, as well as various state agencies, under the National Shellfish Sanitation Program (NSSP). NSSP is a federal/state cooperative program recognized by FDA and the Interstate Shellfish Sanitation Conference (ISSC) to promote and improve the sanitation of shellfish—oysters, clams, mussels, and scallops—moving in interstate commerce through federal/state cooperation and to promote uniformity of state shellfish programs. Participants include agencies from states, FDA, EPA, NOAA, and the shellfish industry, and also foreign governments. Such cooperative efforts may act as a further deterrent to fraudulent activities, or improve detection if fraud is occurring. Congressional Actions Involving Food Fraud Congress has introduced a number of bills intended to address concerns about food fraud, mostly with respect to concerns about a particular food or food ingredient, but has not introduced legislation that would specifically address fraud in a comprehensive manner. Most previous legislation in the past few years has tried to address fish and seafood fraud mostly through improved inter-agency cooperation and coordination. These include H.R. 1012 / S. 520 (Markey/Begich) in the 113 th Congress, S. 50 (Inouye) in the 112 th Congress, and S. 3928 (Inouye) in the 111 th Congress. Increased inspections of foreign seafood facilities were proposed in S. 2934 (Vitter) in the 111 th Congress. Other previously introduced legislation would address fraudulent maple syrup (for example, H.R. 3363 in the 112 th Congress). Among other legislation introduced in the 113 th Congress is H.R. 2400 (Capps), which seeks to improve recordkeeping and authorize investigations and enforcement actions for violations of the organic products standards. Previous congressional efforts have also highlighted concerns about fraudulently labeled "organic" products that might undermine the USDA-certified organic food industry. In addition, both the House-passed and Senate-passed versions of the 2013 farm bill ( H.R. 2642 / S. 954 ) include a provision to require USDA to submit a report to FDA that describes an appropriate federal standard for the identity of honey. This provision relates to previous congressional effort to push FDA to create "pure honey" standards that would allow federal border agents to better combat adulteration, misbranding, and fraudulent mislabeling of honey. A previous version of the House farm bill had also contained a provision that would establish tighter import controls on olive oil imports to enforce quality standards under the Agricultural Adjustment Act (7 U.S.C. §608e-1[a]). This provision was removed by amendment during floor debate ( H.Amdt. 213 ).

Food fraud, or the act of defrauding buyers of food or ingredients for economic gain—whether they be consumers or food manufacturers, retailers, and importers—has vexed the food industry throughout history. Some of the earliest reported cases of food fraud, dating back thousands of years, involved olive oil, tea, wine, and spices. These products continue to be associated with fraud, along with some other foods. Although the vast majority of fraud incidents do not pose a public health risk, some cases have resulted in actual or potential public health risks. Perhaps the most high-profile case has involved the addition of melamine to high-protein feed and milk-based products to artificially inflate protein values in products that may have been diluted. In 2007, pet food adulterated with melamine reportedly killed a large number of dogs and cats in the United States, followed by reports that melamine-contaminated baby formula had sickened thousands of Chinese children. Fraud was also a motive behind Peanut Corporation of America's actions in connection with the Salmonella outbreak in 2009, which killed 9 people and sickened 700. Reports also indicate that fish and seafood fraud is widespread, consisting mostly of a lower-valued species, which may be associated with some types of food poisoning or allergens, mislabeled as a higher-value species. Other types of foods associated with fraud include honey, meat and grain-based foods, fruit juices, organic foods, coffee, and some highly processed foods. It is not known conclusively how widespread food fraud is in the United States or worldwide. In part, this is because those who commit food fraud want to avoid detection and do not necessarily intend to cause physical harm. Most incidents go undetected since they usually do not result in a food safety risk and consumers often do not notice a quality problem. Although the full scale of food fraud is not known, the number of documented incidents may be a small fraction of the true number of incidents. The Grocery Manufacturers Association estimates that fraud may cost the global food industry between $10 billion and $15 billion per year, affecting approximately 10% of all commercially sold food products. Fraud resulting in a food safety or public health risk event could have significant financial or public relations consequences for a food industry or company. There is no statutory definition of food fraud or "economically motivated adulteration" (EMA) of foods or food ingredients in the United States. However, as part of a 2009 public meeting, the Food and Drug Administration (FDA) adopted a working definition, defining EMA as the "fraudulent, intentional substitution or addition of a substance in a product for the purpose of increasing the apparent value of the product or reducing the cost of its production, i.e., for economic gain." Efforts are ongoing to compile and capture current and historical data on food fraud and EMA incidents through the creation of databases and repositories. Over the years, Congress has introduced a number of bills intended to address concerns about food fraud for a particular food or food ingredient. Such legislation has not addressed food fraud in a comprehensive manner. However, although no single federal agency or U.S. law directly addresses food fraud, a number of existing laws and statutes already provide the authority for various federal agencies to address fraud. Currently, food fraud is broadly addressed through various food safety, food defense, and food quality authorities as well as border protection and import authorities across a number of federal agencies. FDA and the U.S. Department of Agriculture are the principle agencies that are working to protect the food supply from food safety risks—both unintentionally and intentionally introduced contamination—in conjunction with border protection and enforcement activities by the U.S. Department of Homeland Security. Other agencies also play a role.

Overview: Historic Patterns of Afghan Authority and Politics Afghanistan's governing structure has historically consisted of a weak central government unwilling or unable to enforce significant financial or administrative mandates on all of Afghanistan's diverse ethnic communities or on the 80% of Afghans who live in rural areas. Ethnic and rural communities, many of which are divided by mountains and wide expanses, have often looked to local faction leaders for their governance. At the same time, there has always been a struggle between urban, educated "modernizers" and the rural, lesser-educated traditionalists who adhere to a set of long-standing customs and practices. The Taliban government (1996-2001) opposed modernization, but there has been substantial modernization and urbanization since the Taliban were ousted—changes that might help Afghanistan remain stable after the international involvement in Afghanistan ends. At the national level, Afghanistan had few, if any, Western-style democratic institutions prior to the international intervention that took place after the September 11, 2001, attacks on the United States. Under the constitution of 1964, King Zahir Shah was to be a constitutional monarch, and an elected lower house and appointed upper house were set up. The parliament during that era never succeeded in becoming a significant check on the king's power, although the period from 1964 until the seizure of power by Mohammad Daoud in a 1973 military coup was considered a flowering of Afghan democracy. The last lower house elections during that period were held in 1969. The parliament was suspended outright following the April 1978 Communist seizure of power. The elected institutions and the 2004 adoption of a constitution were part of a post-Taliban transition roadmap established by a United Nations-sponsored agreement of major Afghan factions signed in Bonn, Germany, on December 5, 2001 ("Bonn Agreement"), after the Taliban had fallen. Hamid Karzai was the first directly elected Afghan President. Since the fall of the Taliban, there has also been the growth of a civil society, largely made up of educated Afghans, many of whom returned to Afghanistan from exile when the Taliban fell. Organizations and groups addressing various issues, including women's rights, law and justice, media freedoms, economics and business issues, the environment, and others, have proliferated. U.S. and international partner policy has been to try to empower these groups to check government power and to entrench Afghan democracy. These newly emerging interest groups have still not been able to displace—or even necessarily substantially influence—the informal power structure of ethnic, regional, tribal, clan, village, and district structures that exercise authority at all levels. These structures governed and secured Afghanistan until the late 1970s but were weakened by decades of subsequent war and Taliban rule. Some traditional local authority figures fled or were killed; others were displaced by mujahedin commanders, militia leaders, Taliban militants, and others. Local power brokers are widely accused of selectively applying Afghan law and of using their authority to enrich themselves and their supporters. Some local leaders have chosen to accommodate local insurgents rather than help the government secure their areas. Afghan Ethnicities, Communities, and Their Relationships Even though many areas of Afghanistan, particularly urban areas, have modernized politically and economically since the fall of the Taliban, patterns of political affiliation by family, clan, tribe, village, ethnicity, region, and comradeship in past battles often supersede relationships based on ideology or views. These traditional patterns have been evident in every post-Taliban Afghan election, although some candidates have sought to advance specific programs and ideas. Particularly in province-based campaigns, such as those for provincial councils, candidates can easily exploit clan and familial relationships. There have been few incidents of ethnic-based violence since the fall of the Taliban, but clashes sometimes do result from jealousies and historic disputes between the different ethnic communities. All ethnic groups are represented at all levels of the central government and each group has a large measure of control over how government programs are implemented in their geographic regions. Although Afghanistan's President has the power to appoint provincial and district governors, in practice there is an informal understanding not to appoint governors of a different ethnicity than the majority of residents of particular provinces. The Independent Directorate of Local Governance (IDLG), which submits recommendations to the presidency on local appointments, often consults notables of a province on appointments. The major groups are discussed below. Pashtuns Ethnic Pashtuns (pronounced POSH-toons, sometimes referred to as Pathans—pah-TAHNS), as the largest single ethnicity, have historically asserted a "right to rule" Afghanistan. The Pashtuns speak Pashtu (or Pashto), but most in the government also speak Dari, a language akin to Persian. Pashtuns are widely believed to constitute 42%-45% of the population. With few exceptions, it has been a Pashtun holding the top governing position in Afghanistan. The sentiment of the "right to rule" is particularly strong among Pashtuns of the Durrani tribal confederation, which predominates in the south and is a rival to the Ghilzai confederation, which predominates in the east. Former President Karzai is a Durrani Pashtun, and his cabinet and advisory circle has been dominated by other Pashtuns, both Ghilzai and Durrani. His successor, Ashraf Ghani, is from a prominent Ghilzai clan. The Taliban is composed almost completely of Pashtuns—and its leaders are mostly Ghilzai Pashtuns—but the movement has opposed the post-2001 government on the grounds that it has not enforced strict Islamic law and is supported by international forces. A table on major Pashtun clans is provided below (see Table 1 ), as is a map showing the distribution of Afghan ethnicities (see Figure 1 ). Tajiks/Northern Alliance Tajiks, who speak Dari, are the second-most numerous and second-most powerful community in Afghanistan. Tajiks are an estimated 25% of the population. During the anti-Soviet war and Taliban period, many Tajik leaders grouped around the prominent mujahedin commander Ahmad Shah Masoud and the Jamiat Islami (Islamic Society) mujahedin political party led by Burhanuddin Rabbani (assassinated September 20, 2011). Masoud was revered because of his success in preventing Soviet occupation forces from conquering the Panjshir Valley. During Taliban rule, Tajik leaders formed the core of a broader, non-Pashtun dominated "Northern Alliance" that is discussed in detail later. Masoud was killed by Al Qaeda supporters two days before the September 11 attacks on the United States, possibly in conjunction with that plot. It should be noted that some Tajik commanders during the anti-Soviet and anti-Taliban wars fought with Pashtun parties including Hezb-i-Islami . Tajiks have ruled Afghanistan on only a few occasions. Rabbani served as president of the mujahedin government (1992-1996), and led briefly again during November-December 2001, before Karzai became interim leader. The main political leader of the Northern Alliance is Dr. Abdullah Abdullah, whose mother is Tajik and father is Pashtun. Abdullah, who is about 57 years old, is identified politically as Tajik because he was a top aide to Masoud. Abdullah was dismissed from his foreign minister post by Karzai in a March 2006 cabinet reshuffle. Abdullah heads a private foundation named after Ahmad Shah Masoud. Abdullah emerged as Afghanistan's opposition leader after his unsuccessful run for president in the August 2009 election, propelling him to prominence in the 2014 presidential elections. Since the 2004 adoption of the constitution, he has advocated a parliamentary system in which the National Assembly would select a powerful prime minister as a check on the presidency. He advocates converting his current "Chief Executive Officer" post into a Prime Ministership when such a change is formally taken up in 2016, in accordance with the power-sharing arrangement he reached with Ashraf Ghani in September 2014. Among other prominent Tajiks, Muhammad Fahim—who died in March 2014 of natural causes—served as First Vice President in Karzai's 2009-2014 term. Karzai's last Defense Minister was Bismillah Khan Mohammedi. Yunus Qanooni was speaker of the lower house of parliament during 2005-2011 and finished out Fahim's term as Vice President in 2014. Some Tajiks have had sharp disagreements with Dr. Abdullah. Ahmad Zia Masoud (Ahmad Shah Masoud's brother), belongs to an opposition group called the National Front of Afghanistan that does not advocate for a prime ministership but rather for "federalism"—a high degree of autonomy for Afghan provinces. The group also argues for appointment of provincial governors by elected provincial councils. Hazaras The Hazara Shiite minority (about 10% of the population) has advanced economically and politically since 2001, largely through pursuit of higher education and through entrepreneurship. The Hazaras have historically been looked down upon by the Pashtuns, who have tended to employ Hazaras as domestic workers and other lower and working class occupations. Observers report that many Hazaras, including Hazara women, are earning degrees or pursuing training in information technology, medical, and other highly skilled professions and that they are becoming dominant in many of these higher paying sectors of the Afghan economy. Hazaras are slightly underrepresented in the ANSF officer corps (about 7%). One major Hazara figure is Mohammad Mohaqiq, who was a prominent mujahedin commander during the Soviet occupation. Another is Karim Khalili, who served as second vice president during Karzai's presidency. Other prominent Hazaras include prominent anti-corruption parliamentarian Ramazan Bashardost and the chairwoman of the Afghanistan Independent Human Rights Commission (AIHRC), Sima Simar. Possible envy of Hazara advancement could have been a factor in the December 6, 2011, bombings of Hazaras in three cities, killing 60, while they were visiting their mosques to celebrate the Shiite holy day of Ashura. Pakistan-based militant group Lashkar-i-Jhangvi—generally allied to the almost purely Pashtun Taliban—claimed responsibility. There are also tensions between the Hazaras and the Tajiks, even though both oppose Pashtun dominance. A clash took place between the two communities on September 9, 2012, when a car in a procession of Tajiks commemorating the September 9, 2001, death of Ahmad Shah Masoud ran over a Hazara bicyclist. The clash was said to reflect lingering Hazara resentment of Masoud's 1993 offensive against then Hazara rivals during the 1992-1996 period of civil warfare. Uzbeks Uzbeks, like the Hazaras, are about 10% of the population. The Uzbek community is Sunni Muslim and speaks a language akin to Turkish. Most Uzbeks speak Dari as well. The most well-known Uzbek leader in Afghanistan is Abdul Rashid Dostam, who was allied with Soviet occupation forces but later defected and helped bring down the Communist regime in Afghanistan in April 1992. He is currently Ghani's First Vice President. Like Dostam, many Uzbeks adopted the Soviet leftwing and secular ideology, and the community prospered substantially from Soviet infrastructure built during the occupation period. As noted below, the speaker of the lower house of parliament is an ethnic Uzbek. Other Minorities3 There are several other religious and ethnic minorities in Afghanistan, members of which are sometimes discriminated against or targeted for attacks. Northeastern provinces have a substantial population of Isma'ilis, a Shiite Muslim sect often called "Seveners" (believers in the Seventh Imam as the true Imam). They constitute about 5% of the population. Many Ismailis follow the Agha Khan IV (Prince Qarim al-Husseini), who chairs the large Agha Khan Foundation that has invested heavily in Afghanistan. An estimated 350 Sikh families and 30 Hindu families are present as well, concentrated in the area of Jalalabad in Nangarhar Province. The Christian community is estimated at between 500 and 8,000 persons, and the Bahai community, considered heretic by Afghan Muslim clerics, is about 2,000. Post-Taliban Transition and Political Landscape U.S. policy has been to help expand the capacity of formal Afghan governing institutions. However, the formal governing structure continues to compete with traditional power structures. During Taliban rule (1996-2001), Afghanistan was run by a small, Qandahar-based group ("Shura") of Pashtun clerics loyal to Mullah Mohammad Umar, who remained there. No parliament was functioning, and government offices were minimally staffed and lacked modern equipment. There were no formal processes to review Mullah Omar's decision, for example, to host Osama bin Laden in Afghanistan. The ouster of that government in late 2001 paved the way for the success of a long-stalled U.N. effort to form a broad-based Afghan government. In the formation of the first post-Taliban transition government, all sides viewed the United Nations as a credible mediator because of its role in ending the Soviet occupation. During the 1990s, a succession of U.N. mediators adopted proposals for a government to be selected by a traditional assembly, or loya jirga , even though U.N.-mediated cease-fires between warring factions did not hold. Non-U.N. initiatives made little progress, particularly the "Six Plus Two" multilateral contact group that began meeting in 1997 (the United States, Russia, and the six states bordering Afghanistan: Iran, China, Pakistan, Turkmenistan, Uzbekistan, and Tajikistan). Immediately after the September 11 attacks, former U.N. mediator Lakhdar Brahimi resumed the Afghan mediation efforts he had ended in frustration in October 1999. U.N. Security Council Resolution 1378 (November 14, 2001) called for a "central" role for the United Nations in establishing a transitional administration. In November 2001, after the Taliban government collapsed, the United Nations invited major Afghan factions, most prominently the Northern Alliance and that of the former King—but not the Taliban—to an international conference in Bonn, Germany. There, on December 5, 2001, the factions signed the "Bonn Agreement." It was endorsed by U.N. Security Council Resolution 1385 (December 6, 2001). The agreement: authorized an international peace keeping force to maintain security in Kabul, and Northern Alliance forces were directed to withdraw from the capital. Security Council Resolution 1386 (December 20, 2001, and renewed yearly thereafter) gave formal Security Council authorization for the international peacekeeping force (International Security Assistance Force, ISAF); referred to the need to cooperate with the international community on counter narcotics, crime, and terrorism; and applied the constitution of 1964 until a permanent constitution could be drafted. Constitution Gives Presidency Broad Powers A June 2002 "emergency" loya jirga —attended by 1,550 delegates, of which about 200 were women, put a representative imprimatur on the transition. Subsequently, a 35-member constitutional commission drafted a constitution, unveiling it in November 2003. It was debated by 502 delegates, selected in U.N.-run caucuses, at a " constitutional loya jirga (CLJ)" from December 13, 2003, to January 4, 2004. The CLJ, chaired by prominent Islamic scholar and former interim Afghan leader Sibghatullah Mojadeddi, approved the draft constitution. The constitution set up a presidential system, with an elected president having relatively broad powers and a separately elected National Assembly (parliament). The Tajik-dominated Northern Alliance, which opposed centralized power that would likely favor Pashtuns, failed at this jirga to set up a system in which the parliament would select a prime minister to run the government. The faction achieved some limitations on presidential powers through assignment of major authorities to the parliament. The Northern Alliance likely calculated that the post of elected president would usually be won by a member of the more numerous Pashtun community, while the prime minister post would likely go to a Tajik by informal agreement. The election system (a two round election if no majority is achieved in the first round) strongly favors the likelihood the president will be an ethnic Pashtun. This forecast appeared to be realized in the 2014 election, in which Dr. Abdullah led after the first round but lost to a Pashtun, Ashraf Ghani, in the runoff. The president serves a five-year term, with a two-term limit (Article 62). There are two vice presidents. The president has broad powers. Under article 64, he has the power to appoint all "high-ranking officials," which includes not only cabinet ministers but also members of the Supreme Court, judges, provincial governors and district governors, local security chiefs, and members of supposedly independent commissions such as the Independent Election Commission and the Afghan Independent Human Rights Commission (AIHRC). The latter body was set up by Article 58 to refer cases of human rights violations to "the legal authorities." (See below for more on this commission.) These appointments are constitutionally subject to confirmation by the National Assembly. The president also is commander-in-chief of the Afghan armed forces. At the CLJ, the opposition did not achieve the right of elected provincial and district councils to choose their governors—an outcome the opposition continues to seek to reverse. The constitution made former King Zahir Shah honorary "Father of the Nation," a title that was not heritable; he died on July 23, 2007. Ghani-Abdullah Agreement Modifies Presidential Powers . To implement the September 21, 2014, power-sharing agreement that resolved the presidential election dispute, Ghani agreed to delegate some of his presidential powers to "Chief Executive Officer" (CEO) of the government, Abdullah. Under the agreement, the CEO will share with Ghani the responsibilities of making cabinet appointments, and he will chair ministerial meetings to implement government decisions. The arrangement is analyzed further below. Presidential Advisory and Implementing Institutions Presidential Advisors/Chiefs of Staff A significant number of advisors work out of the presidential office. The most prominent advisor is the chief of staff. During 2011-2014, that post was held by former Minister of Information and Culture Abdul Karim Kurram, a member of the moderate wing of Hezb-e-Islami . He succeeded Mohammad Umar Daudzai, another Hezb-e-Islami member, who was subsequently was appointed Afghanistan's Ambassador to Pakistan and then (August 2013) Interior Minister. Virtually all of Karzai's closest advisers were Pashtuns, and Ghani's closest advisors also are Pashtun. After taking office, Ghani appointed Abdul Salam Rahimi as chief of staff. Rahimi is a former deputy finance minister (deputy to Ghani when he was finance minister), who subsequently became head of one of Afghanistan's largest media groups, called Saba. National Security Council The National Security advisory staff is located in the presidential palace complex. During Karzai's presidency, this advisory body was heavily populated by ethnic Pashtuns but included some figures from other ethnicities as well. After his September 29, 2014, inauguration, Ghani appointed Mohammad Hanif Atmar, a Pashtun, as national security adviser. The following day, Atmar was tasked to sign the bilateral security agreement (BSA) with the United States on behalf of the Afghan government. The United States required the BSA in order to maintain troops in Afghanistan after 2014. Several Tajiks will likely also receive high-level posts in the organization because of the Ghani-Abdullah power-sharing arrangement. Office of Administrative Affairs/General Administrative Office An administrative unit that has attracted increasing international attention as a center of organized policymaking is the Office of Administrative Affairs (OAA), referred to by some as the General Administrative Office (GAO). Some experts say that the office, headed by a Hazara Shiite named Sadiq Mudabir, is primarily administrative, and without any policy coordination role. However, some Afghan observers say it has increasingly taken on a policymaking role by helping the National Assembly draft laws and advising the president on what legislation to sign or to veto. The office also has purportedly taken on an informal judicial role by assessing the legitimacy of citizen, group, and corporate petitions and forwarding those to the ministries for action. The office is a holdover from the Communist era and contains many longtime bureaucrats. During the 1990s, it may have had as many as 1,800 personnel, but it was trimmed during the Karzai era to about 700 staff members. The operations of the unit are funded primarily by the United Kingdom, but U.S. military and civilian officials have advised the office as well. In October 2014, President Ghani reduced the staff of the OAA further—and some staff of his presidential office—on the grounds that there was overlap between the two organizations. National Assembly (Parliament) Powers and Performance The National Assembly outlined by the constitution consists of a 259 seat all-elected lower house ( Wolesi Jirga , House of the People, of which 10 seats are elected by Kuchi nomads) and a selected 102 seat upper house ( Meshrano Jirga , House of Elders). The upper house is selected as follows: one-third, or 34 seats, appointed by the president (for a five-year term); one-third appointed by the elected provincial councils (four-year term); and one-third appointed by elected district councils (for a three-year term). Of the president's appointments, half (17) are mandated to be women. Because of the difficulty in confirming voter registration rolls and determining district boundaries, formal elections for the 407 district councils have not been held to date. Each district boundary is likely to be contentious because it will inevitably separate tribes and clans. Until there are elected district councils, two-thirds of the Meshrano Jirga are selected by the provincial councils for four-year terms. The lower house is mandated to be at least 28% female (68 women), an average of 2 for each of the 34 provinces. Powers of the National Assembly The National Assembly has become the key formal institution for non-Pashtun ethnic groups and political independents to oppose or influence the president. The Assembly was set up by the constitution as a relatively powerful body that can, to some extent, check the powers of the president, although many observers assert that it has been unable to break presidential authority. The lower house has the power to vote no-confidence against ministers (Article 92)—based on a proposal by 10% of the lower house membership (25 parliamentarians). Both the upper and lower houses are required to pass laws. Under Article 98 of the constitution, the national budget is taken up by the Meshrano Jirga first and then passed to the Wolesi Jirga for its consideration. The two houses of parliament, whose budgets are controlled by the Ministry of Finance, are staffed by a National Assembly "secretariat" that has about 275 Afghans employees and runs a research unit and a library. There are 18 oversight committees. A USAID program called the Afghanistan Parliamentary Assistance Project (APAP) helped build the National Assembly's outreach, communications, and information technology, and advised it on legislative reform and budgeting. The National Assembly has often asserted institutional strength. One of the Assembly's first tasks was to review, and endorse, amend, or void the presidential decrees issued prior to the formation of the National Assembly. In March 2006, it achieved a vote to require the cabinet to be approved individually, rather than en bloc , increasing opposition leverage. However, all but 5 of the first 25 nominees were confirmed. In May 2006, the opposition within the lower house compelled changes to the nine-member Supreme Court, the highest judicial body, including ousting 74-year-old Islamic conservative Fazl Hadi Shinwari as chief justice. The process of confirming the second-term cabinet—in which many of Karzai's nominees were voted down in several nomination rounds during 2010—affirmed the Assembly's institutional strength. Later, in August 2012, it voted out Defense Minister Abdul Rahim Wardak and Interior Minister Bismillah Khan Mohammedi, ostensibly for failing to reduce corruption in their ministries. Karzai abided by the vote, although he subsequently appointed and achieved confirmation of Khan as defense minister. In January 2013, the lower house summoned 11 ministers to explain why they had executed only about 50% of their budgetary authority in 2012. In mid-May 2013, the lower house questioned Finance Minister Omar Zakhilwal for alleging that several parliamentarians were smuggling goods across Afghanistan's borders, but voted not to impeach him. In July 2013, the lower house voted no-confidence against Interior Minister Ghulam Mujtaba Patang for security lapses around Afghanistan. Karzai at first opposed the move but in late August 2013 relented and appointed Umar Daudzai (see above) as Interior Minister. During 2014, despite the presidential election dispute, the National Assembly acted on several pending laws. It adopted a commercial contracts law and a money laundering law. The lower house also passed a value-added-tax law, a mining and minerals law, and an "access to information" law. Politics of the National Assembly During his presidency, Karzai had the consistent support of about 70-90 mostly Pashtun members of the lower house ( Wolesi Jirga ), many of whom are members of Hizb-e-Islam i . Many of these Pashtuns are likely to also support Ghani because of ethnicity considerations, although it will be difficult to judge the level of his parliamentary support until after a new body is elected later in 2015. Tajiks in the Assembly are likely to support CEO Abdullah, potentially polarizing the body at times when the two leaders disagree. Some Pashtun parliamentarians follow Abd-i-Rab Rasul Sayyaf, a prominent Pashtun Islamic conservative mujahedin era party leader, or were from Karzai's home province of Qandahar or neighboring Helmand province. Abdul Raouf Ibrahimi, an Uzbek who was selected lower house speaker in 2011 as a compromise candidate, will likely remain in that post until a new parliament is elected and sworn in. Any president is likely to have substantial support in the 102-seat upper house of the National Assembly, partly because the president makes one-third of the appointments (34 seats) to that body. Close allies have consistently chaired the body, including Sibghatullah Mojadeddi, who led it from 2005 until 2010, and the current chair, Fazl Hadi Muslim Yaar. Because it is composed of more elderly, established, notable Afghans who are traditionalist in their political outlook, the upper house has tended to be more Islamist conservative than the lower house, advocating a legal system that accords with Islamic law, and restrictions on press and Westernized media broadcasts. During his presidency, Karzai used his bloc of appointments to the upper house to co-opt potential antagonists or reward his friends. In 2006, he appointed Muhammad Fahim (see above) to the upper body, although he resigned after a few months. In 2006, he appointed to the body a key ally, former Helmand Governor Sher Mohammad Akhunzadeh. In February 2011, following the 2010 parliamentary elections, Karzai reappointed 18 incumbents and appointing 16 new members to the body, including the mandated appointment of 17 women. It is not known whether Ghani, as president, will follow Karzai's appointment patterns after the 2015 parliamentary election, or the degree to which Dr. Abdullah will be able to make appointments as well as CEO. The Judiciary and Rule of Law12 The Afghan constitution provides for an independent judiciary, led by a nine-member Supreme Court. As the highest body in the judiciary, the Supreme Court appoints judges at the provincial and district level. Supreme Court members are appointed by the president, subject to confirmation by the lower house of the National Assembly. Three judges serve for 10-year terms, three are appointed for 7 years, and three serve 4-year terms. Two of those whose seats had expired were confirmed by the Wolesi Jirga on December 25, 2013, but Chief Justice Abdul Salaam Azimi (whose term expired in August 2010) and three other associates justices with expired terms continue to serve as "acting justices." In 2012, the Supreme Court swore in 181 judges, many of whom were women, leaving only 38 out of Afghanistan's 400-plus districts lacking an assigned judge. International donors have helping the formal Afghan judicial system expand its capacity and competence, particularly in urban areas. U.S. funding supports training and mentoring for Afghan justice officials, direct assistance to the Afghan government to expand efforts on judicial security, legal aid and public defense, gender justice and awareness, and expansion of justice in the provinces. USAID's "Rule of Law Stabilization Program" has trained over 700 Afghan judges and expanded the Afghan Supreme Court's training for new judges. Since July 2010, the U.S. embassy has had a senior official heading a Rule of Law Directorate. Separate NATO efforts to support rule of law in Afghanistan ceased operations in 2013. There is broad agreement among outside observers that the Afghan judicial system remains weak and its independence is questionable. Judges and prosecutors are frequent targets of assassination, particular in insecure areas of Afghanistan. And justice is often subjective, with powerful factions and wealthy individuals often able to obtain the release from jail or non-prosecution of their members and supporters. The Afghan government has completed few of the benchmarks for judicial reform agreed at several major conferences including the July 20, 2010, Kabul conference and the July 2012 conference in Japan that resulted in a "Tokyo Mutual Accountability Framework." On matters involving interpreting the constitution, the Supreme Court has sparred with a rival institution, a constitutionally mandated "Independent Commission for the Supervision of the Implementation of the Constitution (ICSIC)." The ICSIC consists of seven commissioners appointed by the president, subject to confirmation by the lower house of the National Assembly. Some of the progress and continued difficulties are discussed below: Criminal p rocedure c ode . The Tokyo Framework required enactment into law of a criminal procedure code by the end of 2010—one of the 37 laws the Afghans pledged at the Kabul Conference to enact. In January 2014, the Ministry of Justice finalized 220 articles of a draft code—incorporating all criminal laws enacted since 2001, including those on counter-terrorism, anti-corruption, anti-money laundering, and anti-human trafficking. The National Assembly approved the draft and then President Karzai signed it into law on February 23, 2014. Institutional structures and policies . The judiciary works closely with the Office of the Attorney General, who is the highest ranking law enforcement officer in Afghanistan. The position has been held by Mohammad Ishaq Aloko, a Pashtun, since 2010. On October 13, 2012, the Wolesi Jirga adopted a law on the structure and authority of the Attorney General's Office. The Afghan government also has pledged to align strategy toward the informal justice sector with the National Justice Sector Strategy (NJSS). Legal a id. The Tokyo Framework required improving legal aid services by the end of 2011. A March 7, 2014, U.N. Secretary-General's report on Afghanistan said the Ministry of Justice had increased to 31 the number of legal aid offices around the country. The offices are staffed by 101 legal aid lawyers. F acilitat ing return of illegally seized lands . The Afghan government committed to do so in the Tokyo Framework partly to address the ability of well-connected individuals to appropriated land—either through the legal process or through force—for their homes and projects. USAID provided $56 million during FY2005-FY2009 to facilitate property registration. An additional $140 million was provided from FY2010 to FY2014 to inform citizens of land processes and procedures and to establish a legal and regulatory framework for land administration. De- p oliticizing the judiciary . The Tokyo Framework committed Afghanistan to present donors with plans to depoliticize the judiciary and assure rule of law—elements of a National Priority Program (NPP). In October 2012, the EU judged that not enough progress had been made, and about $26 million in EU aid for judiciary reform was withheld. Informal Justice System and Traditional Dispute Mechanisms Because of insecurity and lack of trust of the formal justice sector, as many as 80% of cases are decided in the informal justice system—particularly cases involving local property, familial or local disputes, or personal status issues. The informal justice sector consists of local, informal consultative mechanisms ( shuras , jirgas ) that often meet at the village level to adjudicate disputes. In the informal sector, traditional practices of dispute resolution to prevail, including the traditional Pashtun code of conduct known as Pashtunwali. Some of these customs include traditional forms of apology (" nanawati " and " shamana ") and compensation for wrongs. While much of the informal justice system consists of shuras and jirgas , there is also a history of Islamic courts operating in some provinces. Some of these courts predate the accession of the Taliban in 1996. Some experts believe the informal Islamic court system could provide a stabilizing effect after 2014 by attracting the trust of Afghans and drawing them away from informal justice mechanisms run by Taliban insurgents. International observers criticize the informal justice sector because it is heavily dominated by males. For example, some disputes, including over debts or other financial obligations, are resolved by families' offering to make young girls available to marry older men from the family that is the counter-party to the dispute. This practice is known as baad . Some informal justice shuras take place in Taliban-controlled territory, and some Afghans may prefer Taliban-run shuras when doing so means they will be judged by members of their own tribe or tribal confederation. U.S. officials say they do not oppose the widespread use of the informal justice sector as such, but they do oppose it when it is administered by Taliban members because of the Taliban's often extreme interpretations of Islamic law. One concern has been how deeply the international community should become involved in the informal justice sector. U.S. programs have focused primarily on the formal justice system, but over the past several years there was increasing attention to the informal system because its use is so prevalent. USAID has implemented programs to link the formal and informal justice sector. As part of a program begun in 2011, USAID has assisted local shuras (informal justice sector) in four districts to establish a system to transmit their judicial rulings, in writing, to the district government. However, international involvement in the informal justice sector is likely to wane as donor countries reduce their level of effort in Afghanistan. The rule of law issue is discussed in CRS Report R41484, Afghanistan: U.S. Rule of Law and Justice Sector Assistance , by Liana Rosen and [author name scrubbed]. The Informal Power Structure: Faction Leaders and Traditional Decisionmaking Mechanisms An informal power structure exists outside the formal governing institutions—consisting of locally popular faction leaders with armed militia forces and traditional decisionmaking mechanisms. Some observers refer to such figures as "warlords." This power structure is increasingly influential as international forces draw down and Afghans seek additional protection from a potential Taliban comeback. During his presidency, Karzai opted to work relatively amicably with the informal power structure, maintaining that confronting faction leaders outright would cause their followers to rebel. Many faction leaders operate in both spheres—holding official governing positions while also exercising informal influence in their home provinces. Engagement of faction leaders has often caused resentment among civil society activists and other Afghan modernizers. A number of faction leaders own or have investments in Afghan security or other firms that have won business from U.S. and other donors and fuel allegations of nepotism and other corruption. Some question whether Ghani will follow Karzai's policies of engaging faction leaders. However, recognizing the ability of the faction leaders to mobilize not only militias but also voters, Ghani's first vice president is one of the most prominent and controversial faction leaders: Abdul Rashid Dostam. Some argue that U.S. policy empowered local faction leaders and even created new factions and militias. Local security initiatives, including the Afghan Local Police Program and the Critical Infrastructure Police, have created new security organs that sometimes operate outside the full control of central security authority. On the other hand, Northern Alliance leaders maintain that the international community's early dismantling of local power structures in favor of a monopoly of central government control over armed force—which often targeted Northern Alliance militias for demobilization—caused the security deterioration in 2006-2011. In February 2007, both houses of parliament passed a law (officially titled the National Reconciliation, General Amnesty, and National Stability Law) giving amnesty to faction leaders and others who committed abuses during Afghanistan's past wars. In December 2009, the Afghan government published an amended version of the law—containing a provision giving victims the right to seek redress for abuses—in the official gazette (a process known as "gazetting"), giving it the force of law. Traditional Decisionm aking Processes of the Informal Power Structure: Jirgas and Shura s . The informal power structure often uses decisionmaking processes that do not approximate Western-style democracy but yet have participatory and representative elements. Meetings convened or attended by designated notables— shuras or jirgas —are key mechanisms for making or endorsing authoritative decisions or dispensing justice. Some see the traditional patterns of decision making as competing with and detracting from the development of the post-Taliban formal power structure—a structure that, with Western guidance, has generally tried to meet international standards of democratic governance. At the national level, one traditional mechanism has carried over into the post-Taliban governing structure. The convening of a loya jirga , an assembly usually consisting of about 1,500 delegates from all over Afghanistan, has been used on several occasions. The Afghan constitution provides for a constitutional loya jirga as the highest decisionmaking body, superseding government decisions and even elections, and the constitution specifies the institutions that must be represented at the constitutional loya jirga . If a constitutional jirga cannot be held or is blocked, a traditional loya jirga can be convened by the president to discuss major issues, although it cannot render binding decisions. In the post-Taliban period, traditional loya jirgas have been convened to endorse Karzai's leadership, to adopt a constitution, and to discuss a long-term defense relationship with the United States. A special loya jirga , called a peace jirga , was held on June 2-4, 2010, to review government plans to offer incentives for insurgent fighters to end their armed struggle and rejoin society. Another loya jirga was held during November 16-19, 2011, to endorse proposed Afghan government conditions on a Strategic Partnership Agreement between Afghanistan and the United States (which subsequently was signed). Another loya jirga in November 2013 approved a Bilateral Security Agreement (BSA) needed for some U.S. troops to stay in Afghanistan after 2014, although that agreement remains unsigned pending inauguration of a new Afghan leader. Faction Leaders: Northern Alliance Commanders As noted above, the first vice president during Karzai's second term, Muhammad Fahim, died of natural causes on March 9, 2014. His passing removed from the scene a figure who has served as a significant bridge between Karzai and the Northern Alliance. Fahim, a Tajik from the Panjshir Valley region, became military chief of the Northern Alliance after Ahmad Shah Masoud's death. His choice as vice president in 2009 was criticized by human rights and other groups. During 2002-2007, he reportedly withheld turning over some heavy weapons to U.N. disarmament officials. He allegedly was involved in facilitating narcotics trafficking in northern Afghanistan, according to a New York Times story of August 27, 2009. Other allegations suggest he engineered property confiscations and other benefits to feed his and his faction's business interests. In September 2012, Fahim said that Northern Alliance fighters should reorganize after 2014 if Afghan forces are unable to fend off the Taliban. His passing leaves the Northern Alliance without an obvious figure to command an overarching Alliance militia, should it choose to revive one. Some assert that ex-Interior Minister Bismillah Khan could serve that function. Abdul Rashid Dostam: Uzbek Faction Leader in Northern Afghanistan Prominent Uzbek figure Abdul Rashid Dostam, who is currently First Vice President, heads a political faction still widely referred to as Junbush Melli Islami Afghanistan (National Islamic Movement of Afghanistan) even though it no longer operates formally under that name. A former Communist ally of the Soviet occupying forces, Dostam joined the Northern Alliance against the Taliban, bringing with him numerous armed partisans from his redoubt in northern Afghanistan (Jowzjan, Faryab, Balkh, and Sar-i-Pol provinces). He has been widely accused of human rights abuses of political opponents, but he is also known for lack of emphasis on Islam and support for Western-style values, including alcohol consumption and promotion of women. To try to reduce his influence in the north, in 2005 Karzai appointed him to the post of chief military adviser—a largely ceremonial post. Dostam's support for Karzai in the 2009 election was key to Karzai's victory because of Dostam's large following, and he apparently attracted many Uzbek votes to Ghani's candidacy as well. Dostam has been a rival figure of Balkh Province Governor Atta Mohammad Noor, who governs a province inhabited by many Uzbeks. Fueling concerns about Dostam's vice presidency is the fact that he has had numerous feuds and altercations with other Afghan figures. On February 4, 2008, Afghan police surrounded Dostam's villa in Kabul in response to reports that he attacked an ethnic Turkmen figure who had broken with him. Dostam temporarily went into exile in Turkey in exchange for the dropping of the charges. In June 2012, the Karzai government prosecuted Dostam for allegedly insisting the China National Petroleum Co. (CNPC) hire Dostam loyalists on its oil development project in northern Afghanistan. Dostam and his allies alleged that the prosecution was a Karzai effort to favor Karzai's relatives' firm, Watan Group, which is the partner of CNPC on the project. In mid-June 2013, about 50 of Dostam's armed aides reportedly clashed with those of the deputy leader of Junbush Melli , the governor of Jowzjan Province, for refusing Dostam's plan to revive an Uzbek militia. Dostam's reputation is further clouded by alleged past war crimes. On July 11, 2009, the New York Times reported that allegations that Dostam had caused the death of several hundred Taliban prisoners during the major combat phase of OEF (late 2001) were not investigated by the Bush Administration. President Obama said any allegations of violations of laws of war need to be investigated, responding to assertions that there was no investigation of the Dasht-e-Laili massacre because Dostam was a U.S. ally. Dostam responded to Radio Free Europe/Radio Liberty (which carried the story) that only 200 Taliban prisoners died and primarily because of combat and disease, not intentional actions of his forces. Atta Mohammad Noor: Balkh Province/Mazar-e-Sharif Potentate Atta Mohammad Noor, another ethnic Tajik former mujahedin commander and Northern Alliance figure, has been the governor of Balkh Province since 2005. The capital of that province is the vibrant city of Mazar-e-Sharif, since 2005. Noor openly endorsed Dr. Abdullah in the 2009 presidential election and threatened to unleash his militia followers to help Abdullah seize power unless the 2014 election was decided in Abdullah's favor. Noor ceased any additional threats after the September 21 signing of the power-sharing agreement between Ghani and Abdullah. As a governor, Noor has kept Balkh Province secure, allowing Mazar-e-Sharif to become a major trading hub. Mazar-e-Sharif is one of the four cities transitioned to Afghan security leadership in June 2011. About 60% of the residents of the city have access to electricity 24 hours per day, a far higher percentage than most other cities in Afghanistan, and higher even than Kabul. His critics say that Noor exemplifies a local potentate, brokering local security and business arrangements that enrich Noor and his allies while ensuring stability and prosperity. Some reports say that he commands two private militias in the province that, in at least two districts (Chimtal and Charbolak), outnumber official Afghan police, and which prompt complaints of land seizures and other abuses primarily against the province's Pashtuns. Mohammed Mohaqiq: Hazara Stalwart Another faction leader is Mohammad Mohaqiq, a Hazara leader. During the war against the Soviet Union and then Taliban, Mohaqiq was a commander of Hazara fighters in and around Bamiyan Province, and a major figure in the Hazara Shiite Islamist party Hezb-e-Wahdat (Unity Party). The party received support from Iran. Mohaqiq, a member of the lower house of parliament, was the apparent target of an assassination attempt in mid-June 2013. In July 2012, at Mohaqiq's behest, Karzai fired the head of the Academy of Sciences for publishing a revised national almanac that Mohaqiq said overstated the percentage of Pashtuns in Afghanistan at 60%. Mohaqiq was on Dr. Abdullah's slate in the 2014 presidential election and strongly echoed Abdullah's accusations that Ghani won the election largely through systematic fraud. Isma'il Khan: "Emir" of Herat/Western Afghanistan Another Northern Alliance strongman that Karzai has sought to both engage and weaken is prominent Tajik political leader and former Herat Governor Ismail Khan. Khan played a key role in the March 1979 killing of 50 Soviet advisors in western Afghanistan. Then a captain in the Afghan military, the attack by military personnel loyal to Khan marked the start of the mujahedin uprising that triggered the December 1979 Soviet invasion. In 1995, he was captured and imprisoned by the Taliban but escaped. Khan is a religious conservative despite his Tajik ethnicity, and has generally sought to limit women's rights and influence in Herat province. Often referred to as "Emir" (ruler) of the Herat area, Khan remains influential in western Afghanistan. Khan apparently helped Karzai win Herat Province in the 2009 election and, recognizing Khan's ability to attract votes, Abdi Rab Rasoul Sayyaf put Khan on his ticket for the 2014 presidential elections. During the campaign period, Khan was uninjured in an attack on his motorcade in Herat. A 2009 bombing there also missed him. Khan has been minister of energy and water since 2006—Karzai appointed him at that time in part to take him away from his political base in the west. Since 2010, Khan also has served on the High Peace Council, the body overseeing reconciliation with Taliban leaders. U.S. concerns about Khan's continuing role as a faction leader—and a sign of the reemergence of traditional authority forms—were reinforced in November 2012. Anticipating greater Taliban strength after the international forces draw down at the end of 2014, Khan rallied thousands of his followers in the desert outside Herat, calling on them to reactivate their networks to prepare for possible eventual battle with the Taliban. As has Dostam, Khan reportedly has begun enlisting new recruits for a reviving militia force. Karzai's office criticized the gathering and Khan's efforts as contrary to government policy. In November 2010, Afghan television broadcast audio files purporting to show Khan insisting that election officials alter the results of the September 2010 parliamentary elections. Sher Mohammad Akhunzadeh: Helmand Province Power Broker One of the most influential Pashtun tribal leaders in southern Afghanistan is Sher Mohammad Akhunzadeh. A close associate of Karzai when they were in exile in Quetta, Pakistan, during Taliban rule, Karzai appointed him governor of Akhunzadeh's home province of Helmand when the Taliban government fell in late 2001. Akhunzadeh controls many loyalists in Helmand who helped international forces secure the province during his governorship. However, his followers reportedly exercised power arbitrarily and engaged in illicit economic activity, contributing to Britain's demand that he be removed as a condition of Britain taking security control of Helmand in 2005. Karzai reluctantly acceded to the demand. Akhunzadeh promoted Karzai's reelection in Helmand Province in the 2009 election and in 2012 prevailed on Karzai to remove then Helmand governor Ghulab Mangal, who is from eastern Afghanistan, despite widespread U.S. praise for Mangal. Akhunzadeh's relationship with Ghani, if any, is not known precisely. Karzai Family: Qandahar Province Stronghold Even though he is no longer president, Karzai and his clan will likely still be influential because of their significant contacts in the clan's home province of Qandahar. The province has about 2 million people, of whom about half live in Qandahar city. The Karzai clan has consistently overshadowed and marginalized the governors of the province, including the current governor, Tooryalai Wesa, a Canadian-Afghan academic appointed in late 2008. The clan remains influential despite losses. In July 2011, Karzai's half-brother, Ahmad Wali Karzai, was assassinated. He was chair of the Qandahar provincial council, a post with relatively limited formal power, but he was more powerful than any appointed governor of Qandahar and constituents and interest groups sought his interventions on their behalf. Qandahar governance suffered an additional blow in July 2011 when the appointed mayor of Qandahar city, Ghulam Haider Hamidi, was assassinated. Another Karzai relative, Heshmat Karzai, was assassinated at his home in July 2014 by a visitor for unspecified reasons. Following Ahmad Wali's death, Karzai promoted another brother, Shah Wali Karzai, as head of the Popolzai clan. Shah Wali at first lacked the acumen and clout of Ahmad Wali, but reports since mid-2012 say he has become highly influential, while also becoming involved in significant business dealings that cast aspersions on the Karzai family. Also active is another Karzai brother, Qayyum, who has served in the National Assembly. And, even though he remains in Kabul after leaving office, Hamid Karzai remains highly influential in Qandahar province because of his long term as president and his ability to broker resolutions of many national factional disputes. Another power center is Qandahar's police chief, Colonel Abdul Razziq. He is perceived as having increasing weight, as well as a reputation for corruption, including siphoning off customs revenues at the key Spin Boldak crossing from Pakistan. He was appointed to his current post in March 2011 after his predecessor was killed in an insurgent attack. Another factor in Qandahar is likely to be the resignation of Ghul Agha Shirzai as governor of the eastern province of Nangarhar. He is a Pashtun from the powerful Barakzai clan based in Qandahar Province, and he has returned to the province since resigning in late 2013 to prepare to run for president. He opted not to run against Karzai in the 2009 election, and fared poorly in the April 5, 2014, first round of the most recent presidential election. In Nangarhar, Shirzai was viewed as an interloper, but he exercised relatively effective leadership. However, he was also widely accused of arbitrary action against political or other opponents, and he reportedly did not remit all the customs duties collected at the Khyber Pass/Torkham crossing to the central government. U.S. officials say that he kept some of the funds, and he was briefly questioned in July 2012 in Germany about several suitcases of cash he was carrying, but was allowed to proceed. His supporters say he used much of the funds—deposited in an account called the "Shirzai Fund"—for the benefit of the province, not trusting that funds remitted to Kabul would be spent in the province. Some allege that he intervened in the province's judicial process to win freedom for Taliban suspects with whom he might have commercial ties. Shirzai denies the allegations. Emergent Power Centers: Civil Society and Independent Activists The fall of the Taliban and international intervention has enabled the emergence of new centers of influence with the potential to sustain modernization. Civil society activists and "independents" in the National Assembly and other institutions are a growing force in Afghan politics. Civil society activists dominate the Afghan Independent Human Rights Commission (AIHRC) as well as such private activists and watchdog groups as the Afghanistan Women's Network, the Afghan Anti-Corruption Network, Integrity Watch, Equality for Peace and Democracy, "Afghanistan 1400," and the Afghanistan Analysis and Awareness ("A3"). Activists in these groups are familiar with and have easy access to media outlets. Some own new media outlets, such as the Mohseni family, which owns Moby Media (Tolo Television), Afghanistan's most popular private TV station. Independent newspapers, such as Eight Sobh (8 AM), have been established to advocate for transparent government. The December 5, 2011, Bonn conference was preceded by meetings (December 2-3, 2011, in Bonn) of Afghan civil society activists that were intended to help assess the progress of Afghan governance and highlight the role of civil society in governance. On the other hand, civil society activists continue to struggle against traditional faction leaders—many of whom often use their armed supporters to intimidate civil society activists or media outlets that criticize them. Among the most outspoken civil society activists in the 2005-2010 parliament, female activist Malalai Joya (Farah Province) was a leading critic of war-era faction leaders. Ms. Fawzia Koofi, at one time a deputy lower house speaker, remains in the Assembly and is an outspoken leader on Afghan women's rights. Others prominent women's activists include Fauzia Gailani, who did not win re-election to parliament in 2010; Shukria Barekzai, chairwoman of the lower house Defense Committee during 2011; and Palwasha Hassan. Ramazan Bashardost, a former Karzai minister, champions parliamentary powers and has highlighted official corruption. He ran for president in the 2009 elections on an anti-corruption platform and drew an unexpectedly large amount of votes. Bashardost was returned to parliament in the September 2010 election. Ahmad Nadery, formerly a deputy chairman of the AIHRC, was fired from that post by Karzai for his criticism of governmental corruption; Nadery went on to found the Free and Fair Election Forum of Afghanistan, a key non-governmental election watchdog organization. The Electoral Process and Recent Elections Elections are widely considered a key harbinger of the durability and extent of Afghanistan's political development and a barometer for measuring the effects of factional, political, ethnic, and sectarian rivalries. The 2009 presidential and provincial elections were the first post-Taliban elections run by the Afghan government through its Afghanistan Independent Electoral Commission (IEC). Both it and the September 2010 National Assembly elections were highly flawed and the international community worked with Afghan leaders to reduce such flaws in the 2014 presidential and provincial election process. The 2014 process was initially deemed less fraud-plagued than in 2009 or 2010, but ethnic and political disputes, as well as accusations of fraud, produced yet another election-related crisis. Political parties have not developed as a major feature in post-Taliban Afghanistan. During the era of the Soviet occupation and the 1992-1996 civil war, many of the mujahedin (Islamic insurgent fighters) parties were based on ethnicities, loyal to major ethnic and factional commanders, and supported by outside powers—factors that have contributed to a popular aversion to formal political parties. Since 2009, the party formation has strengthened somewhat but still not to the point where parties are the main organizing institution for political participation. Many hoped that post-Taliban Afghanistan would produce secular, pan-ethnic democratic parties. That process has been halting. From the fall of the Taliban until 2009, 110 political parties were established, but most of these parties were small and were formed by and centered on specific personalities or ethnicities, rather than offering clear ideological platforms. Ethnic-based parties do not portray themselves as such because Article 35 of the Afghan constitution bans parties based on ethnicity or religious sect. A 2009 law required all parties to re-register by demonstrating their support with 10,000 signatures spanning at least 22 provinces. That limited the number of parties registered before the September 18, 2010, parliamentary election to only five, and only 31 out of the 2,500 candidates ran as representing a particular political party in that election. A July 11, 2012, regulation eased registration rules somewhat by requiring parties to have offices in at least 20 provinces to register, and 56 parties are registered. Some assert that the development of idea-based parties has been hindered by the Single, Non-Transferable Vote (SNTV) system that limits the ability of parties to determine those candidates that are elected to parliamentary seats. Karzai never formed a party, nor has Ghani. However, many Karzai aides and supporters were from the moderate faction of Hizb-e-Islam i. The party, composed almost totally of ethnic Pashtuns, is the only one of the mujahedin parties that is formally registered. Committed to working within the political system, it is led by Minister of Economy Abdul Hadi Arghandiwal, whose leadership was reaffirmed at a party conference in October 2012. The militant wing of Hizb-e-Islam is loyal to pro-Taliban insurgent leader Gulbuddin Hikmatyar; it is called Hizb-e-Islami Gulbuddin (HIG). Jamiat-Islami (discussed above) , and the Uzbek group Junbush Melli Islami Afghanistan , no longer operate formally, although many of their supporters affiliate informally and might continue to use those party names. Since 2004, Abdullah has distanced himself from Jamiat Islami and formed several parties and coalitions in an effort to broaden his appeal beyond the Tajik community. Some of his rivals in the Tajik community have formed separate parties or have joined multi-ethnic parties focused on increasing government accountability. One prominent secular, pan-ethnic party—the Rights and Justice Party—was formed by ex-Interior Minister (now National Security Adviser) Mohammad Hanif Atmar and other allies in October 2011. Another party, the Coalition for Reform and Development, was formed in early 2012 to try to ensure that the 2014 elections would be fair. Below is brief background on the post-Taliban elections that have been held. 2004 Presidential Election The first election for president was held on October 9, 2004. Turnout was about 80%. Hamid Karzai won in the first round (55.4% of the vote) over 17 challengers and was sworn in in December 2004. With the National Assembly not yet established, he ruled by decree during 2005. Despite surrounding himself with Pashtuns in his inner circle, Karzai was credited for including ethnic and political factions in high government positions. Ahmad Zia Masoud, brother of slain Northern Alliance supreme military commander Ahmad Shah Masoud, served as first vice president during Karzai's first elected term. 2005 Parliamentary Election Elections to establish the National Assembly and the provincial councils were held on September 18, 2005. The number of representatives varied by province, ranging from two (Panjshir Province) to 33 (Kabul Province). Other examples include Herat (17 seats), Nangahar (14), Qandahar, Balkh, and Ghazni (11 each). The National Assembly was first inaugurated on December 19, 2005. 2009 Presidential Election The August 20, 2009, presidential election was plagued by assertions of a lack of credibility of the Independent Election Commission (IEC), whose commissioners were selected by and politically close to Karzai. A separate U.N.-appointed Elections Complaints Commission (ECC), which reviews election complaints and validates candidacies, had somewhat more credibility than the IEC because a 2005 election law provided for three ECC seats to be held by foreign nationals, appointed by the head of U.N. Assistance Mission–Afghanistan (UNAMA). The IEC set an August 20, 2009, election date—somewhat later than the April 21, 2009, date mandated by Article 61 of the Constitution to allow at least 30 days before Karzai's term expired on May 22, 2009. Registration during added about 4.5 million new voters, bringing the total to about 17 million. However, there were widespread reports of registration fraud, including the selling of registration cards. A total of 32 candidates entered the race, and 3,200 people competed for 420 provincial council seats nationwide. About 80% of the provincial council candidates ran as independents, and one party, Hezb- i-Islami , fielded multiple candidates in several provinces. About 200 women competed for the 124 provincial council seats (30% of the total seats) reserved for women. In Qandahar and Uruzgan, there were fewer women candidates than reserved seats. In Kabul Province, 524 candidates competed for the 29 seats of the council. Security was a major issue for all the international actors supporting the Afghan elections process. In the first round, 800 out of 7,000 polling centers were deemed too unsafe to open. The European Union, supported by the Organization for Security and Cooperation in Europe (OSCE) and the International Republican Institute and National Democratic Institute sent observers. The total cost of the Afghan elections in 2009 was about $300 million, of which the United States contributed about $175 million and other donors contributed the remainder. Anti-Karzai Pashtuns failed to rally around the one major Pashtun who did run, Ashraf Ghani. The Northern Alliance backed Dr. Abdullah, who ran with a little-known Hazara and a Pashtun as his vice presidential picks. Taliban intimidation and voter apathy suppressed the total turnout to about 5.8 million votes cast, or about a 35% turnout. Twenty-seven Afghans, mostly security forces personnel, were killed on election day. Some observers said that female turnout was low primarily because there were insufficient numbers of female poll workers to make women feel comfortable voting. Clouding the election substantially were the widespread fraud allegations. The final, uncertified total was released on September 16, 2009, and showed Karzai at 54.6% and Dr. Abdullah at 27.7%. Anti-corruption candidate Ramazan Bashardost, a Hazara, received 9%, and Ashraf Ghani received 3%. In October 2009, the ECC determined that about 1 million Karzai votes and about 200,000 Abdullah votes were fraudulent and were deducted, leaving Karzai short of the 50%+ needed to avoid a runoff. Karzai acquiesced to a runoff against Dr. Abdullah, but Abdullah refused to participate on the grounds that problems that plagued the first round were unresolved. On November 2, 2009, the IEC declared Karzai the winner. The Obama Administration accepted the outcome on the grounds that the fraud had been investigated. The provincial council election results were certified by the end of 2009 and council members took office in February 2010. In the 2009 election, Karzai's first vice presidential running mate was the Northern Alliance's primary military commander, Marshal Muhammad Fahim, another Tajik. Karim Khalili (a Hazara) ran for another term as Karzai's second vice president. Fahim died of natural causes on March 9, 2014, and former parliament speaker Yunus Qanooni, another Northern Alliance figure, was confirmed by the National Assembly on March 25, 2014, to serve out Fahim's term. September 18, 2010, Parliamentary Elections The split over the conduct of the 2009 presidential elections widened in the run-up to the September 18, 2010, parliamentary elections. Mechanisms to prevent fraud were not fully implemented and the results were disputed until July 2011, largely paralyzing the National Assembly. About $120 million was budgeted by the IEC for the parliamentary elections, of which at least $50 million came from donor countries, giving donors leverage over when the election might take place. The remaining $70 million was funds left over from the 2009 elections. Donors temporarily held back the needed funds in an effort to pressure the IEC to demonstrate that it is correcting the flaws identified in the 2009 election. In February 2010 Karzai signed an election decree that superseded the 2005 election law and govern the 2010 parliamentary election, even though the constitution requires that any new election law (or decree) not be adopted less than one year prior to the election to which that law will apply. Some of the provisions of the election decree—particularly the proposal to make the ECC an all-Afghan body—alarmed some in the international community. In March 2010, Karzai compromised with international critics and allowed the seating of two non-Afghans on the ECC. The Wolesi Jirga voted against the election decree but the Meshrano Jirga did not act, thus allowing the decree to stand. Among other steps to correct the mistakes of the 2009 election, the Afghan Interior Ministry instituted a national identity card system to curb voter registration fraud. However, observers say that registration fraud still occurred. On April 17, 2010, Karzai appointed a new IEC head, Fazel Ahmed Manawi, a Tajik, who drew praise from many factions for impartiality. The IEC also barred 6,000 poll workers who served in the 2009 election from working the 2010 election. On June 22, 2010, a final list of candidates was issued after all appeals and decisions on the various disqualifications. It included 2,577 candidates, of which 406 were women. Sixty-two candidates were invalidated by the ECC, mostly because they did not resign their government positions, as required. Voter registration was conducted June 12-August 12. According to the IEC, over 375,000 new voters were registered, and the number of eligible voters was 11.3 million. On August 24, 2010, the IEC announced that 938 stations considered insecure would not open in order to prevent so-called "ghost polling stations"—stations open but where no voters can go. About 5.6 million votes were cast out of about 17 million eligible voters. Turnout was therefore about 33%; a major issue suppressing turnout was security. Preliminary results were announced on October 20, 2010, and final, IEC-certified results were delayed until November 24, 2010, due to investigation of fraud complaints. Of the 5.6 million votes cast, the ECC invalidated 1.3 million (about 25%) after investigations of fraud complaints. Causes for invalidation most often included ballot boxes in which all votes were for one candidate. The results, as certified by the IEC, resulted in substantial controversy within Afghanistan and led to a political crisis. The certified results were as follows. About 60% of the lower house (148 out of 249) winners were new members. Karzai's number of core supporters in the lower house fell from about 90 to about 70, largely because fewer Pashtuns were elected compared to 2005. A date of the inauguration of the new parliament was set for January 20, 2011, at which time, under Afghan law, President Karzai would formally open the session. The certified results triggered a major political crisis when several Pashtun candidates asserted that they lost due to fraud. On December 28, 2010, at the instruction of the Supreme Court, Karzai issued a decree empowering a special five-member tribunal to review fraud complaints. The IEC and ECC, backed by UNAMA and the international community, asserted the tribunal was not legitimate because the IEC and ECC are the only bodies under Afghan electoral law that have jurisdiction over election results. Still, to give time for the tribunal to complete its review, Karzai postponed the inauguration of the new parliament. After 213 of the certified winners threatened to inaugurate themselves, Karzai inaugurated the body on January 26, 2011, but he insisted that the tribunal continue its work. The lower house elected a compromise candidate, Abdul Raouf Ibrahimi, from the Uzbek community, as speaker. The upper house was completed as of February 19, 2011, when Karzai made his 34 appointments. The crisis became acute on June 23, 2011, when the special tribunal ruled that 62 defeated candidates be reinstated. On August 10, 2011, Karzai decreed that the special court does not have jurisdiction to change election results, and on August 21, 2011, the IEC implemented elements of a compromise by ruling that nine winners had won their seats through fraud and must be removed (fewer than the 17 that UNAMA had urged). The newly declared winners were sworn in on September 4, 2011, and the National Assembly resumed functioning shortly thereafter. The exposure of widespread fraud in the 2009 and 2010 elections increased strains between Karzai and the National Assembly. In the confirmation process of his post-2009 election cabinet, National Assembly members objected to many of his nominees as having minimal qualifications or as loyal to faction leaders. Karzai's original list of 24 ministerial nominees (presented December 19) was generally praised by the United States, but only 7 were confirmed. Another five were confirmed on June 28, 2010, and on March 12, 2012, the Assembly confirmed most of those ministers who were serving in an acting capacity as well as some new nominees. 2014 Presidential and Provincial Elections25 U.S. officials and many Afghans were concerned that the 2009 presidential election fraud would recur in the 2014 presidential elections, which occurred as international forces have been drawing down. The international community asserted that another fraud-filled election would cloud Afghanistan's ability to govern beyond 2014. The international community generally avoided holding the election to a standard of "free and fair:" Deputy Secretary of State William Burns said in Kabul on May 11, 2013, that the election should be "transparent, credible, and inclusive." The April 5, 2014, first round appeared largely free of widespread fraud, but the June 14, 2014, runoff was clouded by allegations, leveled particularly by Dr. Abdullah, of systematic fraud. USAID has spent about $200 million to support the 2014 election process in Afghanistan, including $95 million to support Afghan institutions directly and promote voter education and election observer groups; $80 million in the form of a donation to U.N. Development Program election support efforts (see below); and about $15 million to support civil society groups. Timing of the Elections: April 5, 2014 Under the constitution, the presidential elections had to be held 30 to 60 days before the May 22, 2014, expiration of Karzai's final term. On October 31, 2012, the IEC set the election date as April 5, 2014, overruling Northern Alliance assertions that the election should be later to allow for the northern part of the country—where support for non-Pashtun candidates is strong—to thaw after the winter. Provincial elections were due in 2013, but the IEC set these elections concurrent with the presidential elections because of the logistical difficulties and costs involved in holding a separate election. There were also 420 provincial council seats up for election in 2014. The next parliamentary elections are expected to be held in 2015. Election Process Milestones and Reforms The July 8, 2012, "Tokyo Mutual Accountability Framework" stipulated that Afghanistan "develop, by early 2013, a comprehensive election timeline through 2015 for electoral preparations and polling dates." Aside from the setting of the election date, the key benchmarks of election preparations and their status were as follows: Election -Related Dates . The IEC set a timeframe of September 16-October 6, 2013, as the deadline for candidate registration. That time frame was observed. Election Laws . Two laws to govern the 2014 election—one (IEC Structural Law) to structure the IEC and the Electoral Complaints Commission (ECC) and another one to stipulate election procedures and policies (Electoral Law)—were to be adopted within the first quarter of 2013. That deadline was not met. In mid-April 2013, the National Assembly passed draft election laws that included lower house provisions to deprive the president of sole discretion over IEC appointments and provide for two ECC officials to be non-nationals (as was the case for the 2010 parliamentary election). Karzai insisted that the ECC be replaced by an Afghan Supreme Court-run election tribunal and he returned the draft unsigned (a veto). On May 22, 2013, the lower house passed another draft Structural Law setting up an all-Afghan ECC. It and the Electoral Law then passed the upper house. Karzai signed the Structural Law on July 17, 2013, and the Electoral Law on July 20, 2013. IEC and ECC Membership and Powers . Acting under the newly signed election laws, a committee of lawyers, human rights activists, the speakers of the two chambers of the National Assembly, and judicial officials nominated IEC and ECC candidates. On September 17, 2013, Karzai named the nine IEC commissioners, including former Herat Governor Yusuf Nuristani, an ethnic Tajik, as IEC chairman. He named three women as IEC commissioners. Karzai subsequently named the five ECC members, of which one (Reeda Azimi) is female. The chairman of the ECC is Sattar Saadat, a Pashtun. The ECC also had 102 provincial complaints commissioners, approved in February 2014. The ECC, expanded its staff and capabilities after acquiring official standing by Afghan law, has the power to investigate abuses of power—such as provincial officials' interference in the process—and vet candidates. It removed some provincial council candidates for various violations and prosecuted some local officials. The IEC gets assistance from UNDP under a program called ELECT II (Legal and Electoral Capacity for Tomorrow). Voter Registration, Voter Awareness, and Other Preparations . In accordance with a January 2013 IEC decision, voter registration updating rand from late May 2013 until late March 2014. The IEC issued new voter registration cards to 3.4 million registrants, close to the 4 million goal. The government had decided in November 2012 to issue 14 million biometric ID cards ("e-taskera") by March 2014 to reduce voter fraud. But, this system was later deemed too difficult and expensive ($115 million) to implement for the 2014 vote. It might apply to the 2015 parliamentary elections. Observers say the government promoted public awareness of the election, including setting up a call center to answer questions; 700,000 calls were made to that center, according to the International Federation of Electoral Systems (IFES) in mid-March 2014. Candidate Requirements . Presidential candidates were required to gather 100,000 valid voter signatures, and file an $18,000 deposit. Security . In February 2014, the IEC determined that about 6,800 polling centers (out of 7,170 that were surveyed) could be secured sufficiently to open on election day—far more than those that opened in the 2009 or 2010 elections. Observers. About 200 international observers were present on election day. Organizations sent observers to the election, but they mostly deployed in Kabul and in provincial capitals. A Taliban attack on the Serena Hotel in Kabul in mid-March 2014 killed one foreign national involved in the election observation process, forcing his and other non-Afghan organizations to reassess their missions. Several other attacks in Kabul, including against IEC offices, occurred before the election. Afghan domestic observations groups fielded about 12,000 observers. Efforts to Promote Women . The election laws passed by the National Assembly in 2013 reduce to 20% from 25% the required percentage of women to be elected to provincial and district councils (when district elections are held). Human rights advocates say they fear that this provision could foreshadow eliminating similar quotas for women in the National Assembly elections. Those who favored the reduction argued that the 25% requirement was unfair because women can win election with very few votes. The voter registration process tried to improve female participation in the election. About 30% of newly registering voters were women, which was in line with UNAMA goals. A Ministry of Interior request to donors to fund the hiring of 13,000 female election security officers was approved in an effort to support female turnout for the vote. However, 40 out of Afghanistan's 407 districts did not have female election staff because of security concerns. The efforts to encourage female participation and other measures above at least partly satisfied S.Res. 151 , adopted July 11, 2013, which urged the Secretary of State to condition some U.S. aid on Afghan implementation of measures to prevent fraud and to encourage women's participation in the electoral process. In part because of the developments discussed above, many expressed optimism that the election would be more credible than the 2009 or 2010 votes. The "Free and Fair Election Foundation of Afghanistan," a domestic body, assembled 50 political parties to endorse demands for election reform and oversee the unfolding election process. Several political parties, such as the National Front, the National Coalition, the Truth and Justice Party, and Hizb-e-Islam, formed a "Cooperation Council of Political Parties and Coalitions of Afghanistan" (CCPPCA) to ensure the fairness of the election. On December 9, 2013, a delegation from the National Democratic Institute expressed "guarded optimism" that the April 2014 elections would not be as marred by fraud as were previous Afghan elections. Candidate Field There were several potential frontrunners in the contest. By the close of candidate registration on October 6, 2013, 26 presidential tickets had registered (fewer than the 32 in 2009). In October 2013, the IEC disqualified 16 candidates, including the only woman (Khadija Ghaznawi), on the basis of lack of valid signatures or citizenship issues. After an appeal period, the final candidate list was announced by the IEC on November 20. The Taliban vowed to disrupt the election, but the leader of an allied insurgent group Hezb-e-Islami Gulbuddin (HIG), Gulbuddin Hekmatyar, instructed his members inside Afghanistan to vote. For the 420 provincial council seats, 2,713 candidates were approved to run, including 308 women. The formal campaign period began on February 5, 2014. The major approved presidential tickets, mostly following the tradition of balancing different ethnicities, include those below. Several purportedly credible opinion polls were published in late December 2013; Afghan polling was sparse in previous elections. Three candidates withdrew before the vote was held, including Karzai's brother, Qayyum, who reportedly bowed to his brother's urging not to run, and former Defense Minister Abdul Rahim Wardak. All of the major candidates said they would, if elected, sign the Bilateral Security Accord (BSA) with the United States, required to keep some U.S. troops in Afghanistan after 2014. Additional information about the first round candidate field is as follows: Ashraf Ghani . Ghani's reputation for affiliation with global organizations such as the United Nations and the World Bank contributed in the perception in the 2009 election that Ghani is out of touch with average Afghans' problems. However, Ghani apparently was able to appeal to wide range of Pashtuns in 2014, and running mate Abdul Rashid Dostam apparently delivered a large number of Uzbek votes. The other Ghani running mate was former Justice Minister Sarwar Danish, a Hazara Shiite who studied in Iran and won some Hazara votes. Dr. Abdullah . Dr. Abdullah campaigned not only in Northern Alliance strongholds but also in Pashtun provinces, stressing there his Pashtun heritage on his father's side. His supporters, mainly in the north and west, also faced a more permissive security environment to vote in than did Pashtuns. Abdullah's first vice presidential running mate was Hizb-e-Islam member Mohammad Khan (a Pashtun) and his second vice presidential running mate is Mohammad Mohaqiq, a Hazara faction leader discussed earlier. Opinion polls consistently showed him to be a front runner. Zalmay Rassoul . Foreign Minister Rassoul was considered an early front-runner because of his generally close relations with Karzai. However, polls in December 2013 put him behind Ghani and Abdullah, and final first round results tracked with that polling. Rassoul attempted to win Northern Alliance votes by naming Ahmad Zia Masoud, brother of Ahmad Shah Masoud, as first vice presidential candidate. The other Rassoul running mate was Bamiyan governor Habiba Sohrabi, an ethnic Hazara, who appeared to garner female support at campaign rallies. (Two other females were vice-presidential candidates.) Other candidates . Among other candidates, Abdi Rab Rasul Sayyaf's candidacy concerned U.S. and international officials because of his past ties to radical Islamist Arab volunteers in the anti-Soviet war who ultimately formed Al Qaeda. As a parliamentarian, Sayyaf has consistently opposed legislation codifying the rights of women or weakening the authority of the Islamic clergy. One of his vice presidential running mates was Ismail Khan, a faction leader discussed above. The ticket polled in the single digits, which tracked with the first round vote count. Other approved candidates included Nangarhar governor Ghul Agha Shirzai; Daoud Sultanzoi, a former Communist and parliamentarian; Karzai adviser Hedayat Amin Arsala; and Qotboddin Helal. Election Days and Controversy According to IEC officials, turnout in the April 5, 2014, first round was over 7 million—60% turnout. Violence on election day was relatively minor and did not deter most voters, many of whom stood in long lines to vote. Seventeen ANSF were killed in nearly 300 total insurgent attacks, but no voters apparently were killed that day. 1,000 polling centers did not open due to anticipated violence. Some polling centers ran out of ballots because turnout was heavier than expected, although voting hours were extended in order to allow for extra ballots to be provided. After the April 5 first round, there were 870 fraud complaints deemed serious enough to have potentially affected the outcome. However, the complaints were investigated and about 375,000 votes were deducted across the spectrum of candidates—compared to 1.2 million votes deducted in 2009. On May 15, 2014, the IEC announced certified results. The totals stayed relatively stable from earlier, preliminary results: Dr. Abdullah at 44.9%; Ashraf Ghani at 31.5%; Zalmay Rassoul at 11.5%; Abdi Rab Rasoul Sayyaf at about 5%; Sherzai at about 1.5%; and the remaining four candidates at or below about 1% each. On the basis of the results, the IEC announced that a runoff between Abdullah and Ghani would be held on June 14. Prior to the runoff, there were discussions among several candidates about a possible political settlement that might avoid a runoff—which many feared would become a Pashtun vs. Tajik ethnic power struggle. However, no political arrangement was reached and the runoff went forward on June 14. Violence was somewhat more extensive in the runoff than in the first round, and about 50 persons were killed around the country. Turnout was assessed at relatively the same as it was in the first round (about 7 million votes cast). The IEC at first stated that certified results would be ready by July 22, with a swearing in of a new president on August 2. However, as informal results became known, the potential for a worst case scenario increased—an outcome in which no candidate recognizes the election results and the political system breaks down. With informal results showing him behind, Dr. Abdullah alleged that there was no clear explanation for why turnout—particularly in the eastern provinces, where Ghani's support is strong—increased substantially in the second round. Ghani's campaign asserted the increase in turnout in that area was due to successful campaigning and voter turnout operations. Accusing IEC commissioners and election workers of committing systematic fraud to favor of Ghani, Dr. Abdullah released purported taped phone conversations allegedly among IEC and other officials purporting to discuss helping Ghani. In subsequent days, Abdullah broke off relations with the IEC and called on the U.N. Assistance Mission-Afghanistan (UNAMA) to become directly involved in the vote count. During June 20-July 6, the two candidates' camps attempted to reach agreement on the scope of a vote audit that might resolve the allegations. On June 21, 2014, Abdullah supporters in several cities demonstrated against the vote count and certification process. The IEC's release of preliminary results on July 7, which showed Ghani winning with 56.44% to Abdullah's 43.56%, triggered calls by some Abdullah supporters for him to declare victory and set up a government. Some armed factions supporting Abdullah reportedly began to seize government centers in three provinces, and to threaten to storm such locations in Kabul, including the presidential palace. President Obama spoke by phone with Dr. Abdullah on July 8 and sent Secretary of State John Kerry to Kabul to broker a resolution. On July 12, Secretary Kerry, Abdullah, and Ghani announced an agreement at a joint press conference providing for: a recount of all 23,000 ballot boxes by Afghan election officials, with monitoring from diplomats posted to various embassies in Afghanistan and other officials. the winner of the election would ask the losing candidate to become or to name an alternative figure to be "chief executive officer " (CEO) of the government. The position would evolve, after constitutional amendment, into a prime ministership to ensure that the major communities share power. The recount process began on July 17 but was interrupted repeatedly over disagreements on criteria to use to invalidate votes and distrust of certain officials involved in the recount. It was completed by the end of August but results were withheld to allow time for the Abdullah and Ghani camps to bridge differences over a post-election power-sharing arrangement. The final count, apparently known to both camps, still reportedly showed Ghani winning by about 800,000 votes. By mid-September 2014, amid continued threats by Dr. Abdullah and his supporters not to recognize a Ghani declared victory, the two camps approached agreement on power-sharing. On September 21, 1014, the crisis was apparently resolved when Ghani and Abdullah signed the power-sharing agreement. The IEC simultaneously declared Ghani the election winner while acknowledging that the audit did not necessarily resolve all fraud allegations. Ghani was inaugurated President on September 29 and immediately issued a decree appointing Abdullah as "CEO." The following day, Afghanistan and the United States signed the Bilateral Security Agreement (BSA). The power-sharing agreement provides for: Ghani's delegation of some presidential powers to Abdullah as CEO. The CEO is to have powers approximating those of a Prime Minister. The CEO will lead weekly meetings of a "Council of Ministers" (the ministers plus the CEO and deputy CEOs) that will implement the strategic direction given it by the "cabinet" that is led by the President. The cabinet will consist of all ministers plus the President, vice presidents, the CEO, deputy CEOs, and the chief advisor to the president. The president and the CEO are to share powers to appoint ministers and other government officials. However, this provision has been difficult to implement because there are too few positions available for both Ghani and Abdullah to reward their most loyal supporters who seek high-level jobs. Disagreements substantially delayed the naming of a new 25-minister cabinet. Within two years, a loya jirga will convene to consider a constitutional amendment to convert the CEO position to that of a formal Prime Minister. However, to obtain a quorum at the loya jirga , district elections will need to be held before that meeting is convened. District representatives are to be delegates to any loya jirga that has constitutional standing. Ghani and Abdullah Leadership and New Afghan Cabinet Named The partnership between Ghani and Abdullah has apparently been troubled since the pair took office, but it has not collapsed. Ghani has sought to assert the full extent of his constitutional role, and has announced initiatives to curb corruption and hold corrupt individuals accountable, to install officials based on merit, to promote women, and, through several trips to regional countries with a stake in Afghanistan's future, to explore new ways to settle the conflict with the Taliban insurgency. Since taking office, he has reportedly emphasized punctuality and tightly run meetings of high officials—departing sharply from Karzai's more free-flowing style. He has also announced various policy initiatives that are discussed in the appropriate sections below. Dr. Abdullah's role has, at times since taking office, appeared unclear as he has struggled to define and assert the authorities he has. Some observers say his effectiveness suffers from a relatively weak advisory team, including aides who continue to focus on what Abdullah believes was vast election fraud that deprived him of presidential victories in 2009 and again in 2014. Ghani indicated that he sought to appoint a cabinet based on merit rather than factional interests. However, he and Abdullah reportedly agreed that they would each take a lead role in making half the 25 cabinet post nominations. Doing so complicated the need to balance competence and factional interests, and delayed the nomination process until January 12, 2015, well beyond the constitutionally required 30 day period for such nominations (October 28, 2014). The delay, by all accounts, caused substantial confusion in governance because acting ministers were left in charge after November 2014, and their authority to make decisions was limited. The lower house of the National Assembly has not announced a date to vote on the appointments. Among the key appointments: Current Chief of Staff of the Afghanistan National Army, Sher Mohammad Karimi, was nominated Minister of Defense by Ghani, and Nur-ul-Haq Ulumi was named by Abdullah as Interior Minister. Both are Pashtuns—a departure from the practice during the Karzai years of appointing a Pashtun to one of the posts and a Tajik to the other. Both men served in the military structure of the Soviet-backed Communist government of the 1980s. Another Pashtun, Rehmatullah Nabil, was kept on by Ghani as head of Afghan intelligence (National Directorate of Security)—a post not requiring parliamentary confirmation because the NDS is not a formal ministry. The nominee for Minister of Borders and Tribal Affairs, Qamaruddin Shinwari, (Ghani nominee) was a deputy minister of Justice during the Taliban regime, suggesting the appointment is intended to ease Pakistani concerns on border security issues. The nominated Foreign Minister, Salahuddin Rabbani, a Tajik (Abdullah nominee), was recently the head of the High Peace Council that supervises reconciliation talks with the Taliban. He succeeded his father in that post, Burhanuddin Rabbani, who was political head of the Northern Alliance and nominally Abdullah's superior. The nominated Minister of Finance, Jelani Popal (Ghani nominee), was a close Karzai ally during 2007-2011 as head of the Independent Directorate of Local Governance, which is discussed further below. The nominee for Minister of Communications and Information Technology, Barna Karimi (Abdullah nominee), is reputedly an ally of Hazara Shiite power broker Mohammad Mohaqiq and has close relations with Iran. Three women were nominated, two by Ghani (Minister of Higher Education and Minister of Information and Culture), and one by Abdullah (Minister of Women's Affairs). Although many of the nominees were widely praised in their past positions, observers assessed the cabinet nominees as a product of compromise and the continued influence of powerful ethnic and political factions. Some assessed the nominees as calling into question Ghani's pledge to make selections based purely on merit and not political considerations. Afghan Governing Capacity and Performance37 All assessments indicate that there has been progress in the capacity of Afghan institutions since 2001, particularly in performing such duties as managing national finances and providing services, but that significant deficiencies remain. Many of the shortcomings in governance are attributed to all of the political disputes, governmental corruption, nepotism and favoritism, and the lack of trained or skilled workers. The U.S.-Afghanistan Strategic Partnership Agreement, signed in Afghanistan on May 1, 2012, commits the United States (beyond 2014) to "support the Afghan government in strengthening the capacity, self-reliance, and effectiveness of Afghan institutions and their ability to deliver basic services." The Obama Administration has developed about 45 different metrics to assess progress in building Afghan governance and security, as it was required to do (by September 23, 2009) under P.L. 111-32 , an FY2009 supplemental appropriation. UNAMA, headed in Kabul by Jan Kubis, also evaluates Afghan governance according to numerous metrics. Afghan progress according to these metrics is presented in various reports of the Secretary-General to the U.N. General Assembly. In addition, the Tokyo Framework of Mutual Accountability, cited above, provides aid incentives for Afghanistan (portions of $16 billion pledged through 2015) if it improves on several measures including The holding of credible, inclusive, and transparent elections in 2014 and 2015. Improved access to justice, and respect for human rights, particularly for women and children. Improved integrity of public financial management and the commercial banking sector. Improved revenue systems and budget execution, including establishment of a provincial budgeting policy. The incentive structure of the Tokyo Framework is to raise the percentage of donor funds channeled through the Afghanistan Reconstruction Trust Fund (ARTF) as Afghan governance improves. That fund gives money directly to Afghan ministries and thus gives the Afghan government substantial discretion as compared to other donated funds. In part to demonstrate that Afghanistan would uphold those commitments, a presidential administrative reform decree issued July 26, 2012, required virtually every ministry and government body to develop a work plan, complete unfinished tasks, file specified reports, or carry out specified reforms. The final communique of the July 3, 2013, "senior officials" meeting in Kabul to review progress since the July 2012 Tokyo meeting presented mixed findings: it strongly praised government progress on budget transparency, revenue growth, and achieving Millenium Development Goals, including school enrollment and health care access. However, the review noted varying degrees of progress on election reform, anti-corruption, and local governance. It called for substantial improvement on other of the benchmarks, including human rights and accountability for the Kabul Bank scandal (discussed below). The meeting did not result in withholding of any aid. Another meeting to assess progress according to the Tokyo Framework criterial was held in London in December 2014. Expanding Central Government Capacity There appears to be a consensus that the capacity of the central government has increased dramatically since 2001, but building capacity at provincial and district levels has proved far more difficult. Afghan ministries have greatly increased their staffs, and most ministry offices in Kabul, and many ministry offices in the provinces, have modern computers and communications. There are about 500,000 Afghan government employees, although the majority of them are in the security forces. A large proportion of the remainder work as teachers. Capacity building programs sponsored by U.S. and other donor assistance includes training additional civil servants and instituting merit-based performance and hiring criteria. U.S. mentors and advisers have served in virtually all of the Afghan ministries, including many serving under contract with USAID. On several occasions, the U.S. funds have sponsored jobs fairs to recruit new civil servants. Still, the government has had trouble recruiting workers with sufficient skills. And many Afghan government personnel are reluctant to serve in the provincial offices of the central government ministries, particularly those provinces that are restive. Afghanistan has also wrestled with the problem of international donors luring away Afghan talent with higher salaries. The July 20, 2010, Kabul donors conference addressed this issue by calling for a harmonized salary scale for donor-funded salaries of Afghan government personnel. Discussions have been held between the Afghan government and donors on this issue, with minor progress. Merit-Based Recruitment To increase its proficiency of government, during late 2010-early 2011, the Afghan government instituted merit-based appointments for senior positions, such as deputy provincial governors and district governors, and converted those positions to civil servants rather than political appointees. After a halting start, this process has been accelerating. A U.N. report of March 7, 2014, states that the 231 district governors (more than half of the 407 total number of district governors) were appointed based on merit-based recruitment, but the number of deputy governors recruited under this system has remained at 32 since January 2013. About half of the 34 provincial governors were appointed based on merit. Merit-based recruitment implements the July 26, 2012, administrative reform decree directing the Independent Directorate of Local Governance, discussed below, to open all deputy provincial governorships to competition within two months. Since taking office, President Ghani has told his subordinates that he seeks to further increase the use of merit-based recruitment. One of his first acts after taking office was to demand that each ministry submit a list of its employees as well as their qualification for holding their posts. The key institution that is deciding on merit-based appointments and standardizing job descriptions, salaries, bonuses, and benefits is the Afghan Independent Administrative Reform and Civil Service Commission (IARCSC). The commission redefined more than 80,000 civil servant job descriptions. In 2011, the National Assembly ratified a revised civil service law to institute merit-based hiring and give the IARCSC a legal underpinning; it replaced a September 2005 civil service law. Under a USAID program called the Civilian Technical Assistance Plan (CTAP), the United States provided technical assistance to Afghan ministries and to the IARCSC. From January 2010 until January 2011, USAID, under a February 2010 memorandum of understanding, gave $85 million to programs run by the commission to support the training and development of Afghan civil servants. One of the commission's subordinate organizations is the Civil Service Training Institute. In 2013, the Institute trained over 5,000 Afghan civil servants in management, computer skills, English language proficiency, and finance and accounting. USAID provided over $40 million to the CTAP program. The international community has sponsored a $350 million five-year program ("Capacity-Building for Results Program") during 2012-2017 to enhance the Afghan government's ability to deliver services to its population through key ministries. USAID programs have assisted employees of the state-owned Afghan power company (DABS) to manage Afghanistan's power grid and bill its customers and trained 250 Ministry of Mines personnel in geology to try to help develop Afghanistan's extractive industries sector. Many Afghan civil service personnel undergo training in other countries. India has trained many Afghan civil servants building on the cultural ties between the two countries. Japan, Singapore, Germany, and others have also trained Afghan civil servants on good governance, anti-corruption, and civil aviation. Some of these programs were conducted in partnership with the German Federal Foreign Office and the Asia Foundation. The Afghan Budget Process The international efforts to build up the central government are reflected in the Afghan budget process. At the July 3, 2013, senior officials meeting in Kabul, donors strongly praised the government's performance in establishing budget transparency. U.S. official reports assess the Afghan government as increasingly able to execute parts of its budget, and say that some ministries—particularly the Ministry of Public Health and the Ministry of Rural Rehabilitation and Development—are able to deliver services relatively effectively. The Afghan government disperses its own funds as well as those directly supplied by donor countries and organizations. As of 2013, the Afghan budget year runs from December 21 to December 20 of each year. It now longer begins on the Persian New Year ( Nowruz ). The 2014 budget was approved January 15, 2014, but Afghan officials say it is nearly $600 million short because of the economic uncertainty caused by the election dispute. Afghan officials seek donations to fill the shortfall, and say they will adjust the 2015 budget downward to match new economic conditions. U.S. reports continue to criticize the Afghan budget process for a high degree of centralization. Once a budget is adopted by the full National Assembly (first the upper house and then the lower house, and then signed by Karzai), the funds are allocated to central government ministries and other central government entities. Some of the elected provincial councils, appointed provincial governors, and district governors formulate local budget requirements and help shape the national budget process, but no locality controls its own budget. These local organs do approve the disbursement of funds by the central entities (called mustofiats , accounting offices in each of Afghanistan's 34 provinces). The Tokyo Mutual Accountability Framework included as one of its benchmarks the establishment of a provincial budgeting process that provides provincial input into the national budget process. The July 3, 2013, senior officials meeting statement indicated that Afghanistan needed to finalize and begin implementing a provincial budgeting policy. A draft provincial budget policy issued in October 2013 built on several pilot programs put in place, including the Provincial Budget Pilot (PBP) program that seeks to improve budgetary planning integration between the national and provincial levels. On February 11, 2014, the Ministry of Finance allocated $1 million to five provinces under the PBP program. Since taking office, President Ghani has expressed his support for a decentralized budget process in which provinces will formulate and execute planned budgets. Still, the diversion of revenues received has caused financial problems for the government. All revenue is, by law, to be remitted to the Afghan central government. However, local officials sometimes seek to retain or divert locally collected revenues. That diversion has reportedly increased in 2013 as governors of border provinces grow nervous about an economic downturn after 2014. The diversion contributed to a 20% government revenue shortfall (compared to government projections) in 2013 and to the budget shortfall experienced in 2014. Many international development experts concur with the Afghan government that only through direct funding will the Afghan government be able to develop the capacity and transparency to govern and deliver services effectively. Although still wary of misuse, the United States has been accommodating that view; nearly 50% of U.S. aid is provided directly—the target level that was endorsed at the July 20, 2010, Kabul conference and the Tokyo Mutual Accountability Framework. The percentages are up from 21% in FY2009. U.S. direct support is based on State Department and USAID assessments of the ability of individual ministries to accurately and transparently administer donated funds. Some SIGAR audit reports question the State and USAID assessments and assert the potential for misuse of U.S. funds. Expanding Local (Subnational) Governance Since 2007, U.S. and allied policy has increasingly emphasized building local or "subnational" governance. During 2009-2012, the Administration sent about 500 additional U.S. civilian personnel from the State Department, USAID, the Department of Agriculture, and several other agencies to advise Afghan ministries, and provincial and district administrations. That effort raised the number of U.S. civilians in Afghanistan to about 1,330 by August 2011, of which nearly 400 were serving outside Kabul (up from 67 in early 2009). However, the Obama Administration has reduced civilian personnel in Afghanistan by about 20% from those levels as the transition to Afghan security lead was completed in 2014. U.S. and partner country officials say that, despite a reluctance of central government personnel to serve in outlying areas, Afghan local governance has expanded, particularly in areas considered secure. Afghans have formed local councils, which in turn have built ties to appointed local leaders in secure areas. However, forming these linkages has been slowed by centralized decisionmaking processes; localities have their own governing bodies but the central government ministries in the provincial capitals of each province actually implement national programs. Local officials often disagree with the Kabul ministry representatives on priorities and implementation. During his presidency, Karzai frequently complained that donor-run Provincial Reconstruction Teams (PRTs) have preventing the Afghan government from expanding its own responsibilities and capacity at the local level. There are PRTs in about 80% of Afghan provinces, and they have far more funding and capability than the Afghan governor in those provinces. The Tokyo Framework largely endorses those complaints by calling for the PRTs to be transferred to Afghan control. The presidential administrative decree of July 26, 2012, provides for Afghan institutions to begin taking over the roles of the PRTs, and, since mid-2012, the United States and partner countries have been closing down PRTs and handing them over to Afghan control. Some further enhancements to local governance await Afghan parliamentary action. The National Assembly continues to deliberate several laws including a local government law, a municipality law, and a provincial councils law. The Independent Directorate for Local Governance (IDLG) In terms of local governance institution-building, a key institution was empowered in August 2007 when the responsibility for selecting local leaders (provincial governors and below) was given to a new Independent Directorate for Local Governance (IDLG). That function was taken out of the Interior Ministry. However, some international officials say that the IDLG served primarily as an instrument for Karzai to mobilize voters. It is headed by Abdul Khaliq Farahi, a former diplomat who was kidnapped in Peshawar, Pakistan, and held during 2008-2011 allegedly by militants linked to Al Qaeda. To address the difficulty in recruiting staff to work in outlying areas, the July 26, 2012, Karzai administrative reform decree required the IDLG to fill open positions in the provinces within six months, including in the ministry offices in each provincial capital. It also required a review of provincial governors' performance in combating corruption and improving governance. The IDLG is an implementing partner for the District Delivery Program (DDP), which was created to improve government presence and service delivery at the district level, and has been funded by the United States, Britain, Denmark, and France. The program has been phased out in conjunction with the transition to Afghan leadership at the end of 2014. The IDLG also gets assistance from the U.N. Development Program's (UNDP's) Afghanistan Subnational Governance Program II (ASGP-II). That program provided $83.6 million to the IDLG from the European Community, Italy, Switzerland, and Britain. Provincial Governors and Provincial Councils Many believe that, even more than institutional expansion, the key to effective local governance is the appointment of competent and incorruptible governors in all 34 Afghan provinces. U.N., U.S., and other international studies and reports all point to the beneficial effects (reduction in narcotics trafficking, economic growth, lower violence) of some of the strong Afghan civilian appointments at the provincial level. There were numerous successful governors, such as Mangal, Sherzai, Noor, and others mentioned in this paper, but the successful governors were almost invariably also accused of arbitrary administration of justice and excessive independence of central government authority. Despite the international and Afghan emphasis on increasing merit-based appointments, about half of the provincial governors continue to be political appointees. In September 2012, Karzai shuffled 10 out of the 34 provincial governors (including Mangal), asserting that those taken out of their positions had fallen short on improving governance or combating corruption. However, many observers suspected the reshuffle was intended to place loyalists in key local positions ahead of the 2014 election. Some of the ousted governors were assigned to different provinces. Other than Helmand, the nine provinces where governors were changed include Wardak, Kabul, Takhar, Faryab, Baghlan, Nimruz, Laghman, Lowgar, and Badghis. Since taking office, President Ghani has told IDLG officials to set clear benchmarks for provincial governor appointments as part of an effort to expand merit-based appointments and improve the efficiency of provincial governors and mayors. Provincial Councils One problem noted by governance experts is that the role of the elected provincial councils is unclear. In most provinces, the provincial councils do not act as true local legislatures and are weak compared to provincial governors' offices. Legislation to expand the councils' roles has been under consideration by the National Assembly, but most recent versions of a provincial councils law were stripped by the cabinet of provisions to assign to the councils supervisory duties. Perhaps the most significant role the provincial councils play is in choosing the upper house of the National Assembly ( Meshrano Jirga). In the absence of district councils (no elections held or scheduled), the provincial councils elected in 2009 have chosen two-thirds (68 seats) of the 102-seat body. Karzai appointed the remaining 34 seats in February 2011. The elections for the provincial councils in all 34 provinces were held on August 20, 2009, concurrent with the presidential elections. The next provincial elections will be held concurrent with the presidential election in April 2014. The first provincial council elections were held concurrent with the parliamentary elections in September 2005. District-Level Governance U.S. officials say there has been "measured progress" in developing effective district governance. District governors are appointed by the president, at the recommendation of the IDLG, and more than half of all district governors in place have been appointed based on merit, as noted above. Some districts had no formal governance at all until the 2009 U.S. troop surge. Some of the district governors in Helmand Province, including in Nawa and Now Zad districts, returned after the U.S.-led expulsion of Taliban militants. The difficulty plaguing the expansion of district governance, in addition to security issues, is lack of resources. Many district governors have virtually no staff or vehicles. In about 40 districts, the United States and partner countries have established District Support Teams (DSTs) to assist in district-level governance and service delivery. However, like the PRTs, the DSTs are being turned over to Afghan control as the transition to Afghan control proceeds. District Councils Another problem in establishing district level governance has been the fact that no elections for district councils have been held due to boundary and logistical difficulties. The government had planned to hold these elections along with the 2010 parliamentary elections, but that was not accomplished and no date for these elections has been set. As a result, there is no one authoritative district-level representative body, but rather a collection of groupings established by donor programs. The Afghan government has agreed in principle to a roadmap leading to a single district level body, but implementation has been slow. Municipal and Village Level Authority As are district governors, mayors of large municipalities are appointed. There are about 42 mayors nationwide, many with deputy mayors. Karzai pledged in his November 2009 inaugural that "mayoral" elections would be held "for the purpose of better city management." However, no municipal elections have been held and none is scheduled. It is likely that these await passage of a municipalities law, referenced above. As noted throughout, there has traditionally been village-level governance by councils of tribal elders and other notables. That structure remains, particularly in secure areas, while village councils have been absent or only sporadically active in areas where there is combat. Numerous councils were formed in areas where security was improved by the 2010 U.S. "troop surge." The IDLG and the Ministry of Rural Rehabilitation and Development (MRRD), with advice from India and other donors, also are empowering localities to decide on development priorities. The MRRD has formed about 28,000 Community Development Councils (CDCs) nationwide to help suggest priorities, and these bodies are eventually to all be elected. Reforming Afghan Governance: Curbing Corruption45 The international community has sought not only to expand Afghan governing capacity but to push for its reform, transparency, and oversight. Many Afghans have come to view the central government as "predatory." Reducing corruption in government constitutes several of the 17 benchmarks of the Tokyo Mutual Accountability Framework which requires Afghanistan, in general, to "enact and enforce the legal framework for fighting corruption." Since taking office, President Ghani has sought to demonstrate a commitment to combatting corruption by reviving the largely stagnant issue of the Kabul Bank scandal, discussed below. He has also demanded that ministries file with the presidential office paperwork on their procurement contracts. Afghan officials have acknowledged that corruption is a major problem in Afghanistan. However, during Karzai's presidency, Afghan law enforcement officials frequently refrained from—or were prevented from—prosecuting officials for corruption, particularly those related to or aligned with those in power. Some international officials also questioned Karzai's attempts to blame Afghan corruption on donor countries' contracting with firms linked to faction leaders. On the other hand, some say that U.S. policy on corruption has been inconsistent. Karzai confirmed U.S. press reports in April 2013 saying that the Central Intelligence Agency continues to provide cash payments directly to the Karzai government, through the Afghan National Security Council, for purposes such as compensating faction leaders. Karzai said the payments were relatively small, but U.S. and other experts say the payments circumvent standard controls on U.S. foreign aid and help fuel Afghan corruption. Neither CIA nor other U.S. officials confirmed or denied the reports, when asked by journalists. High Level Corruption, Nepotism, and Cronyism At the upper levels of government, some observers asserted that Karzai deliberately tolerated officials who are allegedly involved in illicit activity and supports their receipt of lucrative contracts from donor countries, in exchange for their political support. Karzai's brother, Mahmoud, as discussed above, has apparently grown wealthy through various ventures, purportedly by fostering the impression he can influence his brother. Some observers who have served in Afghanistan say that Karzai appointed some provincial governors to "reward them" and that these appointments have gone on to "prey" economically on the populations of that province. Several high officials, despite very low official government salaries, have acquired ornate properties in Kabul in part by appropriating private land in which the ownership was unclear. The Special Inspector General for Afghanistan Reconstruction (SIGAR) reported in May 2013 that $50 million in stolen U.S. aid funds—which U.S. investigators discovered in an Afghan bank account—was missing because the Afghan government did not implement U.S. requests to freeze the account. The SIGAR issued an audit in January 2014 that asserted there was risk of misuse of U.S. funds because of the Ministry of Public Health's payment of salaries in cash and the possible overpayment for commodities and services by the Ministry of Mines—overpayments that could possibly be used to finance bribes or kickbacks. On the other hand, accusations of corruption are often used as a political weapon. One former official accused National Security Adviser Spanta of corruption after being fired from an Afghan government position. An Afghan court ruled against the Afghan accuser on September 25, 2012, and fined him $300. Some observers say that the National Assembly's accusations of corruption against Finance Minister Zakhilwal in May 2013 were intended to prompt him to release additional funding to parliamentarians' districts. He was not removed by the Assembly. Lower-Level Corruption Observers who follow the issue say that most of the governmental corruption takes place in the course of performing mundane governmental functions, such as government processing of official documents (e.g., passports, drivers' licenses), in which processors demand bribes in exchange for action. Other forms of corruption include Afghan security officials' selling U.S./internationally provided vehicles, fuel, and equipment to supplement their salaries. In other cases, local police or border officials may siphon off customs revenues or demand extra payments to help guard the U.S. or other militaries' equipment shipments. Other examples include security commanders placing "ghost employees" on official payrolls in order to pocket their salaries. Corruption is fed, in part, by the fact that government workers receive very low salaries (about $200 per month, as compared to the pay of typical contractors in Afghanistan that might pay as much as $6,500 per month). Many observers say there is a cultural dimension to the corruption—that it is commonly expected by relatives and friends that those Afghans who have achieved government positions will protect those relations with appointments and contracts. Administration Views and Policy on Corruption There has been a consensus within the Obama Administration on the wide scope of the corruption in Afghan government and the deleterious effect the corruption has on government popularity and effectiveness. In 2010, the Administration debated the degree to which to press anti-corruption issues with the Afghan government. In 2011, the Administration reportedly decided to prioritize reducing low-level corruption instead of investigations of high-level Karzai allies. High level investigations not only risked alienating Karzai, but were judged to potentially complicate efforts to obtain the cooperation of Afghans who can help stabilize areas of the country. Some of these Afghans are said to be paid by the CIA for information and other support, and the National Security Council reportedly issued guidance to U.S. agencies to review this issue. Yet, U.S. and international officials believe that anti-corruption efforts must be pursued because corruption is contributing to a souring of Western publics on the mission as well as causing some Afghans to embrace Taliban insurgents. Obama Administration officials have credited Karzai with allowing the United States and other donors to help develop oversight bodies to curb corruption. At the July 20, 2010, Kabul conference—following onto the January 28, 2010, London conference—the Afghan government finalized a National Anti-Corruption Strategy ("Azimi report") and committed to enacting 37 laws to curb corruption. Very few of these laws have been enacted, although the Afghan cabinet has drafted new anti-corruption and auditing laws and some regulations have been issued by presidential decree. The July 3, 2013, senior officials meeting in Kabul determined that there was only minor progress on the anti-corruption benchmarks of the Tokyo Mutual Accountability Framework. The anti-corruption institutions, and some examples of their efforts, are discussed below. High Office of Oversight and Anti-Corruption . In August 2008, after reported Bush Administration prodding, Afghanistan set up the "High Office of Oversight and Anti-Corruption" (commonly referred to as the High Office of Oversight, HOO). It was given the power to identify and refer corruption cases to state prosecutors, and to catalogue the overseas assets of Afghan officials. In March 2010 Karzai, as promised at the January 28, 2010, international meeting on Afghanistan in London, issued a decree giving the HOO power to investigate corruption cases rather than just refer them to other offices. The July 26, 2012, presidential administrative decree, discussed above, directed the HOO to, within six months, assess "private institutions' and government officials' suspicious wealth" and report those findings to the president's office every two months. In early 2013, the HOO established an anti-corruption committee within each ministry to oversee implementation of anti-corruptions policies. USAID provided the HOO $30 million total during FY2011-FY2013 to build capacity at the central and provincial level. USAID pays for salaries of six HOO senior staff and provides some information technology systems as well. Assets Declarations and Verifications. As of 2010, Afghan officials at many levels of government are required to declare their assets. The July 20, 2010, Kabul Conference communiqué included an Afghan pledge to verify and publish these declarations annually, beginning in 2010. A SIGAR report of April 30, 2012, said that the government's progress for verification of the declarations "fall[s] short of U.S. expectations." The July 3, 2013, senior officials meeting in Kabul acknowledged that "progress" had been made on the declaration and publication of assets, but that movement was minimal on verifying the declarations. A March 2014 U.N. report said that the HOO had registered the assets of nearly 3,000 government officials during the first three months of 2014 and completed asset verification for 33 of the highest ranking officials including the president, vice presidents, minister, and governors. Independent Joint Anti-Corruption Monitoring and Evaluation Committee (MEC) to evaluate the government's performance in combating corruption was mandated by the Kabul conference communiqué to be established within three months of the conference (by October 2010). The MEC, supported by UNDP, was inaugurated on May 11, 2011. It was enshrined in a presidential decree and is composed of three presidential nominees and three international nominees. It is headed by Slovenian diplomat Drago Kos, and issues reports every six months. Major Crimes Task Force and Sensitive Investigations Unit. Since 2008, several additional investigative bodies have been established under Ministry of Interior authority. The most prominent is the Major Crimes Task Force (MCTF) tasked with investigating public corruption, organized crime, and kidnapping. A headquarters for the MCTF was inaugurated on February 25, 2010, and it has been funded and mentored by the FBI, the DEA, the U.S. Marshal Service, Britain's Serious Crimes Organized Crime Agency, the Australian Federal Police, EUPOL (European police training unit in Afghanistan), and the U.S.-led training mission for Afghan forces. The MCTF has 169 investigators, according to U.S. officials. A related body is the Sensitive Investigations Unit (SIU), run by several dozen Afghan police officers, vetted and trained by the DEA. This body led the arrest in August 2010 of a Karzai NSC aide, Mohammad Zia Salehi, on charges of soliciting a bribe from the New Ansari Money Exchange in exchange for ending a money-laundering investigation of the firm. Karzai acknowledged on August 22, 2010, that he intervened to obtain Salehi's release. In November 2010, the Attorney General's office ended the prosecution. Anti-Corruption Unit and Anti-Corruption Tribunal. These investigative and prosecution bodies were established by decree in 2009. Eleven judges have been appointed to the tribunal, which is under the jurisdiction of the Supreme Court. It tries cases referred by an Anti-Corruption Unit of the Afghan Attorney General's office. However, of the approximately 2,000 cases investigated by the Anti-Corruption Unit, only 28 officials have been convicted to date. The Department of Justice suspended its training program for the Anti-Corruption Unit in early 2012 because of the unit's "lack of seriousness," according to the SIGAR report of April 30, 2012. One of the laws pledged during the July 20, 2010, Kabul conference would be enacted (by July 20, 2011) included one to legally empower the Anti-Corruption Tribunal and the Major Crimes Task Force. That has not been enacted by the National Assembly to date. Prosecutions and Investigations of High-Level Officials. The HOO head Ludin said in July 2013 that his office had sent 190 cases of alleged high level official corruption to the Attorney General's office over the past two years, but had seen few indictments follow. The Attorney General's office has investigated at least 20 senior officials, but with virtually no convictions. Those investigated—but not convicted—included Commerce Minister Amin Farhang (for allegedly submitting inflated invoices for reimbursement); former Minister of Mines Mohammad Ibrahim Adel (who reportedly accepted a $30 million bribe to award a key mining project to a Chinese firm); and former Minister of the Hajj Mohammad Siddiq Chakari (for allegedly accepting bribes to steer Hajj-related travel business to certain foreign tourist agencies). Chakari fled to Britain. EITI. Relatedly, Afghanistan has signed up as a candidate to the Extractive Industries Transparency Initiative (EITI) which is intended to ensure that contracting for Afghanistan's mineral resources is free of corruption. Afghanistan hopes to become fully EITI compliant by April 2012 and the July 3, 2013, senior officials meeting in Kabul commended Afghanistan's progress toward EITI compliance. The World Bank gave Afghanistan a three-year grant of $52 million to manage its natural resources effectively. Salary Levels. The government has tried to raise salaries, particularly of security forces, in order to reduce their inclination to solicit bribes. In November 2009, the Afghan government announced an increase in police salaries (from $180 per month to $240 per month). During his term as Interior Minister, Bismillah Khan attempted to institute transparency and accountability in promotions and assignments. However, the results of these initiatives remain unclear. Bulk Cash Transfers Out of Afghanistan. At the July 2010 Kabul conference, the government pledged to adopt regulations and implement within one year policies to govern the bulk transfers of cash outside the country. This was intended to grapple with issues raised by reports, discussed below, of officials taking large amounts of cash out of Afghanistan (an estimated $4.5 billion taken out in 2011). U.S. officials say that large movements of cash are inevitable in Afghanistan because only about 5% of the population use banks and 90% use informal cash transfers ("hawala" system). The late Ambassador Holbrooke testified on July 28, 2010 (cited earlier), that the Afghan Central Bank has tried to control hawala transfers; 475 hawalas have been licensed, to date, whereas none were licensed as recently as 2009. In August 2010, Afghan and U.S. authorities began installing U.S.-made currency counters at Kabul airport to track how officials had obtained their cash (and ensure it did not come from donor aid funds). On March 19, 2012, Central Bank Governor Noorullah Delawari said the Bank had imposed a $20,000 per person limit on cash transfers out of the country. However, a report by the SIGAR issued December 11, 2012, found that the provided currency counters at Kabul airport were not being used, nor were procedures to ensure that notable Afghan figures were not taking large amounts of cash out of Afghanistan being enforced. Other reports say that Afghans are taking significant amounts of gold out of Afghanistan, possibly to hedge against instability. Customs Revenue Diversion . As noted above, some governors of border provinces are siphoning off customs duties that are supposed to be remitted to the central government. In December 2012, a commission created by Karzai investigated the issue in 12 provinces and shut down some of these operations. One scheme shut down was a surtax levied illegitimately at the Torkham Gate (Khyber Pass) crossing by the provincial government of Ghul Agha Shirzai (see above on Shirzai above). Auditing Capabilities . In September 2013, the Afghan National Assembly gave official standing to a Supreme Audit Office, mandating it to undertake audits of government institutions. The parliamentary empowerment met an Afghan pledge, made at the 2010 Kabul conference, to enact an audit law to strengthen the independence of the auditing institutions. The Supreme Audit Office, in conjunction with the ministries of Justice and of Education, and citizen's groups, is implementing a U.N.-funded anti-corruption project called the "Afghanistan Integrity Initiative." The project is intended to strengthen the capacity of the government to reduce corruption. Legal Review . The Kabul conference communiqué committed the government to establish a legal review committee, within six months, to review Afghan laws for compliance with the U.N. Convention Against Corruption. Afghanistan ratified the convention in August 2008. U.S. Defense Department Efforts . In 2009, a key U.S. military official, General H.R. McMaster, formed several DOD task forces to focus on anti-corruption ( Shafafiyat , Task Force Spotlight, and Task Force 2010) from a U.S. military/counter-insurgency perspective. These task forces, in part, reviewed U.S. contracting strategies to enhance Afghan capacity and reduce the potential for corruption. The Shafafiyat task force announced in February 2012 that it had caused the restitution of $11.1 million, $25.4 million in fines, and $3.4 million in seizures from allegedly fraudulent contractors, and led to disbarment or suspension of more than 125 American, Afghan, and international workers for alleged fraud. These task forces have wound down their work in conjunction with the U.S. military drawdown from Afghanistan. Local Anti-Corruption Bodies . Some Afghans have taken it upon themselves to oppose corruption at the local level. Volunteer local inspectors, sponsored originally by Integrity Watch Afghanistan, are reported to monitor and report on the quality of donor-funded, contractor implemented construction projects. However, these and other "watchdog" groups do not have an official mandate, and therefore their authority and ability to rectify inadequacies are limited. Kabul Bank Scandal The near-collapse of Kabul Bank—the main banking institution that was used to pay Afghan civil servants and police—has been offered as a prime example of the adverse effects of corruption in Afghanistan. The bank nearly collapsed in August 2010 after it reported large losses, primarily from shareholder investments in Dubai properties, prompting a run on the bank and causing Karzai to appoint a Central Bank official to run it. Afghan investigators confirmed that its losses due to questionable loans totaled over $925 million. President Karzai's elder brother Mahmoud reportedly received large loans from the bank to buy his 7% stake in it. Another big shareholder was Abdul Hussain Fahim, the brother of the late first vice president. In response to the crisis, the United States and other donors refused to recapitalize the bank, but it offered to finance an audit of Afghan banks, including Kabul Bank. The Finance Ministry decided instead in November 2010 to hire its own auditor—a move that suggested to some that high Afghan officials sought to hide the audit results. The International Monetary Fund (IMF) suspended its credit program for the Afghan government in November 2010, demanding that the entire Afghan banking industry undergo an outside forensic audit and that those responsible be held accountable. That held $70 million World Bank/Afghan Reconstruction Fund (ARTF) in donor funds. Other donors followed suit and suspended as much as $1.8 billion in economic aid. The IMF—as a condition of resuming its credit program—insisted the bank be sold. The Central Bank instead agreed to separate the bank's performing from nonperforming assets and then dissolve or restructure the bank. That plan was adopted in April 2011. The "good bank" (part of the bank with deposits and which still functions) was financed by a Central Bank loan of $825 million. It was renamed "New Kabul Bank." The Afghan Finance Ministry is paying back the loan—over eight years—with recovered assets and general government revenues. Since early 2013, the Finance Ministry has sought to sell New Kabul Bank but no qualified bidders have made acceptable offers and it remains state-owned. The Afghan government, through its "Financial Dispute Resolution Commission," continues to try to recoup the lost funds. Of the estimated $925 million in losses, only about $150 million in cash and $215 million in property (mostly luxury villas in Dubai) and other assets has been recovered. About $300 million of the losses are judged unrecoverable because of a lack of documentation. The MEC, discussed above, said in its September 28, 2013, report that none of the $121 million owed to the bank by the Afghan company Gas Group had been recovered. The Tokyo Mutual Accountability Framework required Afghanistan to continue asset recovery and to strengthen banking supervision though the Central Bank (Da Afghanistan Bank). Attempting Accountability The political fallout also produced some resolution. On January 15, 2011, the office of Afghan Attorney General Ishaq Aloko announced an investigation into the near-collapse of the bank. The investigating commission briefed reporters on its findings on May 30, 2011, placing much of the blame on lax controls by the Central Bank and its governor, Abdul Qadir Fitrat. The government commission also largely absolved Mahmoud Karzai of any wrongdoing, and named other key figures, such as Dostam, as taking out $100,000 in unsecured loans. The following day, Central Bank governor Fitrat disputed the commission's conclusions. Fitrat subsequently fled to the United States and resigned in June 2011. In a step toward holding principals accountable, on June 30, 2011, the government announced the arrest of two former Kabul Bank executives, Sherkhan Farnood and Khalilullah Frouzi, who allegedly allowed the concessionary loans to the high-level Afghans and their relatives. However, by late 2011, the detentions of the two had been relaxed and they were frequently sighted at various public places in Kabul. On August 1, 2011, the Attorney General's office sent the names of about 15 people allegedly responsible for the scandal to Afghan courts for trial. On April 3, 2012, Karzai ordered a special prosecutor appointed and a special tribunal created to try those involved. On June 2, 2012, 21 people were indicted by the special tribunal, including Farnood, Frouzi, Fitrat, nine other government officials, and nine other bank employees who were allegedly in positions to have known of the fraud. The trial of Farnood, Frouzi, and about 20 others allegedly involved began on November 10, 2012, under a three judge panel. All 21 defendants were found guilty, and Farnood and Frouzi received five-year sentences and financial penalties. The July 3, 2013, senior officials meeting in Kabul stated that "Participants [Afghanistan participated in the meeting] agreed that continued efforts were needed" to hold parties accountable in the Bank scandal. Conclusions and Fallout On November 27, 2012, the New York Times reported that the Central Bank's audit of Kabul Bank by Kroll Associates called Kabul Bank a virtual "Ponzi scheme" involving numerous deliberate efforts to deceive the bank's original auditors. Two days later, the Joint Evaluation and Monitoring Committee, discussed above, released an 87-page report detailing how Bank funds were smuggled out of the country surreptitiously and alleging high level Afghan government input in deciding whom to hold accountable. The investigations, the recovery of some lost funds, and the forensic audits of the bank suggested Afghanistan was moving to meet the IMF conditions for the restart of its credit program. In November 2011, the IMF resumed its program by approving a $133 million loan to Afghanistan. That move restored the flow of some previously blocked donor funds, including U.S. contributions to the World Bank-run Afghanistan Reconstruction Trust Fund (ARTF). The IMF also has sought a timetable for another bank found by the Central Bank to be vulnerable to collapse, Azizi Bank, to shore up its finances. Another Afghan entity suspected of corruption is the New Ansari Money Exchange, a large money-trading operation. On February 18, 2011, the Treasury Department designated New Ansari, and persons affiliated with it, as major money laundering entities under the "Kingpin Act," banning U.S. transactions with the designees. On October 1, President Ghani ordered a review of the Kabul Bank scandal on the grounds that those responsible had not been held accountable. Moves to Penalize Lack of Progress on Corruption Several of the required U.S. "metrics" of progress, cited above, involve Afghan progress against corruption. In part because of reports that as much as $3 billion in funds had been allegedly embezzled by Afghan officials over the past several years, an Administration certification of progress against corruption was included as a condition of providing aid to Afghanistan in the FY2011 continuing appropriations ( P.L. 112-10 ). Aid conditionality based on Afghan performance against corruption, on incorporation of women in the reconciliation process, and on reports on progress on the Kabul Bank scandal was included in the FY2012 Consolidated Appropriation ( P.L. 112-74 ). No U.S. funding for Afghanistan has been permanently withheld because of this or any other legislative certification requirement. Promoting Human Rights and Civil Society61 Since 2001, U.S. policy has been to build capacity in human rights institutions in Afghanistan and to promote civil society and political participation. As do previous years' State Department human rights reports, the report on Afghanistan for 2013 analyzed numerous human rights deficiencies, attributing most of them to overall lack of security, loose control over the actions of Afghan security forces, corruption, and cultural attitudes including discrimination against women. Institution-Building: The Afghanistan Independent Human Rights Commission (AIHRC) and Outside Human Rights Organizations One of the institutional human rights developments since the fall of the Taliban has been the establishment of the Afghanistan Independent Human Rights Commission (AIHRC). It is headed by a woman, Sima Simar, a Hazara Shiite from Ghazni Province. It is an oversight body on human rights practices but its members are appointed by the government and some believe it is not independent. As an indication of government interference, in December 2011, Karzai dismissed its deputy chairman Ahmad Nader Nadery for alleging abuses by Karzai allies. Nadery later became head of another civil society watchdog organization, the Free and Fair Election Foundation of Afghanistan, which was highly critical of Karzai and his allies for the 2009 and 2010 election fraud served as a watchdog group for the 2014 elections. In recent years, most of the AIHRC budget of $7.5 million has been provided by European donors, Canada, Australia, and the United Nations. In the course of the senior officials meeting in Kabul on July 3, 2013, donors criticized several of Karzai's 2013 appointments to the AIHRC. Some of the five appointees were reportedly linked to Afghan faction leaders or had not demonstrated a commitment to upholding or enforcing international standards of human rights. On a visit to Afghanistan in September 2013, U.N. High Commissioner for Human Rights Navinathem Pillay failed to persuade Karzai to replace the controversial AIHRC appointees. Since 2002, there has been a proliferation of Afghan organizations that demand transparency about human rights deficiencies. Prominent examples of Afghan NGO's that monitor and agitate for improved human rights practices include the Afghanistan Human Rights and Democracy Organization, and the Equality for Peace and Democracy organization. It is in part the work of these groups that has produced responses by the government. Afghanistan's National Directorate of Security (intelligence directorate but with arrest powers), which has widely been accused of detainee abuse and torture, established in late 2011 a "human rights unit" to investigate abuse allegations and train NDS staff not to conduct such abuses. In 2012, the Human Rights Support Unit of the Ministry of Justice conducted 12 human rights training sessions for NDS and Afghan National Policy officers. In June 2012, the Interior Ministry was tasked by the presidential office to report on prison conditions. On June 2, 2012, Karzai ordered disarmed a local security unit whose members were accused of raping an 18-year old woman in Konduz Province. On July 9, 2012, Afghan forces were sent to track down Taliban militants who had executed a woman for adultery in Parwan Province. Religious Influence on Society: National Ulema Council Counterbalancing the influence of post-Taliban modern institutions such as the AIHRC are traditional bodies such as the National Ulema Council. The Council consists of the 150 most respected and widely followed clerics throughout Afghanistan, and represents a network of about 3,000 clerics nationwide. It has taken conservative positions on free expression and social freedoms, such as the type of television and other media programs available on private media outlets. Clerics sometimes ban performances by Afghan singers and other performers whose acts the clerics consider inconsistent with conservative Islamic values. On the other hand, some rock bands have been allowed to perform high profile shows since 2011. Because of the power of Islamist conservatives, alcohol is increasingly difficult to obtain in restaurants and stores, although it is not banned for sale to non-Muslims. In August 2010, 350 clerics linked to the Council voted to demand that Islamic law (Sharia) be implemented (including such punishments as stoning, amputations, and lashings) in order to better prevent crime. The government did not implement the recommendation, which would require amending the Afghan constitution that does not implement Sharia. The Council's March 2, 2012, backing of Sharia interpretations of the rights of women is discussed below in the section on women's rights. The government (Ministry of Hajj and Religious Affairs) is also involved in regulating religious practices. Of Afghanistan's approximately 125,000 mosques, 6,000 are registered and funded by the government. Clerics in these mosques are paid about $100 per month and, in return, are expected to promote the government line. In April 2012, the Ministry decreed that it would fire government-funded clerics who refuse to heed warnings and preach violence or incitement. As an illustration of Afghanistan's inherent Islamic conservatism, riots broke out in two successive years over what some Afghans perceived as U.S. disrespect of Islam. On April 2, 2011, hundreds of Afghans rioted in the normally quiet (and non-Pashtun) city of Mazar-e-Sharif to protest the burning of a Quran by a Florida pastor a few weeks earlier. The rioters stormed the U.N. compound in the city and killed at least 12 people, including 7 U.N workers. A more serious eruption occurred in late February 2012 over the mistaken U.S. discarding of Qurans used by detainees at Bagram Airfield. Riots and protests occurred in several cities, including the normally peaceful and pro-U.S. north. The public reaction to the Quran burning was more intense than it was following the March 11, 2012, killing of 16 Afghans allegedly by a U.S. soldier, Robert Bales, who is in U.S. military custody. On September 17, 2012, several hundred Afghans rioted outside a U.S. training facility east of Kabul city to protest a video produced in the United States ("Innocence of Muslims") that mocks the Prophet Muhammad. Afghan police protected the facility from assault from the crowd. These perceived U.S. slights may account for some of the killings of U.S. military personnel by Afghan security forces over the past few years. The so-called "green on blue" attacks have caused tensions between Afghan forces and their U.S. mentors, and prompted U.S. commanders to impose counter-measures that potentially complicate the U.S. effort to accelerate the transition to Afghan security before the end of 2014. Religious Freedom The International Religious Freedom report for 2013 did not alter U.S. assessments of religious freedom in Afghanistan from that in previous years' reports. The constitution and government do, to some extent, restrict religious freedom. Members of minority religions, including Christians, Sikhs, Hindus, and Baha'i's, often face discrimination, but members of these communities sometimes serve at high levels. Karzai has had a Hindu as an economic advisor and one member of the Sikh community serves in the Meshrano Jirga. In September 2013, Karzai, by decree, created a special parliamentary seat allocation for a Sikh and a Hindu. There are four Isma'ilis in the National Assembly, elected without a quota. Baha'is fare worse than members of some of the other minorities because the Afghan Supreme Court declared the Baha'i faith to be a form of blasphemy in May 2007. There are no public Christian churches and four synagogues, although the synagogues are not used because there is only one Afghan national who is Jewish. There are three active gurdwaras (Sikh places of worship) and five Hindu mandirs (temples). Buddhist foreigners are free to worship in Hindu temples. One major case that drew international criticism was a January 2008 death sentence, imposed in a quick trial, against young journalist Sayed Kambaksh for allegedly distributing material criticizing Islam. On October 21, 2008, a Kabul appeals court changed his sentence to 20 years in prison, a judgment upheld by another court in March 2009. He was pardoned by Karzai and released in September 2009. The Hazaras and other Afghan Shiites tend to be less religious and more socially open than their co-religionists in Iran. Afghan Shiite leaders appreciated the July 2009 enactment and "gazetting" of a "Shiite Personal Status Law" that gave Afghan Shiites the same degree of recognition as the Sunni majority, and provided a legal framework for Shiite family law issues. Afghan Shiites are able to celebrate their holidays openly and some have held high positions, but some Pashtuns have become resentful of the open celebrations and some clashes have resulted. The former Minister of Justice, Sarwar Danesh, was the first Hazara Shiite to hold that post. In June 2012, Karzai denounced a book published by the Afghanistan Academy of Science that portrayed Hazaras as un-Islamic. In November 2012, Pashtun students at four universities in Kabul attacked Hazara students who were trying to commemorate the Shiite day of mourning (Ashura), prompting the temporary closing of the universities. The clashes occurred even though Shiite public observance of the holy month of Muharram has progressively expanded. Afghan Christians can worship in small congregations in private homes, but several conversion cases have earned international attention. An Afghan man, Abd al-Rahman, who had converted to Christianity 16 years ago while working for a Christian aid group in Pakistan, was imprisoned and faced a potential death penalty trial for apostasy—his refusal to convert back to Islam. Facing international pressure, Karzai prevailed on Kabul court authorities to release him (March 29, 2006). His release came the same day the House passed a bill ( H.Res. 736 ) calling on protections for Afghan converts. In May 2010, the Afghan government suspended the operations of two Christian-affiliated international relief groups claiming the groups were attempting to promote Christianity among Afghans, an assertion denied by the groups (Church World Service and Norwegian Church Aid). In May 2010, amputee Said Musa was imprisoned for converting to Christianity from Islam, an offense under Afghan law that leaves it open for Afghan courts to apply a death sentence under Islamic law (Shariah). The arrest came days after the local Noorin TV station broadcast a show on Afghan Christians engaging in their rituals. Following diplomatic engagement by governments and human rights groups, Musa was released on February 24, 2011, and he obtained asylum in Italy. Media and Freedom of Expression/Social Freedoms Afghanistan's conservative traditions have caused some backsliding in recent years on media freedoms. Since 2001, numerous television channels, newspapers, and other media forms have been established, giving Afghanistan one of the freest presses in the region. Media has expanded to the point where the government, in 2012, began a process of launching a communications satellite to help with broadcast speed and breadth of dissemination. However, a Mass Media Law adopted in 2009 gave independence to the official media outlets but also contained a number of content restrictions and required that new newspapers and electronic media be licensed by the government. The Ministry of Information and Culture is drafting a new media law to replace it, although its drafts contained provisions that drew opposition from human rights groups in and outside Afghanistan. According to the State Department reports on human rights, there continue to be intimidation and sometimes violence against journalists who criticize the central government or powerful local leaders, and some news organizations and newspapers have occasionally been closed for incorrect or derogatory reporting on high officials. In October 2012, the Afghan government threatened to expel the staff of the International Crisis Group because of a report it issued that warned that Afghanistan might slide into civil war if the 2014 presidential elections are not free and fair. In August 2014, Karzai expelled New York Times journalist Matthew Rosenberg for reporting on alternative scenarios should the presidential election dispute not be resolved. About one week after taking office, President Ghani revoked Rosenberg's exclusion from the country. USAID programs have trained investigative journalists to do more reporting on official corruption and other issues. The United States has provided funding and advice to an Afghan Government Media Information Center that the Afghan government uses to communicate with the public. U.S. advisers ended their work there in December 2011. Separately, Islamic conservatives on the Ulema Council and in the National Assembly, as well as prominent clerics such as Shiite Ayatollah Asif Mohseni, have sometimes asserted control over media content. This has been an attempt to curb the popularity of such networks as Tolo Television. With the Ulema Council's backing, in April 2008 the Ministry of Information and Culture banned five Indian-produced soap operas on Tolo on the grounds that they are too risqué, although the programs were restored in August 2008 under a compromise that brought in Islamic-oriented programs from Turkey. In June 2011, pressure from the Ulema Council caused Tolo to remove a soap opera called "Forbidden Love." Tolo has also aired programs about official corruption. In April 2013, Karzai reportedly agreed with a call by the Ulema Council to ban programs considered "vulgar, obscene, or un-Islamic." Radio Free Europe/Radio Liberty's "Radio Azadi" service for Afghanistan has distributed 20,000 solar powered radios to poor (and usually illiterate) Afghans to improve their access to information. In general, the government does not restrict access to the Internet, but it does ban access to pornographic websites. Harsh Punishments/Torture The State Department and UNAMA reports cite widespread examples of torture, rape, and other abuses by officials, security forces, detention center authorities, and police. In September 2011, U.S. and partner transfers of prisoners to some Afghan facilities were suspended because of alleged torture by Afghan prison authorities. UNAMA visits Afghan-run detention facilities to monitor implementation of presidential decree No. 129 preventing torture and ill-treatment of detainees. UNAMA provided assistance for the redrafting of 173 prison-related operational directives. As of the end of 2013, 114 such revised directives were issued, although there continue to be concerns about new incidents of alleged torture and ill-treatment. In 2007, Afghanistan resumed enforcing the death penalty after a four-year moratorium. It executed 15 criminals that year. In August 2010, the issue of stoning to death as a punishment arose when Taliban insurgents ordered a young couple who had eloped stoned to death in a Taliban-controlled area of Konduz Province. Although the punishment was not meted out by the government, it was reported that many residents of the couple's village supported the punishment. On September 27, 2014, two days before leaving office, President Karzai signed an execution order for five men convicted of gang rape, ignoring calls to stay the execution because of concerns over whether they got a fair trial. President Ghani went forward with the execution on October 8, to the condemnation of the United Nations and some European officials. The Ministry of Women's Affairs applauded the execution as "a historic lesson to those who might resort to such crimes." Human Trafficking Afghanistan was placed in Tier 2 in the State Department Trafficking in Persons Report for 2014, issued in June 2014 That is an improvement from its "Tier 2: Watch List" rating of the four prior years. In 2013, Afghanistan was given a waiver for an automatic downgrade to Tier 3 (the downgrade is automatic after a country is "watch-listed" for three consecutive years). The waiver was based on the government's writing of a plan that, if implemented, would qualify as a significant effort to comply with minimum standards for the elimination of trafficking. The Afghan government is assessed in the 2014 report as not complying with minimum standards for eliminating trafficking. However, in contrast to prior years, it is assessed as making significant efforts to comply. The State Department report says that women from China, some countries in Africa, Iran, and some countries in Central Asia are being trafficked into Afghanistan for sexual exploitation, although, according to the report, trafficking within Afghanistan is more prevalent than trafficking across its borders. The report asserts that some families knowingly sell their children for forced prostitution, including for bacha baazi , a practice in which wealthy men use groups of young boys for social and sexual entertainment. The report added that some members of the Afghan National Security Forces have sexually abused boys as part of the bacha baazi practice. Other reports say that many women have resorted to prostitution, despite the risk of social and religious ostracism or punishment, to cope with economic hardship. Advancement of Women Women and women's groups are a large component of the burgeoning of civil society in post-Taliban Afghanistan. Freedoms for women have greatly expanded since the fall of the Taliban with their elections to the parliament and their service at many levels of government. The Afghan government pursues a policy of promoting equality for women under its National Action Plan for Women of Afghanistan (NAPWA). The Tokyo Mutual Accountability Framework requires Afghanistan to implement the NAPWA and all of its past commitments and laws to strengthen the rights of women and provide services to them. President Ghani has signaled his strong support for women's rights by highlighting in his inaugural speech the support he has received from his wife, Rula Ghani. Some in the audience reportedly gasped at the reference, because Afghan culture considers it taboo to mention wives and female family members in public. Some Afghan conservatives have criticized Ghani because Mrs. Ghani was a Christian whom he met while studying at university in Beirut in the 1970s, and some Afghan clerics allege that there is no public record of her converting to Islam. The major institutional development since 2001 was the formation in 2002 of a Ministry of Women's Affairs dedicated to improving women's rights. Its primary function is to promote public awareness of relevant laws and regulations concerning women's rights. It plays a key role in trying to protect women from domestic abuse by overseeing the running of as many as 29 women's shelters across Afghanistan. Women's rights groups in Afghanistan expressed outrage over a June 2012 statement by Afghanistan's justice minister that the shelters encourage "immorality and prostitution." The Afghanistan Freedom Support Act of 2002 (AFSA, P.L. 107-327 ) authorized $15 million per year (FY2003-FY2006) for the Ministry of Women's Affairs. Those monies were donated to the Ministry from Economic Support Funds (ESF) accounts controlled by USAID. The United States has continued to fund the Ministry since AFSA expired, although with less than $15 million per year. One of the most prominent civil society groups operating in post-Taliban Afghanistan is the Afghanistan Women's Network. It has at least 3,000 members and its leaders say that 75 nongovernmental organizations work under its auspices. In addition, the AIHRC and outside Afghan human rights groups focus extensively on rights for Afghan women. Among the most notable accomplishments since 2001, women are performing jobs that were rarely held by women even before the Taliban came to power in 1996. The civil service is 19% female, although that is down from 24% in 2004 and below the 30% target level set in the Tokyo Mutual Accountability Framework. Women serve in the police force and military, and the first Afghan female pilots arrived for training in the United States in July 2011. There are over 150 female judges, up from 50 in 2003, and nearly 500 female journalists working nationwide. Women constitute over one-third of the seats of the nationwide Community Development Councils (CDCs, discussed above), and each CDC is required to have two women in its executive bodies. Women are legally permitted to drive, and press reports say an increasing number of Afghan women, although mainly in Kabul and other main cities, are learning how to drive and exercising that privilege. The wearing of the full body covering called the burqa is no longer obligatory, and fewer women are wearing it than was the case a few years ago. In November 2010, the government opened a USAID-funded women-only park in Kabul called "Women's Garden" where women can go, without male escort, and undertake fitness and job training activities. Some groups, such as Human Rights Watch, report backsliding on women's rights since 2008, although the State Department human rights report for 2012 says that the situation of women in Afghanistan improved "marginally" during 2012. Numerous abuses, such as denial of educational and employment opportunities, continue primarily because of Afghanistan's conservative traditions. This is particularly prevalent in rural areas, and less so in larger urban areas. Along with the assertion of authority of conservative Islamic institutions, on March 2, 2012, the Ulema Council issued a pronouncement saying women should be forced to wear the veil and be forbidden from traveling without a male chaperone. The pronouncement did reiterate support for the rights of women to inherit and own property, and to choose their marital partners. On March 6, 2012, Karzai endorsed the Ulema Council statement. Among the most widespread abuses reported: More than 70% of marriages in Afghanistan are forced, despite laws banning the practice, and a majority of brides are younger than the legal marriage age of 16. The practice of baad , in which women are given away to marry someone from another clan to settle a dispute, remains prevalent. There is no law specifically banning sexual harassment, and women are routinely jailed for zina —a term meaning adultery, and a crime under the penal code, and that includes running away from home, defying family choice of a spouse, eloping, or fleeing domestic violence. These incarcerations are despite the fact that running away from home is not a crime under the penal code. That code is often relatively lenient towards males—a man convicted of "honor killing" (of a wife who commits adultery) cannot be sentenced to more than two years in prison. One case that received substantial attention in December 2011 involved a woman who was jailed for having a child outside wedlock even though the child was a product of rape. Women's rights activists have been assassinated on several occasions. On December 10, 2012, the head of the Women's Affairs Ministry department in Laghman Province was gunned down. Her predecessor in that post was killed by a bomb planted in her car four months earlier. A prominent women's rights activist and author, Sushmita Banerjee, a citizen of India, was abducted by Taliban militants from her home in Paktika province and found killed. Two Taliban suspects were subsequently arrested. In an effort to prevent these abuses, on August 6, 2009, Karzai issued, as a decree, the "Elimination of Violence Against Women" (EVAW) law that makes many of the practices above unlawful. Partly as a result of the decree, prosecutions of abuses against women are increasingly obtaining convictions. A "High Commission for the Elimination of Violence Against Women" has been established to oversee implementation of the EVAW, and provincial offices of the commission have been established in all but two provinces, according to the March 7, 2014, U.N. report. The Ministry of Women's Affairs is working with local authorities in 11 provinces to improve implementation of the decree. On the other hand, despite the EVAW decree, only a small percentage of reports of violence against women are registered with the judicial system, and about one-third of those proceed to trial. The number of women jailed for "moral crimes" has increased by 50% since 2011. Efforts by the National Assembly to enact the EVAW in December 2010 and in May 2013 failed due to opposition from Islamic conservatives who do not want to limit the ability of male elders to decide family issues. On May 22, 2013, about 200 male Islamist students demonstrated in Kabul demanding repeal of the EVAW decree outright. Women in Key Positions Despite conservative attitudes, women have moved into prominent positions in all areas of Afghan governance, although with periodic setbacks. As noted above, three women were nominated to cabinet posts in January 2015. This is the same number of women that have served in ministerial posts since 2004. In March 2005, Karzai appointed a former minister of women's affairs, Habiba Sohrabi, as governor of Bamiyan province, inhabited mostly by Hazaras. One woman (Masooda Jalal) ran in the 2004 presidential election, and two ran for president in the August 20, 2009, election. In the latter, each received less than one-half of 1%. As noted above, one woman filed to run for president in 2014, but her candidacy was disqualified by the IEC apparently for an insufficient number of nominating signatures. Three women, including Sohrabi, are vice presidential candidates in the April 2014 election. In the National Assembly, the constitution reserves for women at least 17 of the 102 seats in the upper house and 68 of the 249 seats in the lower house of parliament. There were 69 women elected in the 2010 parliamentary elections, one more than the quota. (400 women ran for those seats—about 16% of all candidates.) The target ratio is ensured by reserving an average of two seats per province (34 provinces) for women—the top two female vote getters per province. (Kabul province reserves 9 female seats.) There are 28 women in the upper house, substantially more than the minimum number. However, some NGOs and other groups believe that the women elected by the quota system are not viewed as equally legitimate parliamentarians. About 300 women were delegates to the 1,600-person " peace jirga " that was held during June 2-4, 2010, which endorsed an Afghan plan to reintegrate insurgents who want to end their fight. The High Peace Council to oversee the reconciliation process, which met for the first time on October 10, 2010, has 9 women out of 70 members, although these women report that their views are not taken into account to any significant extent in the Council. At U.S. and other country urging, a woman was part of the official Afghan delegation to the major international conference on Afghanistan in Bonn on December 5, 2011; she was selected at a meeting of civil society activists in Bonn, a day before the major conference began. U.S. and International Posture on Women's Rights U.S. officials say that its policy is to promote women's rights in Afghanistan rigorously. The Administration has and is following its "Strategy for Assistance to Women in Afghanistan, 2010-2013." U.S. officials said aid allocations are geared toward that strategy. Specific earmarks for use of U.S. funds for women's and girls' programs in Afghanistan are contained in recent annual appropriations, and these earmarks have grown steadily. The United States provided $159 million to programs for Afghan women in FY2009, slightly more than the $150 million earmarked, and about $225 million for FY2010, more than the $175 earmarked. For FY2010, assistance for women was provided in the following "pillars" of the U.S. Strategy: health ($87 million); education ($31 million); economy, work, and poverty ($54.6 million); legal protection and human rights ($12 million); and leadership and political participation ($43 million). Total U.S. funding for women's programs for Afghanistan were similar for FY2011, FY2012, and FY2013. Among the funding streams has been U.S. Ambassador small grants to support gender equality (FY2009-FY2012), which was used to help finance over 830,000 microloans to women during 2004-2011 for the establishment of 175,000 small businesses, according to an SRAP report released November 2011. These strategy pillars, and specific programs funded by them, are discussed in annual State Department reports on U.S. aid to women and girls. Democracy, Human Rights, Governance, and Elections Funding Issues U.S. funding for democracy, governance, and rule of law programs has grown, in line with the Obama Administration strategy for Afghanistan. During FY2002-FY2012, USAID spent about $1.5 billion on democracy, governance, rule of law and human rights, and elections support. For FY2013, the ESF amounts provided for democracy and governance are $578.2 million, including $447.2 million for good governance, $31.5 million for rule of law and human rights (not including INCLE), $64.3 million for political competition and consensus-building, and $35.2 million for civil society. For FY2014, the Administration has requested $1.665 billion in ESF and $475 in INCLE funding for Afghanistan—the broad accounts from which democracy, governance, and rule of law funding—as well as funding for a wide range of other functions—are drawn. For tables on U.S. aid to Afghanistan, see CRS Report RL30588, Afghanistan: Post-Taliban Governance, Security, and U.S. Policy , by [author name scrubbed]. Effects of a Settlement with the Taliban A major U.S. and Afghan initiative—to reach a conflict-ending settlement with the Taliban—is likely to affect all of the issues discussed in this paper were it to be realized. Afghan politics, elections, the performance of the government, and the human rights situation could all be affected significantly by a deal with the Taliban. Many in the international community, including within the Obama Administration, initially withheld endorsement of the concept, asserting reconciliation might result in the incorporation into the Afghan political system of insurgent leaders who retain ties to Al Qaeda and will roll back freedoms. The minority communities in the north, women, intellectuals, and others remain skeptical of reconciliation on similar grounds. Most Taliban insurgents are highly conservative Islamists who oppose the advancement of women and women have been a target of attacks by Taliban supporters, including attacks on girls' schools and athletic facilities. If the Taliban is given major ministry positions, seats in parliament, or even tacit control over territory as part of any deal, the movement would be in position to assert its ideology. To respond to those fears, Afghan and U.S. officials say that the outcome of a settlement would require the Taliban to drop at least some of its demands that (1) foreign troops leave Afghanistan; (2) a new "Islamic" constitution be adopted; and (3) Islamic law be imposed. This issue is covered in greater depth in CRS Report RL30588, Afghanistan: Post-Taliban Governance, Security, and U.S. Policy , by [author name scrubbed].

The capacity, transparency, legitimacy, and cohesiveness of Afghan governance are crucial to Afghan stability as nearly all international forces exit Afghanistan by the end of 2016. The size and capability of the Afghan governing structure has increased significantly since the Taliban regime fell in late 2001, but the government remains rife with corruption and ethnic and political tensions among its major factions are ever present. Its recent elections have been marred by allegations of vast fraud and resulting post-election political crises. Hamid Karzai, who served as president since late 2001, was constitutionally term-limited and left office when his successor, Ashraf Ghani, was inaugurated on September 29. The inauguration represented a resolution of a presidential election dispute that consumed Afghan and U.S. official attention from April to September. The results of the April 5, 2014, first round of the election required a June 14 runoff between Ghani and Dr. Abdullah Abdullah—increasing tensions between Ghani's Pashtun community, Afghanistan's largest group, and the Tajik community with which Abdullah is identified. Amid accusations by Abdullah of widespread fraud in the runoff, Secretary of State John Kerry brokered an agreement for a recount of all 23,000 ballot boxes and formation of a post-election unity government under which Abdullah, the losing candidate, became "Chief Executive Officer" (CEO) of the government. The CEO is to function as a prime minister, pending a subsequent national deliberation over changing the constitution to create a formal prime ministerial post. The resolution of the election dispute paved the way for the long-delayed signing of formal agreements to permit U.S. and NATO deployments in post-2014 international missions to train Afghan forces (Resolute Support Mission) and conduct counterterrorism operations (Operation Freedom Sentinel). To date, the power-sharing arrangement has nearly paralyzed the Afghan central government. Abdullah's role in governance has been limited and, until early January 2015, the two were unable to agree to new cabinet appointments despite a constitutional requirement to form a cabinet within 30 days of taking office. The government has been run in the interim by caretaker officials and bureaucrats lacking high-level policy direction. The cabinet choices reportedly represent efforts to balance the need for competent officials with the demands to satisfy both leaders' key constituencies. Government authority remains constrained not only by the power-sharing arrangement but also by the exertion of influence by the long-standing informal power structure consisting of regional and ethnic leaders. Faction leaders often maintain groups of armed fighters who often exercise arbitrary administration of justice and commit human rights abuses. These constraints could slow Ghani's efforts to prioritize curbing governmental corruption and promoting women's rights. International officials and groups are attempting to help ensure that the significant gains in civil society, women's rights, and media freedoms achieved since 2001 are preserved. Those gains have come despite the persistence of traditional attitudes and Islamic conservatism in many parts of Afghanistan—attitudes that cause the judicial and political system to tolerate child marriages and imprisonment of women who flee domestic violence. Islamist influence and tradition has also frequently led to persecution of converts from Islam to Christianity, and to curbs on the sale of alcohol and on Western-oriented media programs. Afghan civil society activists, particularly women's groups, assert that many of these gains are at risk as international forces depart, especially should there be a reconciliation agreement between the government and insurgent leaders. See also CRS Report RL30588, Afghanistan: Post-Taliban Governance, Security, and U.S. Policy, by [author name scrubbed].

Introduction The development of the Internet has revolutionized communications. It has never been easier to speak to wide audiences or to communicate with people who may be located more than half a world away from the speaker. However, like any neutral platform, the Internet can be used for many different ends, including illegal, offensive, or dangerous purposes. Terrorist groups, such as the Islamic State (IS, also referred to as ISIS or ISIL), Al Qaeda, Hamas, and Al Shabaab, use the Internet to disseminate their ideology, recruit new members, and take credit for attacks around the world. In addition, people who are not members of these groups may view such content and could begin to sympathize with or to adhere to the violent philosophies these groups advocate. They might even act on these beliefs. For example, it has been reported that the sermons of Anwar al Awlaki were instrumental in influencing the ideology of certain individuals accused of terrorist activities, including the perpetrators of the San Bernardino shooting and the Boston Marathon bombers. Awlaki was a U.S. citizen who was targeted and killed by a drone strike on foreign soil. Awlaki left behind numerous digital videos on websites like YouTube of himself preaching his interpretation of the Islamic faith. Some of his videos expound upon less controversial topics such as respect for the holy month of Ramadan, the nature of marriage, or the relationship between Islam and Jesus Christ. However, other videos depict Awlaki exhorting his followers never to trust a non-Muslim; that Muslims are at war with the United States; and, in a video entitled "Call to Jihad," that "it is every Muslim's religious duty to kill Americans." It was messages like these, particularly the "Call to Jihad," that reportedly motivated the San Bernardino and Boston Marathon attackers. More broadly, the Islamic State organization has been known to use popular Internet services such as Twitter and YouTube to disseminate videos of its fighters executing prisoners, claim credit for organizing terrorist attacks such as the attack that occurred in Paris in November of 2015, and recruit new members to their cause. IS personnel also disseminate high-quality electronic publications encouraging supporters to conduct violent attacks in their communities. Members of Hamas and Al Shabaab have reportedly used Facebook and Twitter to disseminate their ideology as well. The media arm of Al Shabaab used Twitter to claim credit for the terrorist attack on the Westgate Shopping Mall in Nairobi, Kenya, and distribute information and pictures of the attack while it remained ongoing. Speech advocating violence and terrorism is prohibited by the terms of service of Twitter, Facebook, and other social media outlets. Sites like Twitter reportedly have increased their efforts to disable accounts that are associated with terrorist groups or the advocacy of terrorist ideologies. However, these efforts have not been wholly successful. When one account is disabled, another might soon appear to replace it. Many policymakers, including some Members of Congress, have expressed concern about the influence the speech of terrorist groups and the speech of others who advocate terrorism can have on those who view or read it. Some policymakers have expressed particular concern regarding the ease by which persons who might otherwise not have been exposed to the ideology or recruitment efforts of terrorist entities may become radicalized. These concerns raise the question of whether it would be permissible for the federal government to restrict or prohibit the publication and distribution of speech that advocates the commission of terrorist acts when that speech appears on the Internet. Significant First Amendment freedom of speech issues are raised by the prospect of government restrictions on the publication and distribution of speech, even speech that advocates terrorism. However, government restrictions on advocacy that is provided to foreign terrorist organizations as material support have been upheld as permissible. This report will discuss relevant precedent that may limit the extent to which advocacy of terrorism may be restricted. The report will also discuss the potential application of the federal ban on the provision of material support to foreign terrorist organizations (FTOs) to the advocacy of terrorism and the dissemination of such advocacy by online service providers like Twitter or Facebook. Constitutional Principles: Advocacy of Violence or Lawlessness Under the First Amendment The First Amendment to the Constitution states that "Congress shall make no law ... abridging the freedom of speech.... " According to the Supreme Court, "the First Amendment [generally] means that government has no power to restrict expression because of its message, its ideas, its subject matter, or its content." However, the freedom of speech is not absolute. Some speech, including fighting words, incitements to imminent violence, child pornography, and obscenity can be restricted by the government without constitutional concern. Furthermore, courts do allow the government to place restrictions on protected speech under certain circumstances. When a restriction applies to speech based upon its content or upon the viewpoint expressed, courts generally apply the highest level of scrutiny, known as strict scrutiny. In order to satisfy strict scrutiny, a speech restriction must directly advance a compelling government interest and it must be the least restrictive means for achieving that interest. It is rare that a law will survive this level of scrutiny. Generally, when a restriction is not directed at the content of speech or the viewpoint expressed, courts apply a less-exacting standard of scrutiny, known as intermediate scrutiny. Content-neutral restrictions on protected speech will be upheld if the government can show that the restriction advances a substantial government interest and is narrowly tailored to achieve that interest. In this way, the government is permitted to impose reasonable regulations on the time, place, and manner of speech. Pure Advocacy of Violence and Law Breaking Under Brandenburg v. Ohio In Brandenb u rg v. Ohio , the Supreme Court held that the First Amendment can protect the advocacy of lawbreaking and violence. Brandenbu rg overturned a conviction under Ohio's criminal syndicalism statute, invalidating that statute. The statute, like other syndicalism laws, prohibited "advocat[ing] ... the duty, necessity, or propriety of crime, sabotage, violence, or unlawful methods of terrorism." Members of the Ku Klux Klan had been convicted of violating that statute at a rally covered by a Cincinnati television station at the request of one of the Klan members. At the rally, among other incendiary comments, one of the members said "We're not a revengent [sic] organization, but if our President, our Congress, our Supreme Court, continues to suppress the white, Caucasian race, it's possible that there might have to be some revengeance [sic] taken." Other statements advocating violence were made, as well. The Supreme Court overturned the convictions at issue because "the mere abstract teaching ... of the moral propriety or even moral necessity for a resort to force and violence is not the same as preparing a group for violent action" and cannot be punished by the government in a manner consistent with the First Amendment. In order for speech inciting violence or lawlessness to fall outside of the ambit of the Free Speech Clause, the Court held that: 1. the speech must be directed at ... 2. inciting "imminent lawless action" and 3. the speech must also be likely to produce such action. In other words, for punishment of speech advocating violence to be constitutional, the speaker must both intend to incite a violent or lawless action and that action must be likely to imminently occur as a result. In so holding, the Court invalidated Ohio's criminal syndicalism statute, reasoning that the statute failed to draw the distinction between "mere abstract teaching" and "preparing a group for violent action" and, therefore, swept too broadly. Consequently, in order for a statute that restricts the advocacy of violence or lawlessness to be constitutional, the statute must apply only to speech meeting the standard announced by the Court. Ambiguity in Brandenburg's Scope As indicated by the Court in Brandenburg , speech that is intended to incite violent action and is likely to imminently produce such action is not protected by the First Amendment and may freely be proscribed by the government. However, the Court did not elaborate upon what it might mean for speech to be "likely to imminently produce" unlawful action. Therefore, it is unclear how imminent the violence advocated must be in order for speech to be able to be proscribed. In Hess v. Indiana , the Supreme Court provided some guidance regarding "imminence" pursuant to Brandenburg . The defendant in Hess had been convicted of disorderly conduct. At an anti-war rally, he had been arrested for shouting "[we'll] take the [expletive] street later." The Court overturned his conviction because his statement "amounted to nothing more than advocacy of illegal action at some indefinite future time" and his statements were not directed to any person or group of persons. In the Court's words, "there was no evidence, or rational inference from the import of the language that his words were intended to produce and likely to produce imminent disorder." Some argue that the Court's decision in Hess indicated the Court viewed the "imminence" requirement to mean that violence must be likely to occur immediately as a result of the speech at issue. The Hess Court apparently did not think that a threat to "take the street" at some later point was imminent or likely enough to be punished under Brandenburg . However, state and federal courts have not always applied Hess or the imminence requirement of Brandenburg so strictly. For example, in People v. Rubin , a California state court ruling, Rubin was charged with solicitation of murder. During a press conference to protest a planned march by the Nazi Party through Skokie, Illinois, Rubin offered money to anyone who "kills, maims, or seriously injures a member of the American Nazi Party.... The fact of the matter is that we're deadly serious. This is not said in jest, we are deadly serious." The trial court found that his speech was protected by the First Amendment, but the appeals court reversed. After reciting Brandenburg 's standard, the state appeals court held the defendant's speech was directed to inciting lawless action, and that such action was likely to imminently occur, even though the march in Skokie was not scheduled to take place until five weeks after the defendant had spoken. In justifying its holding, the court wrote that "time is a relative dimension and imminence a relative term, and the imminence of an event is related to its nature.... We think solicitation of murder in connection with a public event of this notoriety, even though five weeks away, can qualify as incitement to imminent lawless action." The only other Supreme Court case to apply the standard announced in Brandenburg was NAACP v. Claiborne Hardware . In that case, the Supreme Court overturned civil judgments against black defendants who had organized a boycott of white-owned businesses in a Mississippi town in order to protest discrimination and advocate for racial equality. According to the lawsuit, one of the defendants, Charles Evers, had advocated the use of violence to enforce the boycott against unwilling participants. Plaintiffs argued that Evers's advocacy of violence should make him liable to the plaintiffs for their losses resulting from the boycott. The Court disagreed, stating "[this] Court has made clear ... that mere advocacy of the use of force or violence does not remove speech from the protection of the First Amendment." The Court specifically noted that Evers's speech primarily consisted of a plea for black people to unify wherein strong language was used that might have been construed as advocacy of violence. While the Court noted that "a substantial question would be presented whether Evers could be held liable for the consequences of that unlawful conduct" had immediate violence erupted from his speech, any violence that occurred happened weeks later. The Court therefore concluded that Evers's speech was protected under the First Amendment. However, the Court has also found that First Amendment protection for speech related to illegal activity has its limits. In United States v. Williams , the Court upheld the constitutionality of a statute that outlawed knowing offers to provide or requests to receive child pornography. Citing Brandenburg , the Court noted that "there remains an important distinction between a proposal to engage in illegal activity and the abstract advocacy of illegality." Distinguishing the statute from one that would raise issues under Brandenburg , the Court found that it did not ban the advocacy of the creation of child pornography, but instead prohibited what were essentially attempts to give or receive it. Child pornography is not protected by the First Amendment. In Williams , the Court held that offers to give or receive it are also categorically excluded from First Amendment protection. For that reason, the Court found that the statute "[fell] well within constitutional bounds." Because the Court found that the statute did not raise issues regarding permissible restrictions on the pure advocacy of violence or lawlessness, the precise boundaries of the Brandenbu rg standard remain unclear. Holder v. Humanitarian Law Project Beyond the issue of regulating advocacy of imminent lawlessness or violence, the more recent 2010 case of Holder v. Humanitarian Law Project (" H umanitarian Law Project ") is also relevant to questions regarding the advocacy of terrorism, as the opinion analyzes the permissibility of burdening speech that may more generally benefit terrorist organizations. In H umanitarian Law Project , the Supreme Court upheld the constitutionality of the federal criminal prohibition on the provision of material support to entities that have been officially designated as foreign terrorist organizations (FTOs) by the United States. The criminal prohibition applies to, among other forms of support, the provision of "personnel," "training," "service," and "expert advice and support" to "designated entities." The plaintiffs in that case sought to provide certain services to FTOs, but feared that the provision of such services was barred by the law. While the plaintiffs did not claim that the statute violated the First Amendment in all instances, they alleged that the law was constitutionally invalid if applied to the assistance they contemplated providing the FTOs, which was intended to assist those groups' legitimate, non-terrorism-related activities. In particular, the plaintiffs sought pre-enforcement review in order to ensure that they could teach these organizations how to apply for certain humanitarian aid, engage in political advocacy on behalf of minority groups represented by these organizations, and give legal advice regarding the negotiation of peace agreements. The Court agreed with the plaintiffs that the prohibition on the provision of material support extended not only to conduct, but also to speech in a manner that burdened the plaintiffs' First Amendment rights. The majority acknowledged that the restriction was content-based, and accordingly applied "a more demanding standard" of scrutiny to the provision than would otherwise have been employed if it reached only conduct. Nonetheless, the Court upheld the application of the statute to the speech in question. The Court's assessment of the permissibility of the burden imposed on the plaintiffs' speech rights was informed by its reading of the underlying statute. The Court construed the material support statute as having been "carefully drawn to cover only a narrow category of speech to, under the direction of, or in coordination with foreign groups that the speaker knows to be terrorist organizations." The fact that the statute covered speech coordinated with foreign terrorist groups, and not "independent advocacy" that happened to support those groups, made it easier for the government to demonstrate that the restriction was narrowly tailored to advance the government's interest. Turning to the government's justification, the Court began its analysis by reiterating that Congress has a compelling interest in combating terrorism and protecting national security. In banning the provision of all material support to foreign terrorist organizations, the Court observed that Congress had reasoned that any support provided to these organizations, even support not intended to aid in terrorist endeavors, can free resources to support terrorist activities. The Court noted congressional findings that if American citizens provided material support to entities the U.S. government had identified as terrorist groups that activity may strain diplomatic relationships between the United States and countries in which the FTOs operate. In the Court's view, official cooperation and interaction with non-governmental entities can lend legitimacy to terrorist groups, which might undermine the government's interest in combating those organizations. When examining the support that the plaintiffs wished to provide to FTOs, the Court observed that "[a] foreign terrorist organization introduced to the structures of the international legal system might use the information to threaten, manipulate, and disrupt." According to the Court, prohibiting the provision of material support to FTOs, therefore, directly advanced the government's compelling interest in combating terrorism, and because the prohibition applied only to material support coordinated with FTOs, the statute was narrowly tailored to achieve the government's compelling interest. In reaching its conclusion upholding the statute, the Court emphasized that its holding applied only to the factual situation before the Court, and that the Court was not deciding the constitutionality of more difficult cases that might arise in other circumstances. The Court also stated that it "in no way suggest[ed] ... that a regulation of independent speech"—that is, speech that is not coordinated with a FTO– "would pass constitutional muster, even if the Government were to show that such speech benefits foreign terrorist organizations" or that a similar statute banning the provision of material support to a domestic organization would survive review. The Court focused upon the significance of the fact that Congress had carefully crafted the statute to avoid burdening constitutional rights when enacting the law and emphasized that Congress's views on matters of national security are entitled to "significant weight." Restricting the Advocacy of Terrorism on the Internet Some have argued that it should be permissible to restrict advocacy of terrorism disseminated via the Internet under the First Amendment, including perhaps in situations where current case law suggests that significant constitutional questions might be raised. Such advocates contend that eliminating or restricting such speech from the digital environment will reduce the risk of "self-radicalization" and will restrict the ability of terrorist groups to use social media to spread their propaganda. The Constitutionality of a Criminal Law that Would Wholly Prohibit Terrorist Advocacy Under Brandenburg , it appears that laws that criminalize the dissemination of the pure advocacy of terrorism, without more, would likely be deemed unconstitutional. Despite the ambiguities in its application, Brandenburg remains controlling precedent and has been cited by the Supreme Court as such. Consequently, speech that does no more than independently advocate the moral propriety or the moral good of terrorist acts is likely protected by the First Amendment. According to Brandenburg , statutes that fail to draw the distinction between abstract advocacy of violence and incitements directed at and likely to produce imminent lawless action sweep too broadly to be upheld. Therefore, any law that would generally restrict the independent advocacy of terrorist action on the Internet, without narrowing its application to only that advocacy that meets Brandenburg 's definition of incitement, would likely be unconstitutional. The limiting language in the Supreme Court's majority opinion in H umanitarian L aw P roject appears to support this argument. The Court stressed that the application of the prohibition on material support to FTOs was properly tailored to withstand scrutiny, in part, because the statute did not apply to independent advocacy of terrorism. The Court stressed that it was not addressing whether Congress could burden independent advocacy, even if it could be shown that FTOs would benefit from that advocacy. Some have argued that speech that advocates terrorist acts is so inherently dangerous that it should be distinguished from other speech that advocates violence or law breaking. These commentators posit that the government should be able to ban the dissemination of terrorist advocacy in the same way that the dissemination of child pornography is restricted. The comparison to child pornography is likely inapt, however. While the technology that permits the identification and filtering of child pornography might be adapted to filter the advocacy of terrorism, the constitutional justification for allowing the government to police the distribution of child pornography arguably does not justify treating the abstract advocacy of terrorism in a similar matter. Child pornography, the depiction of a minor engaged in sexual conduct that is not necessarily obscene, is unprotected by the First Amendment. The Supreme Court held that the possession and distribution of child pornography could be completely prohibited because the government has an overriding interest in destroying the market for speech that requires the injury and exploitation of children in order to create it. However, the Court has held that this reasoning does not extend to pornography that merely appears to, but does not in actuality depict a child engaging in sexual conduct ("virtual child pornography"). In reaching this holding, the Court explained that restrictions that apply to pornography depicting actual children were upheld because the laws targeted the production of the work and the harm that it caused children, not its content. In the case of virtual depictions of child pornography, no children are harmed in the creation of the content. The government had attempted to justify similar restrictions on virtual child pornography by arguing that such material, like actual child pornography, increased the risk that consumers of that content would victimize children in the future. Addressing that concern, the Supreme Court reiterated that the government "may not prohibit speech because it increases the chance an unlawful act will be committed 'at some indefinite future time.'" Applying this reasoning to the advocacy of terrorist activity, it does not appear that the creation of speech that advocates terrorism always inherently harms someone in the course of its production in a way that would be similar to the creation of actual child pornography. To be sure, some terrorist propaganda depicts terrorist attacks or executions, but terrorist advocacy does not necessarily require someone to be harmed in order for the speech to occur. Instead, the advocacy of terrorism, like virtual child pornography, arguably creates or increases a risk that a crime will be committed "at some indefinite future time." And the Supreme Court has held that the government may not prohibit speech solely on the basis of that indefinite risk. Can Terrorist Advocacy Be Restricted More Easily on the Internet? Speech that advocates terrorism that is distributed via the Internet may pose a significant danger to the public due to the ease of propagation to people who might be willing to act on those messages. For that reason, some lawmakers and scholars argue that courts should permit terrorist advocacy to be more easily restricted when the Internet is used to disseminate it. The Supreme Court has recognized that "each medium of expression presents special First Amendment problems." For example, the Court has permitted broadcast speech to be more easily regulated than speech via other mediums because, among other factors, broadcasted speech is uniquely accessible to children. The Supreme Court has yet to consider the specific question of whether the ease of dissemination of information over the Internet warrants treating advocacy of violence via that medium differently than the same speech communicated through other means. However, the Court has had the opportunity to examine what standard of review should be applied to restrictions on Internet speech more generally. In Reno v. American Civil Liberties Union , the Supreme Court struck down restrictions on the communication of indecent speech to minors. In doing so, the Court held that content-based restrictions on Internet speech should be subject to strict scrutiny. The Court examined whether the medium of the Internet, like the broadcast medium, justified greater latitude for the government to restrict speech on that platform and concluded that it did not. Comparing the reasons for permitting greater restrictions on broadcasted speech to the medium of the Internet, the Court explained that broadcasted speech is uniquely accessible to children. Specifically, the Court noted that there is an appreciable risk that if indecent speech were broadcast at times when children would be likely to be in the audience, children might accidentally be exposed to that speech. In contrast, the risk of accidentally encountering indecent speech on the Internet was, in the Court's assessment, far lower and did not justify departing from the general rules regarding content-based restrictions on speech. The Court therefore accorded the highest degree of protection to speech on the Internet because "the interest in encouraging freedom of expression in a democratic society outweighs any theoretical but unproven benefit of censorship." Assuming that the Court would apply the same reasoning to a content-based restriction on the advocacy of terrorism, the fact that speech is distributed via the Internet would not seem to permit the government to more easily regulate its dissemination, under current case law. Application of Material Support Statutes to Advocacy of Terrorism Under current law, the two federal statutes criminalizing material support for terrorism or foreign terrorist organizations, 18 U.S.C. §§ 2339A and 2339B, appear most relevant to online advocacy of terrorism. Neither statute squarely prohibits the advocacy of terrorism. But both statutes potentially cover non-tangible forms of support for terrorist activities or foreign terrorist groups, including through the recruitment of personnel or the provision of training, expert advice or assistance, funding, or financial services. The material support statutes have been the most often prosecuted anti-terrorism offenses. Section 2339A of Title 18 of the United States Code prohibits the provision of material support with the knowledge or intent that the support be used to carry out a terrorist attack. Section 2339B prohibits the provision of material support to designated foreign terrorist organizations. As previously discussed, the Supreme Court in H umanitarian L aw P roject held that material support provided in the form of certain kinds of speech under the direction or in coordination with foreign terrorist organizations in violation of Section 2339B may be punished consistent with the First Amendment even if such support is for purposes other than advancing the group's terrorist activities. Section 2339A: Material Support of Acts of Terrorism Section 2339A of Title 18 of the U.S. Code prohibits: 1. (a) attempting to, (b) conspiring to, or (c) actually 2. (a) providing material support or resources, or (b) concealing or disguising i. the nature, ii. location, iii. source, or iv. ownership of material support or resources 3. knowing or intending that they be used (a) in preparation for, (b) in carrying out, (c) in preparation for concealment of an escape from, or (d) in carrying out the concealment of an escape from 4. an offense identified as a federal crime of terrorism, as enumerated by the statute. Material support or resources covers "any property, tangible or intangible, or service," but excludes medicine and religious material. For the purposes of the discussion of whether the material support statutes can apply to the advocacy of terrorism, it is sufficient to note that the definition of material support explicitly includes "training" and "expert advice or assistance." The statute defines training as the "instruction or teaching designed to impart a specific skill, as opposed to general knowledge," whereas expert advice and assistance is defined to mean "advice or assistance derived from scientific, technical, or other specialized knowledge." Unlike the material support statute at issue in Humanitarian Law Project, which potentially applied to activities done in furtherance of a foreign entity's activities unrelated to terrorism, a requisite for application of Section 2339A is that the support was given with the knowledge or intention that it would be used to facilitate a terrorist crime. It seems that the provision of speech in the form of training or expert advice or assistance with the intent that it be used to support a specific act of terrorism can be constitutionally punished. Even when a violation of the law may take the form of speech, the Supreme Court has held that the Constitution is not necessarily a barrier to punishment. For example, an agreement to violate the law may be punished as a criminal conspiracy, and an agreement to fix prices in a market might constitute a violation of the antitrust laws. Constitutional challenges to the scope of Section 2339A, including those based on arguments that it is incompatible with the First Amendment, thus far have proven unsuccessful. Section 2339B: Material Support of Designated Terrorist Organizations Section 2339B of Title 18 of the United States Code predicates liability on material support provided to certain designated terrorist organizations, rather than to the commission of a specific crime of terrorism. As acknowledged by the Supreme Court in H umanitarian L aw P roject , this difference may create closer constitutional questions when the statute is applied to speech. Section 2339B outlaws: 1. (a) attempting to provide, (b) conspiring to provide, or (c) actually providing 2. material support or resources 3. to a foreign terrorist organization 4. knowing that the organization (a) has been designated a foreign terrorist organization, or (b) engages, or has engaged in "terrorism" or "terrorist activity." Section 2339B's definition for "material support" is the same definition that applies to Section 2339A and covers "any property, tangible or intangible, or service" and explicitly includes "training" and "expert advice or assistance." The H umanitarian L aw P roject Court clarified that advocacy may only constitute material support when it is "concerted activity," that is, activity in connection with or under the direction of an FTO. To violate Section 2339B, one need not intend to aid in a terrorist attack or to further an organization's terrorist activities. One need only have "knowledge that the organization is a designated terrorist organization ... that the organization has engaged in terrorist activity ... or that the organization has engaged or engages in terrorism." Advocacy Directed to, Coordinated with, Under the Direction of an FTO Assuming that a particular type of terrorist advocacy is within the scope of the "material support" proscribed by Section 2339B (e.g., it involves training or the giving of expert advice), the primary question that remains is whether the speech at issue would constitute advocacy "directed to, coordinated with or controlled by" a FTO. In examining the clarity of the statute in H umanitarian L aw P roject and holding that the statute was not impermissibly vague, the Court pointed out that, by its terms, [the] statute prohibits providing a service "to a foreign terrorist organization." The use of the word "to" indicates a connection between the service and the foreign group. We think a person of ordinary intelligence would understand that independently advocating for a cause is different from providing a service to a group that is advocating for that cause. However, the Court did acknowledge that it was leaving open "questions of exactly how much direction or coordination is necessary for an activity to constitute a 'service.'" The majority decided that it would be more appropriate to address those questions when the particular factual situations arose. A 2013 case decided by the First Circuit Court of Appeals may indicate that some courts could be inclined to broadly interpret what it means to direct speech to, coordinate with, or act under the direction of a FTO. In that case, Tarek Mehanna was convicted of several terrorism-related charges, including for providing material support to Al Qaeda, an organization Mehanna knew to be a designated FTO. Mehanna had traveled to Yemen in an attempt to join Al Qaeda, but had been unable to locate the training camp he sough t. Mehanna had also translated publicly available Arabic language documents, some of which were Al Qaeda-generated propaganda, into English and had posted his translations on a website that was sympathetic to Al Qaeda. Mehanna argued that his translations were independent advocacy, protected by the First Amendment and that the jury had not been properly instructed regarding what it means to coordinate with an FTO under Section 2339B. The First Circuit upheld his convictions. In doing so, the court examined the trial judge's instructions to the jury regarding the First Amendment and the defendant's translations. The First Circuit noted that the trial judge had defined "coordination" by explaining that "[i]ndividuals who act entirely independently of the 'FTO' to advance its goals or objectives shall not be considered to be working under the FTO's direction." The First Circuit could find no legal error with these jury instructions. In response to the contention that the jury should have been instructed that a direct connection between a FTO and a defendant must be proven in order for the defendant to have acted in coordination with the organization, the appeals court stated that neither the statute nor the Supreme Court's decision in H umanitarian L aw P roject required "a direct link" between a defendant and a FTO for a violation to occur. Nonetheless, the appeals court did not explicitly hold that Mehanna's translational activities were sufficient to sustain his conviction. At the same time, the court held that, even if the defendant's translational activities did not constitute an attempt to provide material support, the evidence surrounding his trip to Yemen in an attempt to join Al Qaeda supported his convictions. The Mehanna case does not provide definitive answers as to when speech activity that may benefit an FTO is sufficiently directed to, coordinated with, or under the direction of a FTO to be considered material support. However, it does suggest that certain forms of speech-related activity might be considered to be material support, even if the defendant never actually has direct contact with the FTO. If speech can be material support when the defendant has never succeeded in making direct contact with the FTO, it seems unclear where the line might be drawn between independent advocacy of terrorism that the Supreme Court in H umanitarian L aw P roject suggested could not be restricted and advocacy of terrorism that constitutes a violation of Section 2339B. The Application of Section 2339B to Social Media Services Some observers have suggested the possibility that when members of FTOs obtain accounts for social media sites like Twitter and Facebook, those sites are providing a service to FTOs that constitutes material support in violation of Section 2339B. Some FTOs have reportedly acquired social media accounts from social media companies. One recent study estimated that over 30,000 accounts on Twitter were controlled by the Islamic State organization alone as of 2014. Others have noted the apparent presence of other terrorist groups on Twitter and other social media outlets. The outstanding questions appear to be whether providing a social media account could constitute material support and whether a social media company has knowledge sufficient to support a conviction. However, it does not appear that the Department of Justice (DOJ) has ever brought a criminal or civil case against any social media outlet alleging such a violation. As a result, there is no case law clarifying whether the statute can properly be applied to social media companies whose generally available services are used by FTOs to communicate. If a court were to evaluate whether Section 2339B can be applied to social media companies, one of the most difficult questions presented would be whether a social media site could be said to be acting in coordination with or under the direction of an FTO. As noted above, H umanitarian L aw P roject did not provide guidance as to the level of coordination necessary to constitute the provision of a service to a FTO under the statute. Mehanna suggests that defendants need not have direct contact with the FTO in order for a violation to occur. Websites generally do not engage in background checks or any other form of verification prior to permitting an account to be created. Given the number of people who use their services, such verification may be impossible. And given the difficult burden that would be imposed on social media companies in performing background checks on every user, a court may simply conclude that providing an account to a user who may happen to be affiliated with a FTO may be insufficient in and of itself to rise to the level of "coordination" necessary to violate Section 2339B. Nonetheless, a number of social media sites have policies to remove terrorist content or the accounts of terrorist groups. Some have argued that because social media sites often fail to suspend accounts that are associated with FTOs, the government could argue that this failure is evidence of coordination with FTOs. Without case law interpreting this question, it remains unclear whether the fact that terrorist groups and their representatives often are able to obtain and use social media accounts represents a sufficient connection between social media services and the terrorist groups to support a finding of the provision of material support. In addition, in order to hold a social media company criminally or civilly liable for the provision of material support to an FTO under Section 2339B, the government must prove that the defendant knew that the organization to which the support was provided was a designated FTO or that the organization was engaged in terrorism. Social media companies could be expected to argue that they do not have sufficient knowledge of a new user's affiliation with a FTO upon the activation of an account. Over 1 billion people use Facebook, and millions also use Twitter. The companies do not, and might argue that they cannot, attempt to discover with any degree of certainty what users of its services will be terrorist affiliates prior to the activation of an account. Nonetheless, social media sites appear to be generally aware that their services are used by some percentage of their subscribers to disseminate terrorist advocacy and that they may be used by FTOs themselves. Twitter, Facebook, and other social media sites can and do disable accounts that violate their terms of service. Certain violent speech, including speech that advocates or glorifies terrorism, violates the terms of service of these sites. It has been reported that Twitter has recently increased the number of accounts that it has disabled for promoting terrorism. Facebook has also reportedly removed posts that advocate terrorism and has disabled accounts for the same reason. The fact that social media companies take steps to remove that content when it appears on their services may be evidence that they know that their services are being used by FTOs. On the other hand, a social media website might not be sure if an account actually belongs to a FTO or is operated by another user identifying itself as the FTO. It is unclear whether the general knowledge of social media sites that terrorist organizations are using their services, despite lacking actual knowledge that a particular account is used by a specific FTO, is sufficient to support a conviction for the provision of material support under Section 2339B. Private Civil Lawsuits and Section 230 of the Communications Decency Act Section 2333 of Title 18 of the United States Code permits U.S. citizens injured in their persons, property, or business by acts of international terrorism to recover treble damages. Courts have interpreted violations of Section 2339A and 2339B to be acts of international terrorism for the purposes of Section 2333. Recently, a number of lawsuits have been filed by private plaintiffs against social media websites alleging that they are providing material support to terrorist groups in violation of 18 U.S.C. § 2339B. One such lawsuit was brought against Twitter and alleged that Twitter's dissemination of propaganda by the Islamic State organization led to a terrorist attack that caused the death of three government contractors at a training facility in Jordan. In another lawsuit, the father of one of the Americans killed in the orchestrated terrorist attack in Paris in 2015 similarly accused Twitter, Google, and Facebook of providing material support to the Islamic State in violation of Section 2339B, arguing that without the services provided by these sites, "the explosive growth of ISIS over the last few years into the most-feared terrorist group in the world would not have been possible." Beyond the difficulty with determining whether social media companies can be held civilly liable for providing material support under the terms of Section 2339B, such private civil lawsuits may face an additional hurdle in attempting to hold social media services accountable for allowing FTOs to use them. Section 230(c) of the Communications Decency Act (CDA) prohibits holding interactive computer service providers liable for content provided by third parties. While the liability shield does not apply to violations of the federal criminal law, the U.S. Court of Appeals for the First Circuit recently held that, even when the civil lawsuit is based upon a violation of federal criminal law, Section 230's shield may bar recovery if the lawsuit seeks to treat a service provider as a publisher. Consequently, even if social media service providers do violate Section 2339B when providing accounts to FTOs, it is possible that Section 230 of the CDA would shield them from civil liability for that violation. Section 230 of the Communications Decency Act Section 230(c)(1) of the CDA states, in pertinent part, that "no provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." This language has been interpreted by courts to provide immunity from civil liability to providers and users of interactive computer services for content provided by third parties. In creating this liability shield, Congress sought to preserve the robust and vibrant communication that occurs on the Internet and to "keep government interference to a minimum." However, Section 230 is not an absolute bar to liability. A three-part test has been developed to determine whether a defendant is eligible for Section 230's protection. If the lawsuit is 1. brought against an interactive computer service provider or user (e.g., a website like NYTimes.com, or a social media service, like Twitter or Facebook), 2. based upon information provided by another content provider, and 3. seeks to hold the defendant liable as a publisher or speaker of that content, then Section 230's liability shield applies. If it can be shown that the interactive computer service provider contributed to the development of the illegal content, Section 230's liability shield is not available. To date, only one court has ruled with regard to Section 230's application to a lawsuit alleging material support of a FTO by a social media company. In Fields v. Twitter , the plaintiffs, family members of United States government contractors who were killed in a terrorist attack in Lebanon, alleged that the Islamic State organization used Twitter to spread propaganda, raise funds, and attract recruits, and that Twitter knowingly permitted such use of its services. The plaintiffs further alleged that Twitter's provision of these services generally caused their injuries. However, the plaintiffs did not specifically allege that the Islamic State used Twitter to recruit the person who committed the terrorist attack that injured the plaintiffs or that Twitter was used to plan the attack. Instead, the plaintiffs alleged only that the attacker was generally inspired by propaganda that he had seen on Twitter. The United States District Court for the Northern District of California dismissed the plaintiffs' lawsuit, but gave the plaintiffs leave to amend their complaint. In doing so, the court did not reach the question of whether Twitter actually had provided material support to a foreign terrorist organization. Instead, the district court dismissed the lawsuit because the court found that Section 230 of the CDA shielded Twitter from liability. The central argument in Fields with regard to Section 230 was whether the lawsuit was attempting to hold Twitter liable as a publisher. To support their argument that the lawsuit was not targeting Twitter as a publisher, the plaintiffs offered two justifications. First, they argued that their lawsuit was not based upon the content of the speech disseminated by Twitter, but instead was based solely upon Twitter's provision of services in the form of Twitter accounts to the Islamic State organization. Second, they alleged that because much of the organization's recruiting communication is accomplished via Twitter's Direct Messaging services, which are private communications between individual users, those direct messages are not "published" to the public and recovery based upon those communications cannot be barred by Section 230. The district court rejected both arguments. In rejecting the plaintiffs' provision of accounts theory of liability, the court noted previous cases analyzing the breadth of Section 230's liability shield have defined publishing broadly to include any decision related to what third-party content might be made available on a site or removed from it. Generally, previous courts had applied that reasoning to specific offensive content and not to the decision of whether to provide access to a platform to specific persons. However, the district court did not see a substantive distinction between the two concepts for the purposes of whether Twitter was being treated as a publisher. In the court's view, granting permission to a particular person to post whatever content that person liked was no less a publishing decision than allowing content to be posted in the first place, or removing content that the site decided violated its rules. "Twitter's decisions to structure and operate itself as a platform ... allowing for the freedom of expression [of] hundreds of millions of people around the world and to allow even ISIS to sign up for accounts on its social network," in the court's view, "reflect choices about what [third-party] content can appear on Twitter and in what form." These were quintessential publishing decisions in the view of the court. Consequently, Section 230's liability shield applied. Turning to whether content that was not made publicly available was published for the purposes of Section 230, the court again was not convinced by the plaintiffs' arguments. In making this determination, the court noted that Section 230 was first enacted to provide a liability shield for defamatory content posted by third parties. Accordingly, the district court took into account that appeals courts have looked to defamation law when determining the scope of the shield provided by Section 230. Because, under defamation law, the term publication means to communicate to another person, other than the person defamed, the Fields court determined that in order for an interactive service provider to be treated as a publisher for the purposes of Section 230, the third-party content need not be made publicly available. Section 230's liability shield therefore also applied to content communicated via Twitter's Direct Messaging service. As noted above, similar private civil lawsuits alleging that social media sites provide material support to terrorist organizations are pending in court. It remains to be seen whether those cases will be decided similarly to Fields v. Twitter . However, Fields does suggest that reviewing courts may be inclined to continue the general trend of broadly applying the liability shield provided by Section 230 to civil suits brought against Internet platforms that display third-party content like Twitter, Facebook, and Google. If so, they may provide a barrier to attempts to curb the advocacy of terrorism on the Internet through civil litigation.

The development of the Internet has revolutionized communications. It has never been easier to speak to wide audiences or to communicate with people that may be located more than half a world away from the speaker. However, like any neutral platform, the Internet can be used to many different ends, including illegal, offensive, or dangerous purposes. Terrorist groups, such as the Islamic State (IS, also referred to as ISIS or ISIL), Al Qaeda, Hamas, and Al Shabaab, use the Internet to disseminate their ideology, to recruit new members, and to take credit for attacks around the world. In addition, some people who are not members of these groups may view this content and could begin to sympathize with or to adhere to the violent philosophies these groups advocate. They might even act on these beliefs. Several U.S. policymakers, including some Members of Congress, have expressed concern about the influence that terrorist advocacy may have upon those who view or read it. The ease with which such speech may be disseminated over the Internet, using popular social media services, has been highlighted by some observers as potentially increasing the ease by which persons who might otherwise have not been exposed to the ideology or recruitment efforts of terrorist entities may become radicalized. These concerns raise the question of whether it would be permissible for the federal government to restrict or prohibit the publication and distribution of speech that advocates the commission of terrorist acts when that speech appears on the Internet. Significant First Amendment freedom of speech issues are raised by the prospect of government restrictions on the publication and distribution of speech, even speech that advocates terrorism. This report discusses relevant precedent concerning the extent to which advocacy of terrorism may be restricted in a manner consistent with the First Amendment's Freedom of Speech Clause. The report also discusses the potential application of the federal ban on the provision of material support to foreign terrorist organizations (FTOs) to the advocacy of terrorism, including as it relates to the dissemination of such advocacy via online services like Twitter or Facebook.

Introduction Newspapers and journals carry reports of efforts by local, state, and national governments to privatize government agencies or services. Privatization initiatives are being considered and carried out in nation-states around the world. Privatization is an idea that has attracted both strong adherents and vociferous critics. Privatization reached the federal policy agenda in the United States more than two decades ago, and each Congress features new bills proposing to either expand or halt the movement of federal governmental activities to the private sector. In recent years, President George W. Bush has advocated the privatization of military housing and the expansion of opportunities for private organizations to provide social and community services as part of his government management agenda. Moreover, the President supported the provision of housing and schooling vouchers to persons displaced by Hurricane Katrina, and the creation of a Medicare prescription drug benefit provided by private firms. Congress, however, has been of mixed mind regarding privatization, enacting policies that both limit and expand the private sector's access to federal funds to provide governmental services. Congress has enacted statutes (e.g., P.L. 104-193 , sec. 104; P.L. 106-554 , sec. 1) that permit private groups—including not-for-profits and religious organizations—to apply for grants to provide social services, such as substance abuse counseling and employment training, previously offered by government agencies. During the 110 th Congress, the House approved a bill that would impose a one year "moratorium on conversion to contractor performance of Department of Defense functions at military medical facilities" ( H.R. 1538 , Section 301). Privatization, however, is not a recent phenomenon. Since the founding of the Republic, the federal government has hired or contracted with private firms to provide public goods and services. For example, Congress enacted a statute in 1789 that declared that it shall be the duty of the Secretary of the Treasury to provide by contracts, which shall be approved by the President, for building a lighthouse near the entrance of the Chesapeake Bay, and for rebuilding when necessary, and keeping in good repair, the lighthouses, beacons, buoys, and public piers in the several states...." (1 Stat. 54) Hence, privatization has been of perennial interest to Congress and likely will continue to be so. Privatization: A Definition Economists, political leaders, and government officials tend to define "privatization" differently. The breadth of activities covered by the term "privatization" varies greatly. The Congressional Budget Office (CBO), for example, has defined "privatization" narrowly to refer to activities that "involve a genuine sale of assets and termination of a federal activity." The Oxford English Dictionary , meanwhile, defines the term more broadly to mean "the policy or process of making private as opposed to public." Perhaps most commonly, "privatization" is used to refer to "any shift of activities or functions from the state to the private sector." All three of these definitions have value. Arguably, though, it may be possible to define privatization more precisely. Privatization might be defined as the use of the private sector in the provision of a good or service, the components of which include financing, operations (supplying, production, delivery), and quality control . This definition is useful to policymakers for three reasons. First, it enables policymakers who wish to improve the provision of a good or service to see that privatization is not an either/or proposition. Rather, privatization is a matter of degrees and there are myriad means, as this report explicates, through which the private sector may be brought into the process of the provision of a good or service. At minimum, an agency might purchase office supplies, such as printer paper, pens, and folders, from a private sector firm (supplying). Alternatively, a government agency may more heavily utilize the private sector. It might also hire a not-for-profit corporation to raise operating funds and contract with private firms to assist in the provision of a service (supplying, financing, delivery). Taken furthest, an agency might be abolished and private firms allowed to provide a good or service (financing, supplying, production, delivery, and quality control). Second, utilizing this definition also may enable policymakers to see that a fundamental values question lies beneath the issue of privatization. Whenever government must provide a good or service, the question arises, "Which components of provision ought to be done by the government and which might be done by the private sector?" Different approaches to privatization of the components of an agency's provision of goods and service may provoke more or less controversy. For example, permitting an agency to hire a private firm to assess its performance (quality control) may elicit some concern; permitting this same agency to acquire funds by charging citizens fees (financing) may provoke widespread criticism. On the whole, then, the definition employed in this report may highlight for policymakers both the instrumental (e.g., "how") and normative (e.g., "ought") questions involved in privatization. Background: The Recent Political Salience of Privatization The sources of the salience of privatization are manifold, but likely include privatization's rhetorically potent rationales, purported benefits, and political attractiveness. The Rhetorically Potent Rationales for Privatization A host of rationales has been employed to advance privatization as a policy. Collectively, though, these arguments amount to a criticism of the purported failures of "big government." In great part, the contemporary privatization movement has its intellectual roots in free market economic theory and public choice theory. Philosophically, free market theory is skeptical of government and is sanguine toward markets. As one renowned exponent of markets has written, Economic arrangements play a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensable means toward the achievement of political freedom. From this perspective, the great danger to freedom is the concentration of power in the hands of government. Economic freedom protects individual freedom by limiting the extent of political power. Free market theory, generally speaking, argues that markets—not governments—are the most efficient means for the production of goods and services. In arguing for markets and against government provision of goods and services, free market advocates argue that government tends to behave as a monopoly provider of goods and services. As such, it is inefficient, inattentive to public wants, and slow to reform and innovate. Public choice theory is a near relation to free market economics. One of public choice theory's criticisms of government is that public bureaucracies should not be viewed as neutral vehicles for delivering government goods and services. Rather, it posits, individual bureaucrats should be viewed as self-interested actors, not public-spirited civil servants. As each bureaucrat strives to achieve what he desires, he helps produce collective organizational pathologies, often termed "government failures." For example, according to public choice theory, the head of each administrative division of an agency should be expected to seek to obtain the maximum possible funding for his division. In order to justify this budget request, he will devise ways to increase projected costs. When each administrative head does this, the collective result is a greatly enlarged agency budget with funding priorities that are neither rational nor necessarily related to achieving the goals assigned to the agency by statute. Both free market economists and public choice theorists typically believe that the nature of the goods or services to be produced determines whether the private sector or government should produce it. If the good is "non-excludable" (meaning that persons cannot be prevented from using it) and "non-rival" (meaning that one person's use of it does not diminish another person's use of it), then it is a "public good" and government should produce it. An example of this sort of good is national defense. As for goods that do not meet these criteria (e.g., computers, bullets, housing priced at below-market rates for occupancy by low-income persons), free market economists and public choice theorists tend to hold that private firms should be left to produce these items because they can do so most efficiently. Since public goods tend to be few, this perspective amounts to an advocacy of minimalist government, and one that would have the government use private firms as much as it can to help it produce public goods. There also have been political and philosophical arguments that have encouraged privatization implicitly and explicitly. Primarily, these arguments have come from conservatives and libertarians who wish to shrink the federal government. Some of these critics have complained about the growth of a "behemoth" federal government that accretes power at a cost to the liberty of citizens. Other detractors of "big government" complain that the federal government has overstepped the bounds set for it by the Constitution. In both cases, the argument is that government is doing things that it should not be doing and that it should desist from doing them. These activities, then, would be left to the private sector, which may or may not perform them. Still, other critics of big government have explicitly advanced privatization as a means for reducing the size of government and the federal deficit: It is the demand for public services that powers the growth of the government, and there is a systematic political imbalance between those who desire more spending and those who desire less—an imbalance consistently favoring the pro-spending lobby.... [A] powerful coalition of beneficiaries, service suppliers, political activists, and bureaucrats tends to develop around each federal spending program. It is in the interest of those coalitions to press [Congress] for an expansion of the federal role. Privatization, according to this perspective, can diminish these political pressures by taking an activity out of the hands of those with an interest in its expansion. Bureaucrats would be replaced by private sector entrepreneurs, and recipients of government goods and services would be transformed into customers. Whereas the former persons had an interest in greater spending, it is said, the latter will favor low-cost services. These arguments for privatization have attracted attention, in part, because they are rhetorically potent. Economics, history, and constitutional law all have been employed to argue against "big government" and for the superior ability of private firms to provide goods and services. Proponents of privatization also have portrayed privatization as a policy that promotes widely-esteemed values, such as freedom and efficiency, as a tool for fighting the bugbears of intrusive and wasteful bureaucracy, and as a "key" to better government. Purported Benefits of Privatization Proponents of privatization have claimed that it provides diverse benefits. E.S. Savas, one of the earliest and best known proponents of privatization, has stated, [P]rivatization is the key to both limited and better government: limited in size, scope, and power relative to society's other institutions; and better in that society's needs are satisfied more efficiently, effectively, and equitably. Privatization is both a means and an end. For pragmatists who want better government and for populists who seek a better society, privatization is a means toward those ends. Generally, promoters of privatization believe that private firms can provide goods and services "better, faster, and cheaper" than government. Competition and the profit-motive, they say, goad private firms to better produce products and services than government, which they construe as a "monopoly." Advocates for privatization often point to the positive experiences that some states and localities have experienced when they privatized municipal services such as waste removal, fire protection, and ambulance services. Privatization also is desirable, some advocates contend, because it can spur economic growth by opening new areas of activity to entrepreneurs. Privatizing activities that the private sector can provide has also been justified as a means to improve government performance by forcing it to focus more sharply on its "core activities" rather than adjunct functions. Political Attractiveness of Privatization Privatization holds appeal to some policymakers because of its purported utility for addressing at least four salient political issues. First, some persons in the United States have expressed disillusionment with the federal government's performance as a provider of services and regulator of the economy. The roots of this sentiment are deep, going back at least to conservative reactions against the expansion of the federal government during the New Deal and the economic and national socialism in Europe and the Soviet Union. In more recent decades, allegations of "waste, fraud, and abuse" by federal agencies have encouraged a search for private sector solutions to government problems. Second, worldwide, a number of countries have experienced a host of problems with state-operated industries and entities. Corruption, escalating costs, and employee strikes inspired some central governments to consider other means to make these entities more cost effective and competitive. Foreign governments' experiments with privatization helped fuel the United States' own experimentations in government reform. Third, the persistent budget deficits of the past three decades have encouraged lawmakers and agency managers to develop new sources of revenue and to reduce costs. The search for solutions has stimulated both the federal government and private firms to examine government activities, to develop proposals to transfer government functions to the private sector, and to make agencies operate more like the private sector. Fourth, private sector firms have significant interests in the advancement of privatization. These firms may reap significant financial benefits, for example, by purchasing government assets and by winning contracts to provide products and services to the government or the public. To cite just two instances: (1) In 1998, Occidental Petroleum was willing to spend $3.65 billion to purchase the Elk Hills Naval Petroleum Reserve from the U.S. government. Recently, the company has said that the purchase was "an excellent investment." (2) In 2005, the federal government's annual spending on contracts with private companies for goods and services grew to $377.5 billion. Over the past two decades, newspapers and periodicals have carried pieces by business executives that urge the government to turn to the private sector to improve government. Not surprisingly, then, the past four presidents all have promoted privatization to some degree. President Ronald W. Reagan was a vigorous exponent of privatization, favored the privatization of Conrail, and appointed a Commission on Privatization in 1987. Though less ardent than his predecessor, President George H.W. Bush spoke in favor of privatization and issued an executive order to encourage it. President William J. Clinton, with the help of Vice President Albert A. Gore Jr., promoted the reinvention of government based upon ideas drawn from the private sector, and supported the privatization of the Elk Hills Naval Petroleum Reserve in 1998. President George W. Bush, as noted above, has voiced support for privatization initiatives. Criticisms of Privatization Unlike "reinventing government," "performance-based organizations," or other recent government reform ideas, privatization remains much discussed in federal policy networks. That said, proponents' acclamation of privatization as a tool for improving the performance of government has not gone without rebuttal. Observers and opponents have raised numerous questions and issued assorted criticisms of privatization. Views include the following: The shifting of government work from government employees to private sector contractors has been criticized as a union-busting strategy intended to weaken the political left by decreasing the number of unionized government employees. Contracting out may adversely affect women and minorities collectively, as they have "tended to find jobs in the civil service more readily than in the private sector." Under the American theory of governance, political power originated with the people, who erected government and entrusted it to use this power in accordance with the law. Thus, the responsibility of those employed by government is to act in accordance with this fiduciary relationship. Accordingly, both the Constitution and federal law include oaths to be taken by elected officials and civil servants. Bureaucracies are not merely passive entities that execute the law as enacted. Bureaucracies interpret the law and sculpt policies. Thus, any effort to shift bureaucratic functions to the private sector may risk transferring away some governing discretion into the hands of private parties who are not accountable to the public and may not have its interests at heart. One of the objectives of creating a civil service was to provide government with a stable corps of committed employees. Federal workers were to be chosen on a rational basis, as opposed to the favor of an appointee, and provided with protections and good compensation and benefits that would encourage long tenures. It was hoped that this arrangement would develop in employees the often peculiar expertise required to carry out governmental activities and instill in them a commitment to the law. Privatization may "hollow out" agencies' expertise, replacing them with short-term contract workers with little commitment to the public mission of the agency. Contracting out can promote iron triangles and other corrupt relationships between the federal government and the private sector. For example, Boeing Company reached a $615 million settlement with the Department of Justice in May 2006. The company was investigated for its role in a contracting scandal. The company fired its chief financial officer—who attempted to persuade an Air Force official, who was overseeing a large federal contract that Boeing was bidding on—to take a job with the company. This same official was jailed after she admitted that she had used the Boeing executive to get a job for her daughter and future son-in-law with Boeing and improperly favored the company in awarding the contract. The premise of privatization is that the government will benefit when firms in a competitive market compete to provide it with products and services. Competitive markets, however, require a number of conditions to be met for them to function properly. To cite just two of them, (1) firms must not face barriers to entry in this market and (2) the buyer of the goods and services must possess sufficient information to empower it to make a rational purchase. If any of the conditions for competition are not met, the buyer—i.e., an agency—may be exploited. In short, markets can fail, especially if there are too few firms to compete for government contracts. Hiring private firms to carry out government work creates great management challenges for government administrators. Should an agency fail to have well-trained personnel and effective oversight procedures in place, its utilization of private providers can result in waste, fraud, and abuse. Government may benefit when private firms compete to provide a good or service; however, should the firm providing the service go out of business there may be a time lag before it can be replaced. The costs of this time lag can be formidable. For example, when a company operating charter schools in California became defunct in August 2004, the parents of 10,000 children had but a few weeks to locate new schools for their children. Privatization does not always lead to cost savings or better service. In some instances, private firms have had significantly higher cost overruns than government agencies in the performance of services. In other instances, private firms have performed work that has been criticized as being grossly inadequate. Privatization, then, has been criticized as ill-intentioned and inherently inimical to good government, and it has been faulted both in principle and in practice. Means of Privatization Many means of privatization have been devised, and the classification and nomenclature used for these activities varies from study to study. Nevertheless, privatization, generally, is understood to include the following activities: divestiture/load-shedding, contracting for goods, contracting for services (outsourcing), vouchers, quasi governmental entities (including government-owned-contractor-operated facilities (GOCO)), third-party financing, grants to private parties, prize competitions, and the use of volunteers. Each of these activities is described below. Divestiture/Load-Shedding The sale, or divestiture, by a government of an agency, corporation, or service to private ownership is the most clear-cut method of privatization. An example of the divestiture of a federally owned corporation was the March 1987 sale of Conrail to the public through a stock offering. An example of the divestiture of a governmental activity is the Office of Personnel Management's (OPM's) creation of US Investigations Service (USIS). OPM created this private sector entity and transferred the employees of OPM's Federal Investigations Division to it. Another simpler form of divestiture is to sell some asset, such as real property, to a private firm or individual. Recent large-scale examples include the privatization of the Alaska Power Administration (1996) and U.S. Enrichment Corporation, Inc. (1998), and the previously mentioned sale of the Elk Hills Naval Petroleum Reserve (1998). The government may simply give some asset away as it did when transferring land to homesteaders in the 19 th century. Finally, government may decide to stop providing a good or service ("load shedding") and allow private providers to meet any public demand for the good or service. This situation occurred when the Coast Guard stopped assisting stranded boats in the Miami area except when they are in clear and imminent danger. Whether the immediate objective is to provide revenue to the U.S. Treasury, increase the output from a particular resource, or assist some worthy public cause, the divestiture of a government asset fundamentally alters the legal status of the asset, moving it from the governmental to the private sector. Contracting for Goods The Federal Acquisition Regulation (FAR) sets the "uniform policies and procedures for acquisition by all executive agencies." (48 C.F.R. 1.101) The FAR governs government "acquisitions," which it defines as the "acquiring by contract with appropriated funds of supplies or services (including construction) by and for the use of the Federal Government." (48 C.F.R. 2.101(b)(2)). The federal government has contracted for goods since its founding. In great part, contracting for goods is a matter of necessity. Like private firms, government agencies face a "make or buy" decision and have limited funds available. Few would argue that it would be efficient or even practicable for an agency to supply itself with all the materials it needs, such as staplers and paper clips, when the agency can readily acquire them from private producers. However, it is also the case that the federal government long has had a policy that forbids competition with the private sector. A Bureau of the Budget (BOB) Bulletin of 1955 stated that the "[f]ederal government will not start or carry on any commercial activity to provide a service or product for its own use if such a product can be procured from private enterprise through ordinary business channels." While the idea of government contracting for goods is rarely questioned, the actual practice of contracting has been criticized frequently. In many of these instances, private firms are alleged to have failed to produce and provide the goods as agreed. Federal agencies also have experienced difficulties in overseeing the work of goods contractors and coordinating agency activities with those of contractors. For example, recently, a government audit identified significant problems in a private firm's delivery of equipment to be installed in medical facilities in Iraq. Crates carrying the equipment were damaged and showed "unmistakable signs" that equipment was missing. The audit also cited a government agency for failure to inspect the equipment upon receipt. Contracting for Services (Outsourcing) Sometimes called contracting out, "outsourcing" refers to an agency engaging a private firm to perform an agency function or provide a service. The term often is conflated with competitive sourcing , a marketization activity considered later in this report. Federal outsourcing policy is governed by the FAR and the Federal Activities Inventory Reform (FAIR) Act of 1998 ( P.L. 105-270 ). FAIR requires agencies to produce inventories of "commercial activities"—those that are not "inherently governmental" and able to be acquired from the private sector—that may be put up for competitive sourcing. OMB's Circular A-76 provides agencies with specific directions for undertaking competitive sourcing. As with the procurement of goods, the federal government long has hired private firms to help it perform services. For example, in 1819, Congress empowered the Postmaster General to "contract for the transportation of the mail in steamboats, between New Orleans, in the state of Louisiana, and Louisville, in the state of Kentucky." (3 Stat 496) FAIR and A-76 encourage agencies to outsource. Agencies also are attracted to outsourcing because it can provide cost-savings and flexibility. Additionally, outsourcing is a means for agencies to handle large, infrequent demands for government services. For example, the General Services Administration (GSA) uses private call-center contractors when it expects agencies it supports, such as the Federal Emergency Management Agency, to receive large numbers of telephone calls from individuals affected by episodic tumults, such as hurricanes. Additionally, when an agency uses a contractor, instead of hiring a new federal employee, it need not expend resources training the contractor; nor need it provide medical benefits or pensions to the contractor. For these reasons, in recent years, the number of federal contractors has increased, topping seven million. There may also be a trend of increasing the scope of contract services to include areas not previously considered appropriate for assignment to the private sector (e.g., the operation of prisons, the performance of personnel background checks, and the protection of government officials). Reportedly, federal agencies issued $388 billion in contracts in FY2005. Vouchers There are situations where a government may want a particular service to be funded publicly, but not delivered directly by a governmental entity. The government may choose to give the recipient of this service a "voucher" to purchase the service from private or other public sources. A voucher is "a subsidy that grants limited purchasing power to an individual to choose among a restricted set of goods and services." As such, it can be designed in a variety of ways, such as a tax credit or a grant. The objectives for using vouchers vary. Vouchers may be used to contain the government's costs of providing a good or service. Vouchers can do this because they can be designed to have a limited per capita cost (e.g., $5,000 per annum per person to spend on a particular good, such as housing). This contrasts with the possibly escalating costs that can occur when government attempts to produce and provide a good (e.g., the cost of an item needed in production, such as concrete, may spike due to some unforeseen factor.) Vouchers may also be employed to increase the competition and availability of a service or function and to improve the responsiveness of service providers to consumers. Finally, vouchers may be utilized for the purpose of improving equity. Advocates of school vouchers, for example, have argued that government should provide children from poor families with vouchers that would enable them to do the same as children from more affluent families—attend the schools of their choice. The overt simplicity and actual flexibility of vouchers have helped make them an often-used option for policymakers at all levels of government. An early example of a voucher program was the "GI Bill"(P.L. 78-346; 58 Stat. 284-301), which provided World War II veterans vouchers to attend any accredited school that would admit them. More recently, the federal government has enacted a number of voucher policies, including Section 8 public housing and "school choice" programs. Quasi Governmental Entities/GOCO Quasi governmental entities are those entities that possess both private sector and governmental legal attributes. For example, the American National Red Cross (ANRC) was chartered by Congress, some of its board members are appointed by the President, and it has statutorily-prescribed duties; yet, ANRC is a private corporation. Quasi governmental entities come in many types, such as government-sponsored enterprises (e.g., Freddie Mac), congressionally chartered not-for-profit corporations (American Legion), and government venture capital firms (e.g., In-Q-Tel), and are involved in diverse policy areas, from housing, to veterans affairs, and intelligence. Quasi governmental entities may be viewed as a form of privatization because they are substitutes for fully governmental agencies. They are private vehicles for achieving a governmentally declared good. Policymakers have been attracted to quasi governmental entities for a number of reasons, including the popular perception that the private sector is more efficient than government and budgetary constraints (i.e., quasi governmental entities usually are off-budget). The GOCO facility is a well-known species of quasi governmental entity. A difference, though, is that GOCO facilities are established to produce goods for governmental, not private, consumption (e.g., military technologies). Sandia National Laboratories, one of the federally funded research and development facilities, is operated by Lockheed Martin for the Department of Energy's National Nuclear Security Administration. Third-Party Financing Third-party financing is perhaps the least known means of privatization. In part, this likely is due to its complicated nature. Third-party removes the federal government from the direct financing of a government project or service and replaces it with the private sector. So, for example, a government agency might decide that it wants to build a new facility. To do this, the agency might sign an agreement with a private company to incorporate jointly a special purpose entity or vehicle (SPE or SPV) that would own the new facility. This SPE could borrow money in private capital markets to build housing because the agency has agreed to rent the facility under a long-term contract (thereby guaranteeing a flow of revenue for many years.) Third-party financing has been used "to fund various infrastructure projects, such as housing on military bases, government office buildings, and electric power facilities." Agencies see this as advantageous because they can then record the investment costs of the project in the federal budget over the life of the project instead of in full when the investment is made. The Congressional Budget Office has criticized this practice, arguing, among other things, that third-party financing is more costly to the federal government and understates the size of the federal government and its obligations. Grants to Private Parties The federal government long has utilized grants of funds and property to private parties for the sake of achieving public purposes. For example, in 1819, Congress enacted a private law to provide a tract of land to the privately founded Connecticut Asylum for the Education and Instruction of Deaf and Dumb Persons (6 Stat. 229). The logic behind grants as policy is straightforward—if a private party is undertaking work that provides a public benefit, then the federal government may wish to support that work. The least expensive means to this end may be to provide funds or property directly to this party. Today, the federal government provides grants for enormous numbers of diverse purposes. Grants are provided to support students pursuing higher education, to scientists undertaking research, to religious groups working with persons addicted to drugs and alcohol, to artists producing public performances, and to persons operating small businesses. According to a recent estimate, between 2.4 and 2.8 million persons received grant monies per annum between 1990 and 2004. Prize Competitions In recent years, federal agencies have held prize competitions. The aim of such competitions is to draw upon the creativity of private individuals and firms to produce technologies desired by the federal government. Perhaps the most well known of these is the "Grand Challenge" held by the Defense Advanced Research Projects Agency (DARPA), held annually since 2004. DARPA's goal is to develop autonomous—meaning, unmanned—vehicles that can be used in a combat theater. Rather than attempt to develop this technology in-house, DARPA offered large cash prizes to the competitor whose vehicle most quickly completes the race course. The federal government, meanwhile, acquires privileges to utilize the technology developed. The DARPA example may be encouraging further experimentation with prize competitions. At least two prize competition bills were introduced in the 109 th Congress. H.R. 5143 would have provided $11 million per year for hydrogen energy prize competitions; and H.R. 1021 would have permitted the National Aeronautics and Space Administration to award prizes to inventors of useful technologies. Use of Volunteers The federal government has relied upon volunteers to perform public services for over a century. Perhaps the most high-profile example is the American National Red Cross (ANRC). Congress first chartered ANRC in 1900, charging this private voluntary organization to "continue and carry on a system of national and international relief in time of peace and apply the same in mitigating the sufferings caused by pestilence, famine, fire, floods, and other great national calamities." (31 Stat. 278) Though staffed in part by salaried, professional staff, ANRC and its local chapters have large numbers of volunteers. ANRC reports, 175,000 volunteers worked to prevent, prepare for and respond to nearly 64,000 disaster incidents last year [2005]. Over 15 million Americans turn to us to learn first aid, CPR, swimming, and other health and safety skills. Last year, more than 230,000 people volunteered to teach those courses. Half the nation's blood supply—six million pints annually—is collected by more than 190,000 Red Cross volunteers. More recently, Congress has enacted the National and Community Service Act of 1990 (42 U.S.C. 12501 et seq.) and the Domestic Volunteer Service Act of 1973 (42 U.S.C. 4950 et seq.) These acts provide funding for a number of federal, state, and local programs, such as AmeriCorps, which encourage citizens to undertake public service. Privatization: Ramifications Behavior of the Entity The difference between having a governmental entity and a private firm perform an activity is significant. Privatization moves components of the provision of goods and services out of the governmental sector and into the private sector. These two sectors are not identical. As the National Academy of Public Administration noted, In point of fact, there are some fundamental differences between the [governmental and private sectors].... Most basic, perhaps, is the [government's] distinctive claim to exercise sovereignty, to enact and enforce binding laws, and to act on behalf of the nation or the community in certain constitutionally prescribed ways. Furthermore, the movement of an activity from the governmental sector to the private sector, or vice versa, has significant ramifications. Most obviously, the behavior of the entity carrying out the task will differ because each sector has different incentives and constraints. One public administration scholar has suggested that the incentives amount to this: a government entity may do only what the law permits and prescribes; a private entity may do whatever the law does not forbid. Speaking to the differing constraints, a political scientist has observed the following: To a much greater extent than is true of private bureaucracies, government agencies (1) cannot lawfully retain and devote to the private benefit of their members the earnings of the organization, (2) cannot allocate the factors of production in accordance with the preferences of the organization's administrators, and (3) must serve goals not of the organization's own choosing. Control over revenues, productive factors, and agency goals is all vested to an important degree in entities external to the organization—legislatures, courts, politicians, and interest groups. Given this, agency managers must attend to the demands of these external entities. As a result, government management tends to be driven by the constraints on the organization, not the tasks of the organization. The private sector firm, then, has one essential goal: to pursue profits; all other goals are subordinate. Thus, it faces strong incentives to undertake activities that promote this essential goal. This can prove beneficial to the government, should the private firm devise more efficient means of production and develop new products and services. This might also negatively affect the government, should the private firm lower its costs of production by reducing the quality or quantity of the product or service. The private firm, in large part, is rewarded for achieving results pleasing to its owners and shareholders. How it achieves this may or may not prove beneficial to the government. Accountability Government agencies, unlike private firms, usually operate under complex accountability hierarchies that include multiple and even conflicting goals. Federal agencies, for example, are subject to the corpus of federal management laws. These laws serve as means for keeping executive branch agencies accountable to Congress, the President, and the public. They also embody principles of democratic justice, such as the allowance for public participation and government transparency. To name just a few, the general management laws include the following: the Freedom of Information Act (5 U.S.C. 552), which provides persons the right to request information about government operations; the Administrative Procedure Act (5 U.S.C. 551 et seq.), which prescribes the process for agency rulemaking (i.e., interpretation and operationalization of law), public participation in this process, and judicial review of rules; and the Government in Sunshine Act (5 U.S.C. 552(b)), which requires agencies to hold open meetings and provide public notice thereof. Thus, in shifting an activity from the governmental to the private sector, the nature of government oversight is transformed. As the components of government provision of goods and services are privatized, the jurisdiction of federal management laws, Congress, the President, and the courts is reduced. Moreover, privatization shifts government administrative management from implementation to oversight as hierarchical oversight may be replaced by contractual relationships. Government oversight of privatized government activities, or "third-party government," on a large scale is a recent phenomenon and one that many federal administrators and public administration scholars have found vexatious. Finally, the entire question—"What constitutes governmental action and what constitutes private action?"—becomes ambiguous when activities once carried out by officers of the federal government are replaced by private persons. The Constitution requires "all executive and judicial Officers, both of the United States and of the several States, [to] be bound by Oath or Affirmation, to support [the] Constitution." (Article IV, Cl. 3) Contractor and subcontractors, though, need not take such an oath. The legal distinction between officers of the federal government and all other persons is significant as an officer of the federal government has rights, duties, powers, and liabilities different from non-officers. Thus, for example, under the Federal Tort Claims Act (28 U.S.C. 1346(b)), the government may be held liable for injuries caused by the negligent or wrongful act or omission of a federal employee. But what if that person is the employee of a private contractor or subcontractor? If this individual should, say, injure somebody, who would be liable for damages—the employee? the contractor? the subcontractor? the federal government? The answer is not immediately obvious, which may prove a matter of concern to (1) persons who believe themselves adversely affected by the individual's actions; and (2) the agency which issued the contract and legislators, who may be viewed by the public as responsible for the oversight of the government projects. Privacy The potential blurring of the difference between a governmental action and a private action may also have ramifications for personal privacy. For example, an individual who is in a dispute with the Internal Revenue Service (IRS) over unpaid taxes may find himself receiving a telephone call from a private debt collection company. Under an arrangement with the IRS, this private firm will possess the individual's name, contact information, and Social Security number. The citizen may be troubled that, in his dispute with the government, one which he might find embarrassing, there is a private sector intermediary. Similarly, the person applying for a federal job must provide a great deal of information about himself to the government. This citizen might be troubled to learn that the federal government uses private firms—who, in turn, sometimes subcontract to other private firms—to check the backgrounds of job applicants. Marketization: An Alternative to Privatization? Privatization, as already discussed, involves removing the federal government from one or more of the steps in the government provision of a good or service. Marketization, which is sometimes called "commercialization," is a management strategy that attempts to make a government agency perform better rather than replacing it with a private firm. Marketization, like privatization, is a term that has been used to mean different things in different contexts. In former communist nations, for example, the sale of state-owned manufacturing enterprises to private parties has been called "marketization." Commentators also have used "marketization" to refer to the practice of requiring government agencies to compete with the private sector for government work contracts. (This report calls this practice "competitive sourcing.") Generally speaking, marketization denotes the adoption of the methods and values of the market to guide its operations and activities. Hence, this report uses the term "marketization" to refer to the redesign of a government agency in order to make it provide goods and services in the manner of a private firm . Typically, marketization involves altering the incentive structures facing a government agency in order to make it operate more efficiently. An example may prove illustrative. For much of its history, the U.S. government had a department that provided postal services. The U.S. Post Office received large annual appropriations from Congress, whose members were deeply involved with its operations, including the selection of management and the pricing of postal services. Under this configuration, the U.S. Post Office ran into operational difficulties and developed a reputation for incompetence and corruption. In the 1960s, some critics called for the abolition of the Post Office and privatization of postal services. In 1970, Congress chose a less dramatic means for reform. It enacted a statute that marketized the U.S. Post Office (P.L. 91-375; 84 Stat 725 et seq.) The new U.S. Postal Service (USPS) became an independent entity of the executive branch with greater freedom to run its operations. Critically, USPS was statutorily required to earn sufficient revenue to cover its costs of operation; it could no longer rely on annual appropriations. Since its marketization, USPS has reported considerable productivity growth and is generally acknowledged to be better operated. There are many ways that an agency may be marketized. For example, Congress might require an agency meet its costs of operations and deny it annual appropriations. Congress might also permit an agency to set up bonus programs, under which employees may be rewarded for reaching productivity targets. In short, any reform that aims to alter an agency's incentives so that they are more like those facing private firms might be called marketization. Four often-employed means for marketization are franchising, user fees, government corporations, and competitive sourcing. Though quite different, all four approaches share a similar characteristic—they require an agency to compete for revenue. Agency Franchises In the private sector, a franchise is a firm that is authorized to sell or distribute another company's goods or services. In the federal governmental sector, though, franchising means something quite different. Here, franchising refers to the fee-basis provision of a government agency administrative service by another agency. As such, franchising might be viewed as a form of outsourcing—an agency hires an outside provider, in this case another agency, to perform a function. In a sense, though, franchising also is the inverse of contracting out. Outsourcing tasks an agency to become more efficient by hiring an outside provider to provide a service or good; franchising invites an agency to attempt to market one or more of its administrative services to other agencies. The former, then, aims at reducing the production of goods and services in-house; the latter would expand in-house production of a particular good or service. Thus, for example, the National Finance Center (NFC) in the Department of Agriculture (USDA) provides payroll services to many other agencies, including the Library of Congress. In 1994, Congress encouraged further federal experimentation with franchising through the Government Management Reform Act (108 Stat. 3410). This law authorized OMB to approve the establishment of six pilot franchise funds (31 U.S.C. 501 note). The Departments of Commerce, Homeland Security, the Interior, the Treasury, and Veterans' Affairs and the Environmental Protection Agency have established franchises. In 2004, OMB announced its "lines of business" initiative. Its objective is to reduce the federal government's administrative expenses by encouraging franchising activities ("lines of business") common to agencies, such as financial, grants, and human resources management; federal health architecture; and information technology security. User Fees Governments have a choice when providing a service; they may decide to provide the service "free" to all who choose to use it, or they may charge a user fee that is sufficient to cover all or part of the cost for providing the service. In FY2005, the federal government booked $185.2 billion in user fees. User fees may be employed as a means for an agency to raise revenues to help cover costs attributable to a particular activity. The USDA charges quarantine inspection fees, the Department of State assesses fees for passports, and the U.S. Postal Service requires customers to pay for mail services. In other instances, an agency may cover all its costs through fees; such is the case with the U.S. Patent and Trade Office. Promoters of user fees argue that it is more fair to have those who draw upon a government resource pay for it than to tax both users and non-users. They also argue that user fees make agencies more like private firms. Agencies relying on user fees must undertake activities to attract users; they must, in short, strive to discern and provide for customers. Furthermore, proponents of user fees have argued that fees may discourage the indiscriminate use of a service or resource. The rationing of a service or resource through user fees imposed by a public sector authority may achieve a balance between use and resource renewal. This rationale has been cited by the National Park Service in charging fees to enter and use the national parks. Similarly, the Office of Management and Budget has stated that user fees are means to "promote efficient allocation of the Nation's resources" and "allow the private sector to compete with the Government without disadvantage in supplying comparable services, resources, or goods where appropriate." Detractors of user fees have argued that government services should, as a matter of principle, be available to the public free of charge. They also have claimed that the imposition of fees may inhibit the access of lower-income individuals. Government Corporations The distinguishing characteristics of a government corporation are that it is an agency of government, established by Congress to provide a market-oriented public service, and intended to produce revenues that meet or approximate its expenditures. At present, there are 18 government corporations that cover a spectrum from large, well-known corporations such as the U.S. Postal Service and the Federal Deposit Insurance Corporation, to small, low-visibility corporate bodies such as the Federal Financing Bank and the Valles Caldera Trust. Each government corporation is unique; each has been granted different exemptions from particular management laws for the sake of providing it with flexibilities similar to those possessed by private firms. For example, Congress has partially exempted the Export-Import Bank (12 U.S.C. 635, Amendments) from federal-employee classification and pay-rate restrictions (5 U.S.C.5101-5115 and 5331-5338 and 5341-5349). This waiver may help the bank to offer salaries to attract highly skilled persons who might otherwise work for private financial-services companies. In some discussions of privatization, proposals to establish a government corporation (e.g., reorganizing the U.S. Patent and Trademark Office into a government corporation) are equated with privatization because the term "corporation" is seen as making it similar to a private corporation. This similarity in titles, however, is misleading because a government corporation is an agency of the U.S. government, not unlike the Internal Revenue Service, performing a mission established by Congress, and is managed by officers of the United States. These characteristics are not present in private corporations. Congress has established government corporations for a variety of purposes. Government corporations have had mixed success. The Saint Lawrence Seaway Development Corporation (SLSDC, 33 U.S.C. 981), which manages the waterway between Lake Erie and Montreal, Canada, is generally regarded as a well-run entity. Other government corporations have been less successful. For example, AMTRAK, which was established to provide intercity passenger railroad service, has run deficits for more than three decades and been criticized for service and operational shortcomings. Competitive Sourcing Competitive sourcing, as described above, refers to the process of an agency putting up the performance of one of its functions for competition between the agency and outside parties. Thus, one possible result of competitive sourcing is outsourcing, a form of privatization. However, competitive sourcing is a form of marketization because it requires agencies to do as private firms do—compete to provide a service. As described above, FAIR and Circular A-76 require federal agencies to compete their commercially available activities. The Office of Management and Budget under President George W. Bush has advocated the expansion of competitive sourcing. For example, in April 2006, OMB announced that activities performed by 26,000 government employees would be opened up to competitions, "a five-fold increase over the number competed last year." This move to expand competitions has sparked controversies. Government employees, not surprisingly, may feel their jobs are threatened. Meanwhile, private firms, coveting more business opportunities, have challenged agencies' exclusion of activities from competitions. Marketization, clearly, is a more incremental reform than privatization. Marketization alters some of the incentives and constraints faced by an agency in hopes that it will behave more like a private sector firm. However, since marketization does not move an activity from the governmental to the private sector, it may not produce an entity as likely to achieve as many efficiencies and innovations as a private firm. This is because the marketized government agency, unlike the private firm, cannot retain profits or compete against other firms. On the other hand, government overseers may find that a marketized agency is less vexatious to oversee and hold accountable. This is because the marketized firm remains within the governmental sector; though given some operational flexibilities, it remains a governmental entity with a statutorily prescribed mission and subject to all government management laws except those from which it has been specifically exempted. The marketized agency also may be less prone to the pathologies that afflict some private firms. The contrast between two entities, the Government National Mortgage Association (Ginnie Mae, 12 U.S.C. 1716-1723) and the Federal National Mortgage Association (Fannie Mae, 12 U.S.C. 11A), is illustrative. Both of these entities were created by Congress to provide liquidity to the secondary home-mortgage market. Ginnie Mae is a government corporation; generally, it has been viewed as competently operated. Fannie Mae, on the other hand, is a private entity charged with governmental responsibilities. While its successes are manifold, it has been reproached frequently in recent years. Critics have said that Fannie Mae's pursuit of profits has led it to undertake a number of undesirable behaviors. In order to protect its profits, the firm has been accused of aggressively lobbying Congress, perhaps through questionable means. It has been criticized for excessively compensating its top executives. Fannie Mae's efforts to grow its business also have been criticized for threatening to create "spill-over" effects that might negatively affect world financial markets. Recently, the company also has found itself accused of manipulating its financial reporting for the purposes of producing earnings pleasing to investors and enabling its top management to collect large annual bonuses. To Privatize or Not—The Inevitability of Political Controversy Ultimately, in considering whether to pursue privatization as a strategy to improve the provision of goods and services, the question arises, "What is the proper role of government?" Few would dispute that some broad functions should be handled by government and its employees, while others should be left to the private sector. But which ones? Definitive guidance is unavailable. The Constitution enumerates many of the broad functions that are to be carried out by the federal government. However, the Constitution does not enumerate which of the tasks required to carry out these broad functions must be performed by governmental employees and which may be performed by private persons. For example, the Constitution states that "The Congress shall have Power ... To establish Post Offices and post roads." (Article I, Sec. 8, Cl. 7) However, it does not declare whether the federal government must use government employees to build these roads or whether it may hire private contractors. Furthermore, the Constitution is of limited utility because the federal government's activities extend far beyond those listed in the Constitution. Federal statutory law provides some guidance. FAIR requires "government personnel" to perform "inherently governmental activities." FAIR defines "inherently governmental activities" as those "so intimately related to the public interest as to mandate performance by government personnel." It further defines the term to include activities that require either the exercise of discretion in applying Federal Government authority or the making of value judgments in making decisions for the Federal Government, including judgments relating to monetary transactions and entitlements. An inherently governmental function involves, among other things, the interpretation and execution of the laws of the United States so as— (i) to bind the United States to take or not to take some action by contract, policy, regulation, authorization, order, or otherwise; (ii) to determine, protect, and advance United States economic, political, territorial, property, or other interests by military or diplomatic action, civil or criminal judicial proceedings, contract management, or otherwise; (iii) to significantly affect the life, liberty, or property of private persons; (iv) to commission, appoint, direct, or control officers or employees of the United States; or (v) to exert ultimate control over the acquisition, use, or disposition of the property, real or personal, tangible or intangible, of the United States, including the collection, control, or disbursement of appropriated and other Federal funds. (112 Stat. 2382(b)) Additionally, FAIR explicitly excludes some activities from this category. The term does not normally include— (i) gathering information for or providing advice, opinions, recommendations, or ideas to Federal Government officials; or (ii) any function that is primarily ministerial and internal in nature (such as building security, mail operations, operation of cafeterias, housekeeping, facilities operations and maintenance, warehouse operations, motor vehicle fleet management operations, or other routine electrical or mechanical services). (112 Stat. 2382(c)) Yet, this statutory guidance leaves much unclear. Debates have and will erupt over the application of these terms to specific activities. For example, currently, the federal government's National Response Plan for mass disasters charges a private organization, the American National Red Cross, with responsibility to lead and coordinate efforts to provide mass care, housing, and human services after disasters that require federal assistance. Under FAIR, do such activities constitute "the interpretation and execution of the laws of the United States so as ... to significantly affect the life, liberty, or property of private persons"? If so, then ought these activities be carried out by the Department of Homeland Security? Or, to take a second example—does the aforementioned portion of FAIR permit the federal government to outsource the housing of federal prisoners? Moreover, this statutory guidance is of limited utility in considering a fundamental question beneath the privatization debate. FAIR provides guidance on the permissible extent of private sector participation in current federal activities. It does not, nor was it intended to, provide answers as to which broad activities the federal government should be involved in and which should be left to the private sector: Should the federal government be involved in commuter rail service, as it is with AMTRAK? Should the federal government operate energy-generating facilities, like the Bonneville Power Authority and those of the Tennessee Valley Authority? Should federally established entities provide liquidity to the secondary housing loan market? Should the federal government provide comprehensive long-term health insurance to the aged? Should the federal government use private contractors to provide security in Iraq? These questions and others have been debated at length in recent years without easy resolution. "What ought government do?" is a question that is inherently value-laden and intimately bound up with individuals' varying perspectives on the role of government, the proper extent of its power vis-à-vis state and local governments, the fairness of free markets, and other political-philosophical issues. Conclusion In the past two decades, privatization emerged on the federal policy agenda. Surveying this policy movement, one social scientist has written, Private and market-style mechanisms are increasingly employed to provide what government had taken as duties. Religious groups join secular nonprofit and for-profit providers of services paid for or sought by government. Decision makers in education, health care, social services, and law constantly cross the boundaries between public and private, religious and secular, profit and nonprofit. The very newness of privatization as a policy idea likely helped cause some of the confusion over its definition. This report defines privatization as the use of the private sector in the provision of a good or service, the components of which include financing, operations (supplying, production, delivery), and quality control . This definition, though imperfect, is useful insofar as it enables one to view privatization activities upon a spectrum; that is, an agency may more or less privatize its provision of goods and services, depending on how many of the components of the provision process have been moved to private sector providers. This report also differentiates privatization from marketization. As described above, the ramifications of this difference are significant. Entities couched within the governmental and private sectors do not behave identically; each has its strengths and weaknesses. Those uncomfortable with privatization may find marketization a more attractive option. Meanwhile, those favoring privatization may view marketization as a half measure that cannot be expected to produce goods and services as efficiently as privatization. It can be expected that privatization will remain a controversial idea. Any attempt to improve the federal government's provision of goods and services through privatization likely may elicit concerns over the intentions and possible consequences of the proposal. Meanwhile, implicit in the debate about privatization lurks the old and nettlesome question—"Which activities are essential to the state and should remain directly accountable to the elected representatives of the people and which may be carried out by the private sector?"

During the past two decades, the privatization of federal agencies and activities has been much debated. That said, privatization—here defined as the use of the private sector in the provision of a good or service, the components of which include financing, operations (supplying, production, delivery), and quality control—is not a recent phenomenon. Since its founding in 1789, the federal government has used private firms to provide goods and services. Hence, privatization, in all its forms, which include contracting out, vouchers, and prize competitions, is of perennial interest to Congress. This report is an introduction to privatization in the federal governmental context. It discusses the emergence of privatization on the federal policy agenda in the late 1970s and early 1980s. To some, privatization appeared as an answer to the purported failures of "big government." Privatization attracted political support due to its rhetorically persuasive rationales, purported benefits, and political attractiveness. However, privatization also has been controversial. Critics have complained that privatization is a form of union busting and that privatization can have unforeseen and undesirable consequences. This report also supplies a typology of the various means through which federal agencies and activities have been privatized. The typology shows that privatization is not an either/or proposition. Rather, privatization, as this report's definition implies, is a matter of degree. Policymakers may transfer to the private sector one or more of the components of government provision of goods and services—however many they deem appropriate. Next, the report explains the distinction between privatization and marketization, an alternative to privatization, which is "the structuring of a government agency so that it provides goods and services in the efficient manner of a private firm." Marketization retains an activity within the governmental sector; privatization moves the components of an activity to the private sector. This distinction is significant because entities within these differing sectors tend to behave differently. Private sector firms tend to be self-directing and profit-seeking; government agencies tend to be process-oriented and pursue the multiple and sometimes conflicting goals assigned to them by Congress and the President. Hence, policymakers who wish to improve an agency's efficiency or performance, but are leery of privatization, may find marketization an attractive option. Finally, the report notes that, whenever policymakers consider privatizing a federal agency or activity, a fundamental issue arises—"Which activities are essential to the state and should remain directly accountable to the elected representatives of the people and which may be carried out by the private sector?" This question is complex and value-laden; no definitive answer exists. Thus, the decision to privatize is inherently controversial. This report will not be updated.

Introduction A variety of interrelated statutes and agency regulations govern leasing and permitting foroil and gas development on federal lands. The national mining and minerals policy fosters andencourages the following activities: private enterprise in ... the development of economicallysound and stable domestic mining, minerals, metal and mineral reclamation industries [and] theorderly and economic development of domestic mineral resources, reserves, and reclamation ofmetals and minerals to help assure satisfaction of industrial, security and environmental needs. (1) The Bureau of Land Management (BLM) -- part of the U.S. Department of the Interior -- managesmost federal mineral development and is largely responsible for implementing this policy. (2) BLM also manages a largeamount of federal lands. Federal land in the National Forest System (NFS) is under the jurisdictionof the Forest Service, which is part of the U.S. Department of Agriculture. The Forest Service playsa role in authorizing mineral development on NFS lands. This report addresses the leasing and permitting of onshore, federal public domain lands. "Public domain lands" encompass lands obtained "by treaty, conquest, cession by States, and[certain] purchase[s]." (3) The historical distinction between public domain lands and other federal lands is reflected in thedifferent statutes that apply to the different types of lands. This report first analyzes the legal framework for oil and gas leasing and permitting onfederal public domain lands managed by BLM and the Forest Service. Second, this report assesseshow the recently enacted Energy Policy of 2005 affects these laws. Finally, this report analyzesselected judicial and administrative decisions regarding what steps federal environmental lawsrequire agencies to take before issuing coalbed methane leases. Coalbed methane is a type of naturalgas that is trapped in coal seams by water pressure; it is leased separately from the coal. The Legal Framework for Oil and Gas Leasing At the dawn of the twentieth century, private entities could explore, develop, and purchasefederal public domain lands containing oil with relative ease. The federal government permittedmineral exploration of such lands without any charge. Oil could be developed as a placermineral. (4) Full ownershipof oil lands "could be obtained for a nominal amount." (5) However, Congress's enactment of the Mineral Lands Leasing Actof 1920 (MLLA) ended the private acquisition of title to federal oil lands by authorizing theSecretary of the Interior (Secretary) to issue permits for exploration and to lease lands containing oiland gas and other defense-related minerals. (6) The first section of this report details the legal framework for suchoil and gas leasing. Public Domain Lands Subject to Leasing for Oil and Gas Development "Public domain lands" encompass lands obtained "by treaty, conquest, cession by States, and[certain] purchase[s]." (7) The historical distinction between public domain lands and other federal lands is reflected in thedifferent statutes that apply to the various types of lands. The scope of this report does not encompass "acquired lands," which are lands "granted or sold to the United States by a State orcitizen." (8) The MLLA authorizes the Secretary to lease oil and gas deposits and onshore public domainlands containing oil and gas deposits, with the federal government retaining title to the lands. (9) This leasing authority appliesto National Forest System (NFS) lands that are reserved from the public domain, and to mostreserved subsurface mineral estates. (10) However, it excludes numerous categories of lands such asnational parks and monuments, as well as lands in incorporated cities, towns, and villages. (11) Areas within the NationalWilderness Preservation System cannot be leased, but valid rights existing as of 1984 arepreserved. (12) In sum,all public lands subject to the Secretary's authority under MLLA "which are known or believed tocontain oil or gas deposits may be leased by the Secretary." (13) However, the Secretary of the Interior cannot issue any lease for National Forest Systemlands reserved from the public domain if the Secretary of Agriculture objects. (14) In addition, the U.S. ForestService has issued separate regulations governing certain aspects of leasing and permitting for oiland gas development on lands within its jurisdiction. The Secretary is also authorized to withdraw public lands managed by BLM so that some orall potential land uses are proscribed on those lands. (15) A withdrawal involves "withholding an area of Federal landfrom settlement, sale, location, or entry, under some or all of the general land laws, for the purposeof limiting activities under those laws in order to maintain other public values in the area or reservingthe area for a particular public purpose or program." (16) However, limitations on the Secretary's withdrawal authorityexist. (17) For example,Congress can make withdrawals, and the Secretary may not modify or revoke a congressionalwithdrawal. (18) Development of Resource Management Plans U.S. Department of the Interior The BLM manages approximately 262 million acres of public lands under the Federal LandPolicy and Management Act of 1976 (FLPMA). (19) The Secretary of the Interior must develop and revise "land useplans" for the public lands -- officially known as Resource Management Plans (RMPs) -- thatconsider the present and potential future uses for public lands managed by BLM. (20) These RMPs serve as theinitial determinant of which lands may be subject to leasing. All activities performed on these landsmust be consistent with the RMPs. (21) Thus, an RMP must allow oil and gas development in an areain order for it to take place there. (22) The Secretary generally must apply "multiple use" and "sustained yield" principles whendeveloping RMPs. (23) "Multiple use" principles involve judiciously managing lands in a manner that takes into account theenvironmental, historical, and natural resource values of the lands and prevents their permanentimpairment. (24) "Sustained yield" means maintaining "high-level annual or regular periodic output of the variousrenewable resources of the public lands." (25) In addition, the Secretary is required to provide opportunitiesfor the public and various levels of government to participate in the development of RMPs. (26) This can includeprocedures such as holding public hearings, when appropriate. (27) Regulations require thepreparation of an Environmental Impact Statement (EIS) or an Environmental Assessment (EA)when producing an RMP. (28) The Secretary's mandate to formulate and revise RMPs extends to all BLM-managed publiclands, no matter how they had been classified before the enactment of FLPMA in 1976. (29) The land use provisionsalso apply to lands that had previously been withdrawn. (30) In addition, FLPMA requires that public lands within BLM'sjurisdiction be inventoried and identified on a continuing basis. (31) U.S. Forest Service The Forest Service also manages its lands under multiple use and sustained yieldpolicies. (32) It developsland management plans for NFS lands by considering the desired conditions, objectives, suitabilityof areas for various uses, and other criteria. (33) As with the Department of the Interior's planning process, thelaws governing Forest Service land management and implementation require public notification andopportunities for public participation. (34) When analyzing Forest Service lands for potential leasing, theForest Service classifies lands into three categories: (1) lands that will be "[o]pen to development subject to the terms andconditions of the standard oil and gas lease form" (2) lands that will be "[o]pen to development but subject to constraints that willrequire the use of lease stipulations" (3) lands that will be "[c]losed to leasing, distinguishing between those areasthat are being closed through exercise of management direction, and those closed by law, regulation,etc." (35) The Forest Service must also comply with the National Environmental Policy Act of 1969(NEPA) when analyzing NFS lands for potential leasing. (36) Once the Forest Service has completed its analysis of which NFSlands will be available for leasing, it notifies BLM of its decisions. (37) Forest Serviceauthorization for BLM to lease specific lands may follow. (38) The Competitive Leasing Process The MLLA authorizes both competitive and noncompetitive leasing procedures. Usuallylands go through the competitive leasing process first. When BLM posts a list of lands available forcompetitive leasing, private entities may respond by submitting nominations for parcels to beauctioned. (39) No unitbeing auctioned can exceed 2,560 acres, except in Alaska, where the maximum unit acreage is 5,760acres. (40) In addition,each unit must be "as nearly compact as possible." (41) The Secretary must provide forty-five days notice before offering public lands for leasing,including a thirty-day period for receiving public comments after notice is published in the FederalRegister. (42) Competitive bidding must be held on a quarterly basis in each state where public lands are availablefor leasing. (43) TheSecretary may also authorize additional opportunities for bidding if he considers them to benecessary. (44) Once the public notice requirements have been satisfied, the public lands are offered forcompetitive leasing through an oral auction. (45) A national minimum acceptable bid of $2 per acre applies to theauction. (46) Any bidsfor less than the national minimum bid must be rejected. (47) A competitive bid constitutes a legally binding commitment andcannot be withdrawn. (48) The MLLA requires the Secretary to accept the highest bid from a responsible qualified bidderwhose bid meets or exceeds the national minimum acceptable bid. (49) The winning bidder at a competitive auction must submit the following payments on the dayof sale, unless otherwise specified: (1) the minimum bonus bid of $2 per acre; (2) the first year'srental payment; and (3) a $75 per parcel administrative fee. (50) Then, the balance of thebonus bid, if applicable, is due within ten working days. (51) The lease is issued within sixty days of payment of the remainderof the bonus bid. (52) Thelease is also conditioned upon a royalty payment of at least 12.5% in amount or value of theproduction that is removed or sold from the lease, (53) unless the Secretary suspends, waives, or reduces theroyalty. (54) The Noncompetitive Leasing Process If no bids are received at a competitive bidding auction -- or if all bids submitted are for lessthan the national minimum acceptable bid -- the land will be offered for noncompetitive leasingwithin thirty days. (55) This noncompetitive leasing remains available for two years after the competitive biddingauction. (56) The first qualified person who applies for a noncompetitive lease and pays the $75application fee is entitled to receive the lease without having to competitively bid. (57) All noncompetitive offersreceived during the first business day after the last day of the competitive auction are considered tohave been submitted simultaneously; in such cases, a lottery determines the lease winner. (58) Unlike competitive bids,noncompetitive offers may be withdrawn by the offeror within sixty days of filing the offer if nolease has yet been signed on the government's behalf. (59) As with competitive leases, a noncompetitive lease isconditioned upon payment of a 12.5% royalty in amount or value of the oil or gas removed or soldfrom the lease. (60) Additionally, there are minimum and maximum acreage limitations for noncompetitive leases. (61) If these criteria are met,BLM will issue the lease within sixty days of the Secretary identifying a qualified applicant. (62) If no application for a noncompetitive lease is submitted during the two years that the landis available for noncompetitive leasing, the process for leasing the land will again be a competitiveoral auction. (63) NEPA applies to the competitive and noncompetitive leasing processes, possibly requiringpreparation of a supplemental EIS (SEIS) or a new EA or EIS, unless reliance on old documents issufficient or the agency issues a FONSI. (64) Lease Terms and Conditions General Statutory Restrictions In addition to the processes affecting where leasing can take place (discussed above), generalrestrictions on leasing address who can lease and how much land they can lease. First, public landscontaining oil and gas deposits may only be leased to U.S. citizens, associations of U.S. citizens,corporations organized under U.S. laws or the laws of any State, and municipalities. (65) In addition, citizens of acountry that denies similar privileges to U.S. citizens and corporations may not control any interestin federal leases. (66) Second, no entity is permitted to own or control oil or gas leases (including options for such leases)under MLLA in excess of 246,080 acres in any one State other than Alaska. (67) Other aggregate acreagelimitations include limitations pertaining to options (68) and to combined direct and associational/corporate stockholderinterests. (69) Payment Terms: Royalties and Rentals Leases are conditioned upon payment to the Government of a royalty of at least 12.5% inamount or value of oil or gas production that is removed or sold from the leased land. (70) Leases subject to rates ineffect after December 22, 1987 must generally pay a 12.5% royalty, but this percentage can increaseif a lease is cancelled because of late payments and then reinstated. (71) The Secretary also has thepower to reduce the royalty on a noncompetitive lease if he deems it equitable to do so or ifcircumstances could "cause undue hardship or premature termination of production" absent such areduction. (72) For oiland gas leases, the royalty must be paid in value unless the Department of the Interior specifies thata royalty payment-in-kind is required. (73) Once the royalty has been paid, the Secretary is required to sellany royalty oil or gas "except whenever in his judgment it is desirable to retain the same for the useof the United States." (74) In addition to royalties, leases are conditioned upon payment of annual rentals. (75) Generally, the rental ratefor the first five years of a lease is $1.50 per acre per year, with the rate increasing to $2 per acre foreach additional year of the lease. (76) However, there is some variation in rental amounts for certainspecific categories of lands. (77) For leases issued after December 22, 1987, a minimum royaltyin lieu of the rental is due once oil or gas has been discovered on the leased land. (78) The amount of thisminimum royalty is equal to the annual rental that would otherwise have been due. (79) Perhaps most important,rental payments are not due on acreage for which royalties or minimum royalties are being paid,"except on nonproducing leases when compensatory royalty has been assessed in which case annualrental as established in the lease shall be due in addition to compensatory royalty." (80) The Secretary is authorized to waive, suspend, or reduce rentals and royalties under certainconditions. (81) Moneyreceived from royalties and rentals is initially paid into the U.S. Treasury. (82) Fifty percent of the fundsthen go to the State where the land or mineral deposit is located. (83) Forty percent of the fundsare allocated into the Reclamation Fund under the Reclamation Act of 1902 for projects that providewater to arid Western states. (84) Because Alaska is not served by the Reclamation Fund, 90percent of the funds collected from federal leases in Alaska are allocated to the State of Alaska. (85) Length of Leases, Extensions, and Cancellations The primary term for competitive and noncompetitive leases is ten years. (86) Leases can be extendedbecause of, inter alia , drilling operations or oil or gas production. The existence of an approvedcooperative plan can also affect extensions. First, a lease will be extended for two years because of drilling if three criteria aresatisfied: (87) (1) actual drilling operations began before the end of the primary leaseterm; (2) actual drilling operations are being "diligently prosecuted" (88) at the end of the primarylease term; and (3) rental was timely paid. Second, a lease that meets these criteria will be extended "so long as oil or gas is being produced in paying quantities." (89) A lease that has been extended because of production does notterminate simply because production stops, as long as the lessee starts reworking or drillingoperations within sixty days after production ceases and conducts them with reasonable diligenceduring the non-productive period. (90) Furthermore, if a lease initially extended because of drillingbegins yielding oil or gas in paying quantities during the two-year drilling extension, the lease canbe extended again. (91) Finally, lessees may collectively adopt and operate under a cooperative or unit plan for aparticular area if the Secretary considers such a plan to be in the public interest. (92) All leases subject to sucha plan will be extended if any of the leases covered by the plan qualify for a drilling or productionextension. (93) Any MLLA lease can be cancelled or forfeited if the lessee fails to comply with MLLAprovisions, the lease's provisions, or regulations promulgated pursuant to MLLA. (94) In some situations theSecretary has the authority to cancel the lease, but some circumstances require a judicial proceedingto cancel the lease. (95) In addition, MLLA provides for automatic termination "upon failure of a lessee to pay rental on orbefore the anniversary date of the lease, for any lease on which there is no well capable of producingoil or gas in paying quantities." (96) However, the Secretary may reinstate automatically terminatedleases in some cases. (97) Applications for Permits to Drill U.S. Department of the Interior Operators (98) must submit an Application for a Permit to Drill (APD) for each oil or gas well. (99) Without an approvedAPD, operators cannot begin drilling operations or cause surface disturbances that are preliminaryto drilling. (100) Infact, the APD process must begin at least thirty days prior to the commencement of operations. (101) A complete APD must include the following: (102) a drilling plan; a surface use plan of operations, including drillpad locations and plans forreclaiming the surface; evidence of bond coverage; Form 3160-3; and any other information that may be required. Once BLM receives an APD, it must post information for public inspection for at least thirtydays before it may act on the APD. (103) Another pre-approval requirement is that BLM must preparean environmental record of review or an environmental assessment. (104) Based on thesedocuments, BLM decides whether an EIS is required. (105) Additionally, an adequate bond or other financial arrangementis required before the operator begins any surface-disturbing activities. (106) Within five working days of the end of the public notice period, BLM must choose one offour options: (107) (1) approve the application as submitted; (2) approve the application with modifications and/orconditions; (3) disapprove the application; or (4) delay final action. BLM must approve a surface use plan of operations addressing proposed surface-disturbingactivities before a permit to drill on lands BLM manages may be granted. (108) BLM and the ForestService have proposed joint regulations regarding surface use plans of operations. (109) U.S. Forest Service An approved surface use plan of operations addressing proposed surface-disturbing activitiesis also required before a permit to drill on NFS lands may be granted and before anysurface-disturbing operations may begin. (110) The operator must submit its proposed surface use plan ofoperations to BLM as part of its APD. (111) When the proposal pertains to NFS lands, BLM forwards theproposed surface use plan of operations to the Forest Service. (112) The level of detail required in a proposed plan varies depending upon the "type, size, andintensity of the proposed operations and the sensitivity of the surface resources that will be affectedby the proposed operations." (113) When evaluating a proposed surface use plan of operations,the Forest Service must ensure that the proposal is consistent with the "approved forest land andresource management plan" for that area of land. (114) During the evaluation process, the Forest Service must alsocomply with NEPA, as well as appropriate Forest Service regulations and policies. (115) In addition, the ForestService can require that the operator increase the amount of its bond if it "determines [that] thefinancial instrument held by [BLM] is not adequate to ensure complete and timely reclamation andrestoration" of the NFS lands. (116) Ultimately, the Forest Service must decide among four options: (117) (1) approve the plan (2) approve the plan "subject to specified conditions" (3) disapprove the plan (4) delay the plan because additional time is needed to reach adecision Once it has made its decision regarding the proposed surface use plan of operations, theForest Service forwards the decision to BLM. (118) Analysis of the Energy Policy Act of 2005 In August 2005, the Congress passed and the President signed the Energy Policy Act of 2005(2005 EPACT). (119) This comprehensive law touches upon many aspects of U.S. energy regulation, and among itsprovisions were several changes to the law governing federal oil and gas leases on public domainlands. This section of the report highlights selected provisions from the 2005 EPACT relating tothese topics. It also addresses selected provisions that were included in either the House or Senatebill, but were not included in the final legislation. The topics addressed by this section can beclassified into four categories: (1) streamlining and expediting oil and gas development processes;(2) a NEPA-related provision; (3) the Arctic National Wildlife Refuge; and (4) miscellaneousprovisions. Streamlining and Expediting Oil and Gas Development Processes The 2005 EPACT requires the Secretary of the Interior and the Secretary of Agriculture toenter into a memorandum of understanding regarding issues such as the establishment of proceduresto "ensure timely processing" of oil and gas lease applications, surface use plans of operation, andAPDs. (120) Thismemorandum must also ensure that lease stipulations are consistently applied and are "only asrestrictive as necessary to protect the resource for which the stipulations are applied." (121) The Secretary of the Interior -- in consultation with the Secretary of Agriculture when NFSlands are involved -- must also conduct an internal review of Federal onshore oil and gas leasing andpermitting practices and subsequently submit a report to Congress detailing steps to improve theprocess. (122) TheSecretary of the Interior is also required to establish a Federal Permit Streamlining Pilot Project. (123) Under the 2005 EPACT, the Secretary of the Interior is required to ensure expeditiouscompliance with 42 U.S.C. § 4332(2)(C), which is the NEPA provision that requires the preparationof an EIS for major Federal actions that significantly affect the quality of the humanenvironment. (124) More specifically, the Secretary of the Interior must propose regulations containing deadlines formaking decisions on RMPs, lease applications, surface use plans of operations, and APDs. (125) The 2005 EPACT alsorequires the Secretary of Agriculture to "ensure expeditious compliance with all applicableenvironmental and cultural resources laws." (126) NEPA-Related Provision The 2005 EPACT establishes that certain actions taken by either the Secretary of the Interioror by the Secretary of Agriculture (when NFS lands are involved) "shall be subject to a rebuttablepresumption that the use of a categorical exclusion under [NEPA] would apply if the activity isconducted pursuant to [MLLA] for the purpose of exploration or development of oil or gas." (127) The House bill had included a provision that differed from the NEPA provision adopted bythe Conference Committee. The House bill had declared that certain actions that the Secretary ofthe Interior takes "for the purpose of exploration or development of a domestic Federal energysource" are not subject to the NEPA provision requiring the preparation of an EIS. (128) Exempted actionswould have included drilling an oil or gas well where drilling had previously occurred and drillingan oil or gas well "within a developed field for which an approved land use plan or anyenvironmental document prepared pursuant to [NEPA] analyzed such drilling as a reasonablyforseeable activity." (129) Arctic National Wildlife Refuge (ANWR) One much-debated difference between the House and Senate energy bills had been the Housebill's provisions requiring the Secretary of the Interior to establish a competitive oil and gas leasingprogram in the Arctic National Wildlife Refuge (ANWR). (130) The 2005 EPACT does not include these provisions. However, several of the key ANWR provisions under the House billare detailed in the following paragraph, and may be relevant to future legislative proposals. Under the House bill, ANWR lands would have been available for leasing to any personqualified to obtain a lease under MLLA. (131) Bids would have been submitted as sealed competitivebids. (132) Two uniqueANWR provisions in the House bill included (1) a provision requiring the first lease sale to be forat least 200,000 acres, with additional sales to be conducted as long as there is sufficient interest indevelopment (133) and(2) a provision directing that the State of Alaska would receive 50 percent of ANWR leasingrevenues, with the remainder being divided between a Coastal Plain Local Government Impact AidAssistance Fund and miscellaneous receipts within the U.S. Treasury. (134) Miscellaneous Provisions Miscellaneous relevant provisions contained in the 2005 EPACT include the following: The Secretary of the Interior must reduce the royalty rate for oil and gasproduction on "marginal properties" (i.e., leases or units producing less than a specified amount),under certain conditions. (135) The Secretary of the Interior may reinstate leases that were terminated becauseof the lessee's failure to timely pay the rental amount due, under certain modified conditions. (136) The Secretary of the Interior must determine that receiving royalties in-kindwould provide greater or equal benefits than receiving royalties in-value before accepting anyroyalties in-kind. (137) The Secretary of the Interior must conduct a study regarding split estates. (138) The Secretary of Energy must conduct a study of petroleum and natural gasstorage capacity and operational inventory levels. (139) Recent Litigation Surrounding Coalbed Methane Leasing Coalbed methane (CBM) is a natural gas that is trapped in coal seams by water pressure. Developers extract CBM by pumping water into coal seams to decrease the water pressure, therebyreleasing the CBM. (140) In the second half of the 1990s, CBM production "increaseddramatically to represent a significant new source of natural gas for many Western states." (141) In 1999, the SupremeCourt held that CBM could be leased separately from coal. (142) Recently,environmental groups, developers, and BLM have litigated issues surrounding what actionsconstitute compliance with FLPMA and NEPA in the context of CBM development. These issueshave developed through several cases adjudicated by federal courts and the Interior Board of LandAppeals (IBLA), which is part of the U.S. Department of the Interior. The Pennaco Decision In one prominent case, environmental groups challenged a BLM decision to issue CBMleases to Pennaco, an energy developer. (143) When it auctioned the leases, BLM relied on two documentsto purportedly satisfy NEPA requirements: (144) (1) an RMP and EIS that were prepared before theleases were issued, but did not specifically address CBM extraction ("the BuffaloRMP/EIS") (2) a draft EIS (DEIS) that was prepared after the leaseswere issued, but did address the potential environmental impacts of CBM development ("theWyodak DEIS") The BLM also determined that the Pennaco leases conformed with the Buffalo RMP, thus satisfyingFLPMA. (145) However, environmental groups alleged that the environmental impacts from CBM developmentwere different than the impacts from conventional oil and gas development. (146) Thus, they argued thatBLM did not take the requisite "hard look" at the potential environmental impacts of issuing thePennaco leases. (147) The Interior Board of Land Appeals sided with the environmental groups by finding thatNEPA had not been satisfied and remanding to BLM for "additional appropriate action." (148) The IBLA found theBuffalo RMP/EIS to be inadequate because it did not specifically address CBM development, whichthe IBLA considered to be significantly different than the conventional development analyzed by theBuffalo RMP/EIS. (149) For example, the IBLA concluded that water production resulting from CBM extraction issignificantly greater than water production from conventional oil and gas development and that CBMdevelopment posed unique air quality concerns. (150) Further, the IBLA explained that the Wyodak DEIS did notsatisfy NEPA because it was a post-leasing analysis. (151) In particular, because it was a post-leasing analysis, theWyodak DEIS "did not consider reasonable alternatives available in a leasing decision, includingwhether specific parcels should be leased [and] appropriate lease stipulations." (152) Although the IBLA'sdecision was reversed by a federal district court, (153) the Tenth Circuit Court of Appeals agreed with the IBLA. (154) In Pennaco Energy,Inc. v. United States Department of the Interior , the Tenth Circuit held that "the IBLA gave dueconsideration to the relevant factors and that the IBLA's conclusion was supported by substantialevidence in the administrative record." (155) Other CBM-Related Decisions Pennaco appears to be the key Circuit Court decision on the merits of a case applyingFLPMA and NEPA to CBM development in this context. However, a variety of other judicial andadministrative decisions have addressed similar issues. These cases often turn on fact-intensive,case-by-case determinations. Several such decisions are briefly summarized below. In Northern Plains Resource Council, Inc. v. United States Bureau of Land Management ,BLM had amended an RMP and prepared an EIS to address the impacts of oil and gas leasing inseveral areas. (156) These documents analyzed and allowed small-scale exploratory CBM drilling. (157) However, they statedthat "further environmental studies would have to be completed before commercial production wouldbe allowed." (158) Years later, after receiving APDs for the covered land, BLM completed EAs and made FONSIs fornumerous CBM wells. (159) Based on the FONSIs, BLM approved the APDs withoutpreparing an EIS. (160) BLM later recognized the energy industry's intention to engage in full-field CBM development onsome land, prompting it to prepare a new statewide EIS and proposed RMP amendments addressingthe environmental impacts of large-scale CBM development. (161) The United StatesDistrict Court for the District of Montana rejected the plaintiff's argument that the original RMP andEIS were inadequate, thus violating FLPMA and NEPA. (162) It held that the disputed APDs were all for test wells and thusfell within the scope of the exploratory drilling contemplated by the original documents. (163) Further, the courtexplained that once BLM had begun preparing a new EIS to address full-field development, "it wasnot required to halt lease sales, as long as [the leases] were in conformance with the existingplan." (164) The NinthCircuit Court of Appeals affirmed this decision on procedural grounds because the plaintiff'schallenge was barred by the statute of limitations. (165) In subsequent litigation, the same plaintiff challenged the new statewide EIS and proposedRMP amendments, which authorized full-field CBM development in some areas. (166) The United StatesDistrict Court for the District of Montana agreed with one of the plaintiff's two primaryarguments. (167) Itheld that BLM should have considered a "phased development alternative" as an alternative tofull-field CBM development. (168) However, it also held that BLM was justified in conductingtwo separate studies of the area, rather than conducting one larger study. (169) In San Juan Citizens ' Alliance v. Babbitt , plaintiffs argued that BLM had acted arbitrarily andcapriciously -- thus violating NEPA -- by approving CBM wells at twice the density that wascontemplated by existing environmental documents. (170) Prior to approving the challenged CBM wells, BLM hadissued a statewide EIS as well as preparing an EA and making a FONSI for a smaller area within thestate. (171) However,the plaintiffs claimed that BLM should have either created a new EIS or a supplemental EIS (SEIS)to sufficiently address the cumulative environmental impacts of the existing wells combined withthe impacts of the newly approved wells. (172) Plaintiffs asserted that new information shedding light on theenvironmental impacts of CBM development had become available since the issuance of the originaldocuments. (173) Plaintiffs also argued that BLM had violated FLPMA by approving CBM development that allegedlydid not conform to the RMP. (174) The defendants moved to dismiss, and the United StatesDistrict Court for the District of Colorado denied the motion. (175) Several IBLA decisions also address similar issues. In the 2003 matter of Wyoming OutdoorCouncil , the IBLA ruled that BLM had not taken the NEPA-mandated "hard look" at water qualityissues associated with CBM development in one area. (176) The IBLA found the BLM's water quality analysis to beinadequate because it was based on only one CBM well sample and neither of BLM's EAs addressed"any deleterious impact of CBM discharge water due to its chemical composition." (177) The IBLA also foundthat BLM should have considered the cumulative environmental impacts of the new wells combinedwith some nearby wells that met "the geographical proximity test for inclusion in a cumulativeimpacts analysis." (178) In the 2004 matter of Western Slope Environmental Resource Council , the IBLA stated: [T]he appropriate time for considering the potentialimpacts of oil and gas exploration and development is when BLM proposes to lease public lands foroil and gas purposes because leasing, at least without [no surface occupancy stipulations], constitutesan irreversible and irretrievable commitment to permit surface-disturbing activity. (179) The IBLA went on to hold that the appellants had not proven that the environmental impacts of CBMdevelopment in the disputed area would be different from the impacts of conventional oil and gasdevelopment. (180) Even though the unique environmental impacts of CBM had been recognized in some cases, theIBLA emphasized that the appellants had not met their burden of proof in this particular case. (181) Evidence indicatedthat the disputed coalbeds were located far beneath the surface and that there was a "lack oftransmissivity of the coal." (182) According to the IBLA, this evidence suggested that CBMextraction in this area would not produce a large amount of water, thus limiting the environmentalimpacts that would occur. (183) List of Acronyms

A variety of statutes and agency regulations govern leasing and permitting for oil and gasdevelopment on federal lands. This report first explains the legal framework for oil and gas leasingand development on federal "public domain" lands, which involves an overview of the following: laws and regulations affecting which public domain lands are potentiallysubject to oil and gas leasing; development of Resource Management Plans; competitive and noncompetitive oil and gas leasingprocesses; terms and conditions of oil and gas leases; and the process surrounding applications for permits to drill. Second, this report assesses how the recently enacted Energy Policy Act of 2005 ( P.L.109-58 ) will affect preexisting oil and gas development laws. The third section of the reportanalyzes selected judicial and administrative decisions regarding what steps federal environmentallaws require agencies to take before issuing leases for coalbed methane leases. Coalbed methane isa type of natural gas that is trapped in coal seams by water pressure. This report will be updated as developments warrant.

Determinants of Growth Given the important influence economic growth has on living standards, economists have devoted considerable amounts of research to identify the determinants of growth. The determinants of growth differ depending on the time scale policymakers are concerned with. In the short term, the growth of the U.S. economy is largely dependent on the business cycle—fluctuating between periods of high and low growth over a matter of months and years. The business cycle's influence on growth is mainly manifested through changes in the level of total spending in the economy. Recessions coincide with a decline in total spending below the productive capacity of the economy. In expansions, total spending rises until spending matches the economy's productive capacity, called "full employment." External "shocks" to the economy—some positive, some negative, some large enough to cause recessions or short-term expansions—also play a large role in determining growth from quarter to quarter. For example, large movements in energy prices can influence consumer spending, which can translate to short-term changes in overall output. While inadequate spending was the defining feature of the "Great Recession" and influenced the shape of the recovery (as will be discussed below), that factor is of waning importance as the expansion continues. At this point, the unemployment rate has rapidly declined since 2013 and is now close to many economists' estimate of full employment (although other labor market indicators suggest some slack remains). In the longer run, these short-term business cycle fluctuations smooth to reveal long-term trends, and growth in output depends on growth in the resources and knowledge used to produce output. Economists typically place the main sources of long-term growth into one of three categories: increases in physical capital, increases in the quality and quantity of labor employed (human capital and labor supply), and improvements in productivity. The link between these factors and growth is discussed at length in the Appendix . Research indicates that the degrees to which these three factors contribute to long-term growth differ, sometimes significantly, over time. While changes in the long-term sources of growth are typically of a lesser concern during recessions, over long enough time horizons they become dominant. Before returning to analyze in more detail how these short-term and long-terms factors may explain why the current expansion is relatively weak, the next section provides a review of the growth record of the U.S. economy since World War II. The Growth Record To study the U.S. growth record, the analysis below examines data on three different measures of (real) economic activity: GDP, GDP per capita, and output per hour (labor productivity). These terms are defined in the following text box. Figure 1 shows the average annual growth rate of U.S. GDP, GDP per capita, and output per hour over each five-year period spanning 1948 to 2015 (the average is shown for the midpoints of these periods, which cover 1950 to 2013). While the recent lower-than-average economic performance is partly attributable to the financial crisis, it has persisted into the current expansion. As shown in Figure 1 , growth has declined by all three measures since the five-year period centered on 1998 and troughed during the financial crisis. As shown in Figure 1 , even in the most recent five-year period, which excludes the financial crisis and the Great Recession, growth was still relatively low compared to the rest of the post-war period. Only two other periods were comparably slow to the latest period—the five-year periods centered on 1956 and 1981. Both periods included deep recessions, and in both cases, growth bounced back quickly, in contrast to the current situation. In line with existing research on economic growth, this section examines the performance of the economy from 1948 to 2015 across the following distinct time periods: 1948 to 1973, 1974 to 1995, 1996 to 2000, 2001 to 2007, and 2008 to 2015. Because the focus of the report is on slow growth since 2008, more recent data are divided into shorter time periods than earlier data to highlight recent developments. It should be noted that some of the more recent time periods utilized may be too short to fully smooth out the effects of the business cycle, which could have temporarily boosted or suppressed average growth for the period (an issue that will be discussed in greater detail later in the report). The two earliest periods, by contrast, span multiple business cycles. While the difference in length makes for something of an "apples to oranges" comparison, dividing the data into these periods is useful for telling a straightforward story. By all measures, average growth was relatively high from 1948 to 1973 and relatively low from 1974 to 1995. It was high again from 1995 to 2000, and depending on the measure did or did not return to a slow growth period from 2001 to 2007. Then, since 2008, growth has been markedly lower than in any other period since 1948. Pre-Crisis The Great Depression was the worst economic downturn in the history of the United States, beginning shortly after the stock market crash in 1929. The economy only completely recovered from the Depression in the build up to World War II (WWII). After the war, the United States entered into one of the fastest periods of growth in U.S. history between 1948 and 1973. As shown in Figure 2 , during this period output per hour grew at a pace of 2.8% per year on average, 0.6 percentage points faster than the average rate between 1948 and 2015. Additionally, as shown in Figure 2 , between 1948 and 1973, GDP and GDP per capita grew at above-average rates of 3.9% and 2.4%, respectively. Growth was more volatile during this period, with more frequent recessions, but on average was higher. The rapid economic growth between 1948 and 1973 was largely the result of new technologies, production processes, and increased labor force participation. The oil crisis of the early 1970s marked the beginning of a period of below-average economic growth between 1974 and 1995. The oil crisis, among other factors, created significant contractionary pressure in the economy leading to a recession, followed by persistently slow economic growth. An additional oil crisis occurred in the late 1970s. As shown in Figure 2 , between 1974 and 1995 GDP per capita growth slowed significantly to 1.9% per year on average, and GDP growth fell to 2.9%. Output per hour growth also slowed significantly from an average 2.7% between 1948 and 1973 to 1.5% between 1974 and 1995. This slowdown in economic and productivity growth is thought to be largely due to the exceptionally high and persistent inflation experienced during this period. The growth slowdown of the 1970s continued through the next two decades until 1996, when the computer age began to spur faster economic growth. As shown in Figure 2 , between 1996 and 2000, output per hour grew slightly faster than average, growing at 2.3% per year on average. GDP and GDP per capita also grew at above-average paces of 3.5% and 2.6% respectively between 1996 and 2000, as shown in Figure 2 . Beginning in the early 1990s, firms increased their investment significantly and began fully incorporating new information technology into their firms, especially computer technology. The large investment in new capital inputs (i.e., computers and information technology) alongside improved use and practices with these technologies has been credited for much of the increased economic growth between 1996 and 2000. The above-average pace of growth during this period may have been an anomaly; a relatively short period of quick growth due to the introduction of new and very powerful technology. As the United States transitioned into the 21 st century, economic growth slowed again. As shown in Figure 2 , between 2001 and 2007, GDP and GDP per capita growth decreased to 2.3% and 1.5% respectively. Productivity growth slowed modestly during this period, decreasing to 2.2%. There are competing hypotheses as to why growth slowed in this period, ranging from decreasing returns to investment in information technology, structural characteristics of the economy, or simply a return to normal after the speculative bubble burst in 2000. This period stands out as the only one in which the relative performance of productivity diverged from GDP and GDP per capita, making it difficult to discern whether economic performance in this period belongs with the late 1990s growth acceleration period (as the productivity data suggest) or the current growth slowdown (as the GDP data suggest). This, in turn, makes it harder to ascertain the cause of the current slowdown. As discussed earlier, the three final periods shown in Figure 2 are relatively short, and therefore may not completely remove the cyclical impact of business cycles from the growth measures. Post-Crisis The financial crisis of 2007-2008 brought on the deepest and longest recession in U.S. history since the Great Depression. The crisis was the result of a speculative bubble bursting in the housing sector. The bubble was fueled by a number of factors, including both public and private policies and actions. As the bubble burst, the value of assets held by firms and individuals decreased dramatically, pushing them to decrease investment and consumption spending, which shrank real GDP. In the post-financial crisis economy, economic growth and productivity growth showed deceleration, growing slower than in any of the other periods in recent history. As shown in Figure 2 , between 2008 and 2015, GDP grew at a rate of 1.2% per year on average, which was about 2 percentage points lower than the average rate between 1948 and 2015. This deceleration is likely not being driven solely by the Great Recession—GDP growth has not shown sustained acceleration at any point, remaining below 3% in each calendar year of the current expansion. Similarly, GDP per capita grew at a pace of 0.5% annually on average, compared to an average of 1.9% over the full period. Output per hour also fell to an annual growth rate of 1.1% on average between 2008 and 2015, which is even slower than the productivity growth rate seen during the slowdown of the 1970s, as shown in Figure 2 . The current economic slowdown is not unique to the United States. Most advanced economies have struggled to return to pre-crisis growth rates in recent years, as is the case for all of the G7 countries (see Figure 3 ). In terms of GDP and GDP per capita growth, the United States has remained in the middle of the pack with respect to other advanced economies. As shown in Figure 3 , GDP growth in the United States outpaced the G7 Eurozone countries (France, Germany, Italy, and the United Kingdom) and Japan between 2008 and 2015, with Canada growing at a faster pace. In terms of GDP per capita growth, the United States grew faster than Canada, Japan, and the G7 Eurozone countries between 2008 and 2015. While U.S. growth has always bounced back in the past, Japan serves as a warning that a return to average growth after a large disruption to the economy is not inevitable. From the end of World War II to 1990, Japan experienced what was called an "economic miracle," featuring an extended period of rapid economic growth that enabled it to approach U.S. standards of living. Then, Japan experienced a housing and stock market bubble that ended in a precipitous crash in 1990; this marked a turning point in its economic performance. Beginning in 1992, Japan experienced markedly lower levels of economic growth and several years of price deflation (overall falling prices of goods and services). Popularly referred to as a "lost decade," this period of low growth has now persisted for over 20 years, with little sign of improvement. Japan's economic growth rate has averaged 0.8% since 1992, compared to an annual average of 4.5% from 1980 to 1991. Most economists believe that policy errors (although they disagree on what those policy errors were) prolonged and contributed to Japan's slow growth. The widespread growth slowdown across advanced economies with different policies suggests that Japan's slowdown can probably not be attributed solely to policy errors, however. One might assume that this slowdown can be explained by the financial crisis, but the Great Recession officially ended in June 2009 in the United States. GDP has continued to grow at a slower-than-average pace of 1.7% between 2010 and 2015. The slow pace of the recovery has confounded economists, as there is generally a period of above-average growth shortly after a recession. For example, after the 1980 recession GDP growth jumped to a high of 7.3% in 1984. In fact, the Great Recession is the only recession in U.S. history which has not had a period of 4% or faster "catch-up" growth in GDP in any year of the subsequent expansion. Even during the preceding period of slow growth, 1974-1995, there were multiple years of rapid growth spread throughout the period. This fact has led some economists to question whether the financial crisis and subsequent recession damaged the economy in a more enduring manner than previous recessions, or if the U.S. economy has entered into another long-term period of low growth due to other structural factors. Explanations for the slowdown are examined in the next section. What Has Caused Slow Growth Since 2008? As the expansion nears completion of its seventh year since the recession and continues to experience slower-than-average growth, economists have offered a number of explanations for the relatively slow recovery. Slow growth in the immediate aftermath of the crisis could be attributed to deleveraging and financial disruptions caused by the crisis, but those problems were of a temporary nature. Permanent damage from the crisis, called hysteresis , would be expected to leave the level of GDP permanently lower, but should not affect the long-term growth rate. Subsequent shocks to the economy during this expansion, called headwinds , could also be temporarily holding back growth, but over time, there is no reason to think that unlucky events would continually outweigh lucky ones. Secular stagnation is an explanation for the slowdown of a more long-lasting nature, but is distinct from an explanation based on changes in the structural factors that are the sources of long-term growth. An explanation based on structural factors would suggest a more permanent slowdown. As the duration of the slowdown persists, explanations based on temporary factors become less compelling and permanent factors become more compelling—particularly as the labor market approaches full employment. It should be noted that while this report presents these explanations as distinct and contrasting, they are not mutually exclusive, and some economists combine elements from more than one in their diagnoses. All of the following explanations are discussed in the context of the U.S. economy, but as the growth slowdown is prevalent throughout advanced economies, these explanations may be equally relevant abroad. Further, the fact that the slowdown is global dampens demand for U.S. exports, making it harder for the U.S. economy to escape its own slowdown. Role of the Financial Crisis/Deleveraging Explanations for slow growth early in the recovery focused on the contraction in credit following the financial crisis. There is evidence that recessions caused by financial crises typically are deeper and take longer to recover from than normal recessions. When households or businesses increase their borrowing relative to their income or assets, it is referred to as leveraging. The decline in debt following the financial crisis has been referred to as "deleveraging." In the long run, deleveraging may improve the economy's capacity for sustainable growth, but in the short run, it can be disruptive and self-reinforcing. Businesses and households depend on the ready availability of credit to finance a normal stream of spending; if some businesses and households lose access to credit or voluntarily decrease borrowing, spending can contract. At an aggregate level, deleveraging ended in 2011 for nonfinancial businesses, 2012 for households, and 2013 for financial firms, as shown in Figure 4 . Since then, debt levels have not grown as rapidly as they did before the crisis or in the 1990s, but they have increased annually. Aggregate debt can decline because of a decline in the supply of credit (lenders make less credit available to households and businesses) or demand for credit (the desired amount of borrowing by households and businesses declines). The supply of credit could have been reduced by disruptions to the normal functioning of financial markets caused by the financial crisis. After financial markets have returned to normalcy, longer-lasting changes affecting the supply of credit could include behavioral changes in response to risk aversion (investors have less appetite for funding business investments) and regulatory changes that make risk taking relatively more expensive (e.g., higher capital requirements). On the demand side, to the extent that credit expansion was driven by speculation surrounding the housing bubble before the financial crisis, the demand for credit could be permanently lower after the bubble burst. Furthermore, if borrowing during the bubble was driven by higher asset prices, when the bubble burst and asset prices fell, it left households and investors overextended, and a low-borrowing/high-saving retrenchment period would become necessary after the crisis to return to sustainable net debt levels. For example, if households were financing consumption by "withdrawing" equity when house prices were increasing (e.g., via home equity loans), some of that equity was subsequently eliminated when house prices fell. Average household net housing wealth fell from $221,000 in 2007 to $159,400 in 2013. Thus, the recent decline in debt could be driven mainly by credit market disruptions or a desire by borrowers to deleverage. Some of the decline in debt growth may be voluntary (households desiring to rebuild lost wealth), but for some households it may be involuntarily caused by "liquidity constraints"—consumers being rejected for mortgages, credit cards, and other forms of consumer credit. For example, mortgage lending to borrowers who have lower credit scores has been reduced following the crisis. In addition to causing the financial crisis, the housing bubble may have also temporarily contributed to the subsequent growth slowdown. While residential investment (house building) is counted as investment in GDP accounts, it arguably plays a smaller role in promoting growth than business investment—unlike, say, equipment and machinery, housing generally does not increase the productive capacity of the U.S. economy. Furthermore, since the bubble represented an overinvestment in housing, it led to more residential investment than was needed, which presumably crowded out some other more productive business investment. This detracts from post-bubble growth because less residential investment is needed until the "overhang" of extra housing is eliminated and because the crowding out of business investment left the United States with a smaller capital stock. Another recent study argued that the housing bubble also reduced growth by shifting labor into a low productivity sector that was "temporarily bloated." Although it may take longer to recover from a financial crisis than a normal recession, economic weakness associated with disruptions to the financial system or deleveraging should not be permanent. After financial linkages are repaired and debt levels are rebalanced, growth should resume at a normal pace. As the United States moves further in time away from the financial crisis, these factors explain less of the continued growth slowdown. The fact that debt levels have been rising again for several years suggests that much of the rebalancing may have largely already taken place. Hysteresis The effects of the financial crisis offer an explanation of why growth was initially slow during the economic expansion, but provide no explanation for why that initial slow growth would not be canceled out by fast growth later, leaving GDP ultimately unchanged. In the standard macroeconomic model, a recession should not affect the long-term growth rate—any losses in output during downturns should be made up for by more rapid "catch-up" growth in the subsequent recovery. This pattern has not occurred during the current recovery, leading to increasing support among economists for a theory called "hysteresis"—the idea that deep recessions can have a long-term impact on output and employment in the following expansion. In other words, the U.S. economy is still suffering from a "hangover" from the Great Recession. The idea of hysteresis was first raised in relation to the labor market in Western Europe in the 1980s, where unemployment did not fall back down to pre-recession rates during the subsequent expansion. One explanation for hysteresis was an erosion of skills that occurs when workers experience prolonged periods of unemployment, making these workers less employable when demand for labor picks up. The lower labor force participation rate that has prevailed since the financial crisis provides some evidence of labor market hysteresis in the United States. But until the financial crisis, there was little concern among economists that output might also suffer from hysteresis (beyond the contribution from labor force effects). Now, many economists believe that a significant amount of potential output was lost, and will never be regained, as a result of the financial crisis. A weakness of the output hysteresis theory is that most economists believe it has not occurred in other post-World War II recessions. This may be because the Great Recession was the only one deep enough to trigger hysteresis. Economists estimate potential output to measure what GDP would be if the economy were operating at full employment. In other words, it tries to strip cyclical effects out of GDP. It is a useful proxy to capture hysteresis effects because it can be used to observe, after stripping out cyclical effects, whether the trend of output growth was permanently altered by the financial crisis. The potential impact of hysteresis on GDP can be illustrated by comparing the Congressional Budget Office's (CBO's) projection of potential output in January 2007 to the current outlook, as shown in Figure 5 . In 2015, actual GDP was still an estimated 2.2% below potential GDP, but potential GDP was 8.7% lower than CBO projected before the financial crisis. In other words, based on these data, a projected 2.2% of GDP could still be recovered as the economy returns to full employment, but 8.7% has been permanently lost. While projection error could account for some of that reduction in potential output, the concurrent timing of the bend in potential GDP and the recession suggests that hysteresis may have played a major role in the lost potential output. Hysteresis following the financial crisis could negatively affect labor supply, physical capital, and productivity. The weak economy has resulted in an elevated percentage of workers who are either underemployed or who have left the labor market out of discouragement. Discouraged workers leaving the labor market can be problematic for economic growth for two principal reasons. First, with fewer workers helping to produce goods and services, per capita GDP will generally suffer. Second, over time these individuals' skills will begin to deteriorate, or will fail to keep up with advances in the workplace. That is, the stock of human capital will depreciate, experiencing a one-time permanent decline that undercuts the economy's productive capabilities. The crisis could cause a one-time permanent decline in the labor supply if people who leave the labor market do not return when conditions improve. The crisis could also cause a temporary decline in private investment spending because of insufficient investment demand by businesses, an unwillingness to fund risky projects by investors, or disruptions to financial intermediation. If that lost investment was not made up for in the subsequent recovery, the level of the capital stock would be permanently lower. Additionally, the crisis could cause a temporary decline in productivity growth because innovations that would have occurred under normal economic conditions did not because they could not find funding and businesses that would have generated them were not created. To avoid hysteresis effects, all three factors would have had to temporarily grow at an above-average pace in the subsequent expansion to compensate for these lost opportunities. As documented below, none did. Hysteresis alone cannot explain why slow growth has persisted seven years after the recession, however, because hysteresis only predicts a permanent effect on the level of long-term output, not the rate of long-term growth. In other words, hysteresis should result in temporarily, but not permanently, lower growth. If hysteresis is the only explanation for the growth slowdown since 2008, then growth should rebound to its pre-crisis path in future years. But if Figure 5 is correct, the projected rate of long-term growth also fell (i.e., the slope of potential GDP is lower) following the financial crisis. While hysteresis may have been the dominant cause of weakness early in the recovery, the longer the growth slowdown persists, the less it can be explained by hysteresis. Alternatively, if growth is permanently lower, as some studies have found, other explanations are needed. Secular Stagnation Larry Summers, former Treasury Secretary and director of the National Economic Council, has propounded an explanation for the growth slowdown called "secular stagnation." This phrase was first used by economist Alvin Hansen in the late 1930s to warn of the possibility of a similar growth slowdown then (see text box). One economist described secular stagnation as "an economist's Rorschach Test. It means different things to different people." With that caveat in mind, the idea seems to be describing a problem that is longer lasting than a cyclical problem, but not one that is permanent or caused by purely structural factors. Characteristics that have been used to define secular stagnation include the persistence of low economic growth, low inflation, low investment, negative real interest rates, and an inability to achieve full employment. As the unemployment rate has dropped rapidly since 2013, the inability to achieve full employment now receives less emphasis. This decrease in unemployment is problematic, because it is difficult to explain why the economy has been able to return to near full employment in spite of slow growth if the slow growth is caused by secular stagnation. The emphasis among economists making the secular stagnation argument today is that real interest rates cannot fall low enough (because of the "zero lower bound") for investment demand to equilibrate with the supply of savings available to finance it—a problem economists refer to as a "liquidity trap." (Some believe this "savings glut" to be more of a global than domestic phenomenon that is holding back U.S. and world growth.) In other words, the market-clearing interest rate has been below zero because of shifts in the demand for investment and supply of saving. They argue that this makes deflation a threat and makes it impossible to achieve healthy growth rates and return to potential GDP using conventional monetary policy—although they are divided on the preferred policy alternative. They argue that were it not for the dot com and housing bubbles, secular stagnation would have been noticeable before the financial crisis, and expansionary monetary policy risks inflating similar asset bubbles in the future. By contrast, the structural explanation described below would not predict deflation or a liquidity trap. Those phenomena might feature in the hysteresis debate, but only temporarily—the secular stagnation argument seems to envision an inability to generate adequate growth over a time frame that is longer lasting. If hysteresis can explain why the level of output would be permanently lower following the financial crisis, secular stagnation attempts to explain why the rate of growth would be lower for a prolonged period of time. But that time period would not be expected to be permanent. Temporary Headwinds An alternative hypothesis is that there is no fundamental economic shift, but instead a number of temporary and mostly exogenous "headwinds" holding back growth in this expansion—in essence, a run of bad luck. These headwinds include the rise in oil and other commodity prices from 2009 to 2011, which reduced real U.S. incomes for commodities of which the United States is a net consumer; the European economic crisis, beginning in 2009, which reduced demand for U.S. exports and caused financial instability abroad; more recently, the deterioration in financial conditions and lower or negative economic growth in emerging markets, most notably China, which also has reduced demand for U.S. exports and caused the dollar to appreciate against most emerging currencies; fiscal contraction at both the state and federal level in the United States, which in GDP accounting terms reduced overall growth by about half a percentage point each year from 2011 to 2013, and did not start contributing to growth again until 2015; the effects of policy uncertainty on financial market volatility and consumer confidence, following events such as the 2011 debt limit impasse, the "fiscal cliff" at the end of 2012, and the 2013 debt limit impasse/government shutdown; and the effects of business and household deleveraging, discussed below. According to this argument, growth would have been healthy in recent years, if some or all of these events had been avoided. Besides the emerging market slowdown, many of these factors have recently improved; if the headwinds hypothesis is correct and no new problems emerge, the expansion should now gain speed. This explanation could be criticized on the grounds of post-hoc , ergo propter-hoc —after an unexpectedly bad growth outcome, economists have arbitrarily searched for an explanation for it. There is no systematic attempt to identify headwinds beforehand or search for positive "tailwinds" that might offset the headwinds. Looking back at the longer historical record, it appears that the economy has been almost continuously battered by headwinds in this narrative, making for a perhaps implausibly long run of bad luck. Structural Factors The previous explanations are all of a temporary nature, albeit some longer lasting than others. As the economic expansion continues without any uptick in growth rates, these explanations become less compelling, and more weight may need to be given to long-term, structural explanations. The standard cause of a decline in long-term growth would be a decline in the growth of one or more of the inputs to growth—labor (the size or human capital of the labor supply), fixed capital investment, or productivity—as explained in the Appendix . The following discussion focuses on multifactor productivity (MFP), which is a measure of productivity that captures all sources of growth not attributable to either capital or labor. (When analyzing the U.S. growth record earlier in this report, productivity is measured differently in terms of output per hour.) As shown in Table 1 , the growth rate of all three of these structural factors has declined in the 2008-2015 period. (Growth attributed to human capital did not slow, but growth in the labor supply did, so that, on net, labor contributed to the growth slowdown.) The data in Table 1 are explained in the following text box. In terms of why the growth rate of all three factors has declined, the key question is whether this pattern is caused by long-term structural factors that are independent of the financial crisis or whether their decline was caused by the financial crisis or some other demand-side phenomenon—implying that the growth rate of each will bounce back. This section will discuss "supply-side" (structural) explanations for why the growth rate of each has declined, while the other explanations have some "demand-side" (cyclical) elements. Labor Supply. As shown in Table 1 , the annual growth in hours worked has fallen to 0.1% from 2008 to 2015, compared to over 1% from 1948 to 2000. Some of this decline is cyclical (i.e., a dearth of jobs available), but some is because of changes to the labor supply—as evidenced by the fact that the decline goes back to the 2001 to 2007 period. The aging of the population is the most easily identifiable factor that can explain the slowdown in at least some of the growth in the labor supply. Beginning in the early 1970s, labor-force participation began to increase as baby-boomers and an increasing number of women began to enter the labor market. Labor-force participation remained high into the mid-1990s, providing a boost to per capita economic growth as more of the population was working. However, this trend has since reversed as the population has aged and the baby-boomers continue to retire and leave the labor market. Figure 6 —which shows the percentage of the population aged 25 and older that is in its prime-age working years (25 to 54) and those approaching retirement age or already in retirement (55 and older)—highlights how the demographic shift has unfolded in recent years. Immigration could potentially offset some of the slowdown in the growth of the labor supply in the long run, but would require a significantly higher level of immigration than has occurred recently. There has been speculation about whether the aging of the population could also contribute to a slowdown in productivity if older workers are less responsible for innovation, technological breakthroughs, entrepreneurship (e.g., small business startups), etc., but this relationship is less certain. Still, the aging of the population can explain at most one-quarter to two-thirds of the decline in the labor force participation rate. The rest is caused by a decline in labor force participation for all age cohorts. Compounding the effects of an aging population are the lingering effects on the labor market from the Great Recession, discussed above. Human Capital. Unlike the other sources of growth, Table 1 did not show a noticeable decline in the growth rate of human capital since 2008. There are many ways to measure human capital, although education-based metrics are probably the most straightforward and easiest to interpret. Figure 7 shows the change, since 1940, in the percentage of the population age 25 and over by educational attainment. It is clear from the data that the U.S. population today is more highly educated than at any other time in modern history. For example, 75% of the population 25 and older did not have a high school degree in 1940, whereas 12% of the population had not graduated high school in 2014. And while the fraction of the population with some post-secondary educational experience appears to have peaked in the early 1990s at just shy of 60%, the share of college graduates has continued to increase over time. Although human capital growth has not decelerated to date, some economists also believe that its growth may soon slow. According to one study, "After 1950, the rise in education [as measured by years of schooling] slows markedly and has ceased for the most recent cohorts." For example, the cohort born in 1950 completed an average of about 13 years of schooling, while the cohort born in 1980 completed an average of about 14 years. The authors also point out that while there is scope for some workers to move into more skilled jobs in the future, that potential source of growth is also finite. For example, "the fraction of the labor force engaged in research cannot growth [sic] forever." Productivity. Table 1 shows that growth in multifactor productivity (MFP) in 2008 to 2015 matched the 1974 to 1995 period as the lowest since 1948. A shift from manufacturing to services may partly explain the slowdown in MFP, if manufacturing is more amenable to technical improvements and efficiency gains than services. BLS data show that manufacturing accounted for half of the overall growth in MFP between 1987 and 2013, although it accounted for less than half of output. A closer look at the data, however, reveals two potential problems with that theory. First, almost all of the growth in manufacturing MFP was concentrated in computers and electronics. Second, manufacturing MFP growth was negative from 2007 to 2013. Counterintuitively, the growth and productivity slowdown has coincided with anecdotal examples of rapid changes in how technology affects everyday life. Virtually all industries have incorporated information technology into their production processes in recent decades. Technological innovation has given rise to goods and services that were not previously imaginable (e.g., smart phones and the sharing ["gig"] economy). The slowdown in productivity growth has focused debate on whether recent technological innovations are resulting in profound economic changes or whether they had mainly temporary effects and will lead to only marginal changes in future productivity. This debate is often posed in terms of "is the invention of smartphones as economically important as the invention of electricity, automobiles, and running water?" A related explanation for the decline in MFP growth is that if the number of inventions or discoveries is finite, as time passes, it could become more difficult to make each additional invention or discovery. Investment. Table 1 shows that from 2008 to 2015 physical investment (the capital stock) grew at less than half the rate it grew in any other period since 1948. Figure 8 displays U.S. investment in the post-World War II period across three major categories: nonresidential fixed investment; residential investment; and government (federal, state, and local) investment. Nonresidential fixed investment—investment by businesses in plant and equipment—most directly increases output because it enables businesses to produce more goods and services. Government investment can also increase private output, but more indirectly. For example, increased infrastructure investment lowers the cost of production for private businesses. Residential investment is generally more similar to consumption than fixed investment in terms of its impact on the ability to generate goods and services. Total investment averaged almost 22% of GDP between 1947 and 2007. Investment, however, declined significantly during the Great Recession, reaching a low of just under 18% in 2009 and 2010, as Figure 8 shows. Nonresidential fixed investment and residential investment show a cyclical pattern, and have generally improved in recent years. But they remain below their historical average and levels reached in previous expansions. In contrast, government investment did not experience the same decline during the recession due to fiscal stimulus intended to support the economy, but has tapered off since. To the extent that the slowdown in private investment growth can be explained by long-term factors, it is often in reference to labor and productivity. A slowdown in productivity could reduce the opportunities for new profitable fixed investment. The mainstream (Solow) growth model predicts that growth in the capital stock declines to zero in the absence of MFP growth or labor supply growth. It has also been pointed out that a high-tech economy based on the service sector may require less fixed investment in plant and equipment than one based on manufacturing and heavy industries. A slower-growing workforce may also require fewer capital inputs, to the extent that capital is complementary to, as opposed to a substitute for, labor. And slower population growth may reduce total consumption growth, necessitating a slower growth rate of capital investment to produce consumption goods. (By contrast, the reduction in government investment is a policy choice, and may be directly altered by future policy decisions.) Structural Factors Reconsidered. The main drawback to the structural explanation is the timing—was it just a coincidence that the slowdown started at the same time as the worst financial crisis since the Great Depression? It is a possible but potentially unsatisfying explanation. Or did the slowdown pre-date the crisis? Growth in the 2001-2007 period was lower than from 1948 to 2000, but as discussed above, the growth rate from 2008 to 2015 was even lower. Furthermore, the growth in output per hour was above average before the crisis, and only slightly lower than during the 1995-2000 period. It is unclear why strong output per hour would be consistent with a long-term slowdown related to physical capital or MFP. Concluding Thoughts By any of the standard measures, economic growth has been markedly slower since 2008 than it was during the four other distinct growth episodes since 1948. Less than a decade is still too short, however, to be confident that, absent policy changes, the slowdown will persist. All of the explanations for the current growth slowdown have aspects that are compelling, but none is able to provide a comprehensive explanation that disproves the others. Given the complexities of the economy, it is perhaps unsurprising that there is not one simple explanation for the slowdown. But if the slowdown has a number of distinct causes, it implies that there is unlikely to be one "silver bullet" policy response that can reverse it. Further, the potential capacity of government policy to reverse the slowdown is arguably limited for the following reasons. First, the worldwide nature of the slowdown suggests that its cause is partly beyond U.S. control and if there were an easy policy solution, some country would likely have hit upon it by now. Second, the nature of some of the causes of the slowdown, such as the aging of the population, is hard for policymakers to influence, particularly in the short run. Finally, the longer growth record suggests that growth is relatively steady over long periods of time despite large changes in policy, society, and the economic environment. When there has been a long-lasting change, it has largely been because of changes in productivity growth. Policymakers and economists have struggled to predict, explain, or influence productivity growth. In the long run, changes in productivity growth are largely driven by technological breakthroughs that are, by their nature, hard to predict. Because productivity growth is affected by nearly every aspect of government policy, there is no simple policy change to significantly raise it. At the same time, economists generally agree that efficient and sustainable fiscal policies, stable monetary policies, and an environment conducive to innovation are keys to long-term economic growth. Appendix. Sources of Long-Term Growth This appendix provides an overview of why long-term growth depends on labor, capital, and productivity in the context of economic growth theory. Physical Capital Physical capital refers to the man-made resources, such as machines, computers, equipment, factories, and infrastructure, workers use to produce goods and services. Greater amounts of capital increase the productive capabilities of workers, which in turn, increases the productive capacity of the economy. For example, giving each member of a construction crew their own tools will result in more buildings being built than if the crew had to share a single set. Recent figures suggest that there is around $280,000 worth of physical capital per worker in the United States. This is nearly three times the amount of capital per U.S. worker in 1950. Therefore, it should not be surprising that worker productivity, and also GDP per capita, has increased in the post-World War II period. Over time the amount of capital an economy has will depend primarily on its rate of (net) investment. The higher a country's investment rate, all else equal, the faster its capital stock will grow. And the faster its capital stock grows, the more capital workers will have and the faster the productive capacity of the economy will expand. Thus, ensuring that a nation's investment rate is adequate to build its capital stock has important ramifications for the economic capabilities of a nation. While investment leads to increases in the capital stock, it comes at a cost. Investment involves a diversion of resources away from the production of goods and services that, in turn, could be enjoyed today. Specifically, to increase investment a certain amount of an economy's resources must be directed toward the production of capital, and although investment is expected to reap a return, that return may not be realized for some time. Thus, investment comes at the cost of lower current consumption today in exchange for potentially greater production and consumption in the future. Economic growth theory also emphasizes that investment's impact on long-run growth becomes smaller and smaller as the capital stock grows. This results from the diminishing returns larger capital stocks produce, holding the labor supply and productivity constant. That is, successive additions to the stock of physical capital eventually yield steadily smaller and smaller increases in worker productivity to the point where there will be little growth-boosting effect remaining. Referring back to our previous example, once each crew member has been equipped with their own set of tools, additional investment will yield a smaller and smaller return—perhaps it may help to keep an extra toolbox on hand to address the occasional lost or broken tool, but beyond that further redundancy results in little extra output. In the end, investment may elevate growth over the medium term, but not the long term. Human Capital and Labor Supply The productivity of the workforce can also be increased by improving the skills of workers, a process commonly referred to by economists as human capital investment. Typically, increases in human capital occur through formal education and on-the-job skill development. A greater stock of human capital allows workers to be more productive, which, like physical capital, increases the production potential of the overall economy. Human capital also often complements increases in physical capital and the development of new technologies. For example, a worker with little experience operating a cutting-edge machine will not find the new technology very useful until she has also acquired the skills (human capital) needed to operate it. Likewise, increases in the human capital stock that are associated with more researchers, scientists, and engineers will also likely have a positive influence on the creation of technological knowledge and exert an indirect influence on the growth of worker productivity. Human capital is similar to physical capital in that it is also produced by diverting resources (students, teachers, schools, libraries, etc.) from the production of goods for current consumption. For example, an individual can spend four years obtaining a bachelor's degree after high school, accumulating further human capital, or she could begin working immediately after high school and producing goods for consumption. Therefore, the accumulation of human capital is also a form of investment which dictates the need to make a trade-off between lower current consumption and greater future production potential. Also, like physical capital, the accumulation of human capital is subject to diminishing returns—the degree to which individuals' productive abilities increase with each additional year of school becomes smaller as the amount of schooling or training is increased. Not only is the stock of human capital an important determinant of economic growth, so too is the size of the workforce—more workers can produce more goods and services. Productivity Multifactor productivity refers to the ability of economic agents to combine capital and labor to produce goods and services. Improvements in productivity are an indication that the economy is more efficiently employing its resources in the production process. Productivity increases result from a number of sources including the generation of new technologies, production processes, and ideas, but also from improvements in the institutional and regulatory environment within which the economy operates. Used in this sense, productivity serves as a catch-all for the factors that affect growth but that do not fit neatly into the category of items that augment the nation's physical and labor inputs. While numerous factors may affect productivity, it is often advances in technological knowledge that receive the most attention. Technological knowledge has a special property that makes it distinct from the other physical inputs in the production process. Specifically, knowledge and ideas, unlike the physical inputs of capital and labor, are non-rivalrous—one person's use of a new idea does not result in any less of that idea being available for others to use. For example, an engineer in Chicago who is building a bridge using the Pythagorean Theorem does not prevent engineers in New York City from simultaneously using the theorem to build a sky scraper. Non-rivaly is an innate property of knowledge and ideas. This is not to say that they cannot be granted excludability. Governments can, and in fact often do, give a person or company exclusive legal right of use to non-rivalrous goods via patents. The non-rivalrous character of ideas leads to a crucial distinction between the returns to the physical inputs of capital and labor, and ideas. Recall previously the discussion about how capital and labor eventually run up against diminishing returns. This implies that, in the long run, the influence of capital and labor on per capita growth falls to zero. Non-rivalry of ideas, however, allows for the possibility that an economy can continue to build its stock of ideas and never run up against this limitation. That is, the constant generation of ideas can potentially generate long-run sustainable growth. There is debate among economists about that rate of future idea discovery. If, as some have argued, we should not expect steady idea discovery, then the prospects for growth are diminished.

Between 2008 and 2015, economic growth has been, depending on the indicator, one-quarter to one-half the long-term average since World War II. Economic performance has been variable throughout the post-war period, but recent growth is markedly weaker than previous low growth periods, such as 1974 to 1995. Initially, slow growth was attributed to the financial crisis and its aftermath. But even after the recession ended and financial conditions normalized, growth has remained below average in the current economic expansion. The current expansion has already lasted longer than average, but growth has not picked up at any point during the expansion. By some indicators, growth began to slow during the 2001 to 2007 period, while other indicators suggest that the slowdown is more recent and abrupt. Although this report focuses on the U.S. economy, the same pattern has occurred across other advanced economies. Economists have offered a number of explanations at various points for the relatively slow recovery. These explanations are not necessarily mutually exclusive, and some economists combine elements from more than one in their diagnoses. Slow growth in the immediate aftermath of the crisis could be attributed to deleveraging (debt reduction) by firms and households and financial disruptions caused by the crisis, but those problems were of a temporary nature. There is historical evidence that recoveries are slower after financial crises. Permanent damage from the crisis, called hysteresis, would affect the subsequent recovery. For example, if long-term unemployment resulting from the crisis eroded workers' skills, it could be more difficult for them to find a job when the labor market has recovered. This factor was of greater importance early in the recovery and of waning importance as the recovery continues because it would be expected to leave the level of GDP permanently lower, but should not affect the long-term growth rate. Subsequent shocks to the economy during the expansion, called headwinds, could also be temporarily holding back growth. Headwinds identified at various points in the expansion include high energy prices, the European economic crisis, the emerging market slowdown, fiscal contraction, and fiscal policy uncertainty. Headwinds can be easy to identify after the fact, but there has been little systematic attempt to determine whether there have also been offsetting tailwinds or whether recent headwinds have been relatively larger than in the past. Secular stagnation is an explanation for the slowdown of a more long-lasting nature that posits, atypically, this expansion cannot generate a healthy pace of economic activity on its own, even with the help of aggressive monetary stimulus. This explanation has focused on persistently low interest rates and low inflation as keys to understanding what has held back growth. This explanation struggles to explain the recent return to nearly full employment, however. An explanation based on structural factors would suggest a more permanent slowdown. This explanation looks at long-term shifts in the sources of long-term growth—growth in labor supply and quality, investment, and productivity. For example, the aging of the population has reduced the growth rate of the labor supply. While it is unlikely that slow growth is being driven solely by structural factors—that would imply the timing of the financial crisis and onset of the growth slowdown was purely coincidental—the longer that slow growth persists, the more it can be attributed to structural factors. As the duration of the slowdown persists, explanations based on temporary factors become less compelling and permanent factors become more compelling—particularly as the labor market approaches full employment.

Introduction The Congressional Budget Act of 1974 (Titles I-IX of P.L. 93-344 , as amended; 2 U.S.C. 601-688; hereafter referred to as the "Budget Act") provides for the annual adoption of a concurrent resolution on the budget each year. The congressional budget resolution represents a budget plan for the upcoming fiscal year and at least the following four fiscal years. As a concurrent resolution, it is not presented to the President for his signature and thus does not become law. Instead, when adopted by Congress, the budget resolution serves as an agreement between the House and Senate on a congressional budget plan. As such, it provides the framework for subsequent legislative action on the annual appropriations bills, revenue measures, reconciliation legislation, and any other budgetary legislation. While the programmatic assumptions (i.e., the specific mix of revenue and spending policies that are assumed within the budget levels) are not binding, the totals and committee spending allocations may be enforced through points of order and through the budget reconciliation process (explained below). This report provides current and historical information on the budget resolution. It provides a list of the budget resolutions adopted and rejected by Congress since implementation of the Budget Act, including the U.S. Statutes-at-Large citations and committee report numbers, and describes their formulation and content. The report provides a table of selected optional components, a list of the budget reconciliation measures developed pursuant to directives contained in budget resolutions, and information on the number of years covered by budget resolutions. It also provides information on the consideration and adoption of budget resolutions, including an identification of the House special rules that provided for consideration of budget resolutions, the amendments in the nature of a substitute to the budget resolution considered in the House, the number and disposition of House and Senate amendments to budget resolutions, and dates of House and Senate action on budget resolutions. Congress has modified the congressional budget process several times since it was first established in 1974. The Appendix identifies laws, budget resolutions, and other resolutions that modified the procedures and requirements pertaining to the development, content, and consideration of the budget resolution. As originally enacted, the Budget Act provided for the annual adoption of two budget resolutions for each year. The first budget resolution, adopted in the spring, set nonbinding "targets" to guide the consideration of budgetary legislation. The second budget resolution, adopted in the fall (about two weeks before the beginning of the fiscal year), was intended to provide Congress, after considering and possibly completing action on specific budgetary legislation, the opportunity to either reaffirm or revise the budget levels in the first budget resolution. Additional budget resolutions, or revisions to the previous one, could be (and still can be) adopted at any time. The Balanced Budget and Emergency Deficit Control Act of 1985 (Title II of P.L. 99-177 , 99 Stat. 1038-1101; hereafter referred to as the "Deficit Control Act") eliminated the requirement for a second budget resolution beginning in 1986 (for the FY1987 budget resolution). For several preceding years, for FY1983-FY1986, Congress did not adopt a second budget resolution but instead included a provision in the first budget resolution that made the spending and revenue totals in it binding automatically as of the beginning of the fiscal year. During the 41 years under the Budget Act (1975 to the present), Congress has completed action on 40 budget resolutions, including in some years multiple budget resolutions for a single fiscal year. In 32 of the 41 years, Congress adopted at least one budget resolution for the fiscal year. Congress did not complete action on a budget resolution for nine fiscal years, most recently for FY2015. Congress also adopted a second budget resolution in seven of the 41 years. In 1977, Congress adopted a third budget resolution for FY1977, further revising the budget levels that fiscal year. Table 1 lists all budget resolutions adopted by Congress, with the House and Senate votes on initial passage and adoption of the conference report. It also includes, in italics, budget resolutions reported or considered in one chamber but not the other for those fiscal years that Congress did not complete action on a budget resolution. The U.S. Statutes-at-Large citations for budget resolutions adopted by Congress are listed in Table 2 . (Although concurrent resolutions such as budget resolutions have no statutory authority, they are compiled in a special section of the U.S. Statutes-at-Large .) Table 3 lists the budget resolutions rejected in the House. No budget resolutions have been rejected in the Senate; however, the Senate rejected several motions to proceed to different budget resolutions in 2011 and 2012. Development and Content of the Budget Resolution Development of the Budget Resolution Following the submission of the President's budget in January or February, Congress begins developing its budget resolution. The House and Senate Budget Committees are responsible for developing and reporting the budget resolution. Within six weeks after the President's budget submission, each House and Senate committee is required to submit its "views and estimates" relating to budget matters under its jurisdiction to its Budget Committee (Section 301(d) of the Budget Act). These views and estimates, often submitted in the form of a letter to the chair and ranking Member of the Budget Committee, typically include comments on the President's budget proposals and estimates of the budgetary impact of any legislation likely to be considered during the current session of Congress. The Budget Committees are not bound by these recommendations. The views and estimates often are printed in the committee report accompanying the resolution in the Senate or compiled in a separate committee print in the House. The budget resolution was designed to provide a framework to make budget decisions, leaving specific program determinations to the Appropriations Committees and other committees with spending and revenue jurisdiction. In many instances, however, particular program changes are considered when formulating the budget resolution. Program assumptions sometimes are referred to in the reports of the Budget Committees or may be discussed during floor action. Although these program changes are not binding, committees may be strongly influenced by these recommendations when formulating appropriations bills, reconciliation measures, or other budgetary legislation. Table 4 provides a list of the House, Senate, and conference reports to first budget resolutions reported or considered in either chamber. Content of the Budget Resolution Section 301(a) of the Budget Act requires that the budget resolution include the following matters for the upcoming fiscal year and at least the ensuing four fiscal years: Aggregate levels of new budget authority, outlays, the budget surplus or deficit, and the public debt; Aggregate levels of federal revenues and the amount, if any, by which the aggregate levels of federal revenues should be increased or decreased by legislative action; Amounts of new budget authority and outlays for each of the major functional categories; and For purposes of Senate enforcement procedures, Social Security outlays and revenues (although these amounts are not included in the budget surplus or deficit totals due to their off-budget status). Originally, the Budget Act mandated that budget resolutions cover only the upcoming fiscal year beginning on October 1 (referred to as the budget year). A desire to use the budget resolution as a tool for budget planning and other factors prompted Congress to expand this time frame to include the upcoming fiscal year as well as the two ensuing fiscal years. Congress used the authority provided by the elastic clause of the Budget Act to adopt three-year budget resolutions for the period covering the second budget resolution for FY1980 through the FY1986 budget resolution. The practice of including three fiscal years was formalized by the 1985 Deficit Control Act. The Budget Enforcement Act (BEA) of 1990 (Title XIII of P.L. 101-508 , Omnibus Budget Reconciliation Act of 1990, 104 Stat. 1388-573-1388 through 630) temporarily extended to five fiscal years the period the budget resolution is required to cover. The 1990 BEA provision originally covered five-year periods beginning in FY1991 and continuing through FY1995; this provision was extended to cover the FY1996 through FY1998 budget resolutions in 1993 (Title XIV of P.L. 103-66 , Omnibus Budget Reconciliation Act of 1993, 107 Stat. 683-685). As an integral part of Congress's goal of achieving a balanced budget by FY2002, the FY1996 and FY1997 budget resolutions covered seven and six fiscal years, respectively. The Budget Enforcement Act of 1997 (Title X of P.L. 105-33 , Balanced Budget Act of 1997, 111 Stat. 677-712) amended the Budget Act to require permanently that a budget resolution cover the budget year and at least the four ensuing fiscal years (for a minimum of five fiscal years). Table 5 provides information regarding the number of years covered by the budget resolutions agreed to by Congress. Congress also may revise budget levels for the current year in the budget resolution pursuant to Section 304 of the Budget Act. Congress has adopted 15 first budget resolutions that revised current-year budget levels. In addition to the content required by the Budget Act, Section 301(b) lists several other matters that may be included in the budget resolution. Table 6 provides a table indicating selected components included in first budget resolutions for FY1976-FY2016 on which Congress completed action (i.e., the House and Senate agreed). The most important of the optional matters is arguably the inclusion of budget reconciliation directives provided by Section 310 of the Budget Act. Budget reconciliation is an optional two-step process Congress may use to bring direct spending, revenue, and debt limit levels into compliance with those set forth in budget resolutions. In order to accomplish this, Congress first includes budget reconciliation directives in a budget resolution directing one or more committees in each chamber to recommend changes in statute to achieve the levels of direct spending, revenues, debt limit, or a combination thereof agreed to in the budget resolution. The legislative language recommended by committees then is packaged "without any substantive revision" into one or more budget reconciliation bills as set forth in the budget resolution by the House and Senate Budget Committees. In some instances, a committee may be required to report its legislative recommendations directly to its chamber. Once the Budget Committees (or individual committees if so directed) report budget reconciliation legislation to their respective chambers, consideration is governed by special procedures. These special rules serve to limit what may be included in budget reconciliation legislation, to prohibit certain amendments, and to encourage its completion in a timely fashion. During the 41-year period since the congressional budget process was established, Congress has included budget reconciliation directives to House and Senate committees in 22 budget resolutions. Such directives have resulted in 24 budget reconciliation measures. On four occasions (in 1982, 1986, 1997, and 2006), Congress adopted two budget reconciliation measures in one year. Of the 24 budget reconciliation measures considered by Congress, 20 were signed into law and four were vetoed. Table 7 lists the budget resolutions that contained budget reconciliation directives and the associated reconciliation acts. Beginning with the FY1981 budget resolution, Congress also included amounts for federal credit activities. The 1985 Balanced Budget Act permanently required the inclusion of aggregate and functional levels of direct loan obligations and primary loan guarantee commitments in budget resolutions. The inclusion of federal credit levels, however, was made optional by the Budget Enforcement Act of 1997 (Title X of P.L. 105-33 ; 111 Stat. 677-712). Of the 31 first budget resolutions adopted by Congress, 18 included federal credit amounts. Another optional component of budget resolutions has been the inclusion of reserve funds. The reserve fund provisions generally provide for the revision of budget resolution aggregates, functional allocations, and committee allocations if certain deficit-neutral legislation is enacted or some other condition is met. Over the last decade, Congress often has included several reserve funds in budget resolutions (as indicated in Table 6 ). For instance, the FY2016 budget resolution ( S.Con.Res. 11 , 114 th Congress) included 131 reserve funds. As an indication of policy intent, Congress has often included declaratory statements in budget resolutions. These nonbinding statements express the sense of Congress, the sense of the House, or the sense of the Senate on various issues. As indicated in Table 6 , Congress has included an average of 21 declaratory statements in the last 14 budget resolutions (not including budget resolutions for fiscal years on which the House and Senate separately adopted but did not agree) but an average of only between two and three declaratory statements in the first 18 budget resolutions. The annual budget resolution also may require a deferred enrollment procedure (see Section 301(b)(3) of the Budget Act), under which all or certain bills providing new budget authority or new entitlement authority for the upcoming fiscal year cannot be enrolled until Congress has completed action on a reconciliation measure (or, prior to FY1987, a reconciliation measure or the second budget resolution). Budget resolutions for FY1981, FY1982, FY1983, and FY1984 contained deferred enrollment provisions. Lastly, Congress has included several other procedural provisions in budget resolutions. Under Section 301(b)(4) of the Budget Act, the so-called elastic clause , Congress may "set forth such other matters, and require such other procedures, relating to the budget, as may be appropriate to carry out the purposes of" the Budget Act in the budget resolution. The number of procedural provisions included in budget resolutions is listed in the last column of Table 6 . Some of these procedural provisions include deferred enrollment; automatic second budget resolutions; special budgetary treatment of certain activities, such as the sale of government assets; and more recently, enforcement of a pay-as-you-go requirement in the Senate and limits on advance appropriations. Consideration and Adoption of the Budget Resolution Floor consideration of the budget resolution differs in the House and Senate. Section 305 of the Budget Act sets forth special procedures for the consideration of the budget resolution, generally to expedite its consideration. The House, however, regularly adopts a special rule, a simple House resolution, setting forth the terms for consideration of the measure. In particular, special rules have been used for more than a decade to limit the offering of amendments to a few major substitutes. Table 8 lists the special rules that provided for the consideration of budget resolutions in the House. In contrast, floor consideration in the Senate is governed by the procedures set forth in the Budget Act. The procedures generally limit debate and prohibit certain amendments and motions. Amendments to the Budget Resolution Amendments in the House The House has considered an average of almost seven amendments per budget resolution. The largest number of amendments considered was 45 in 1979; the largest number agreed to was 11 also in 1979. (The first FY1983 budget resolution also was amended 11 times, but it subsequently was rejected.) Table 9 identifies the number of accepted and rejected amendments to budget resolutions considered in the House. The amending activity in the House during the last few decades is in marked contrast to the early years under the Budget Act. During the first eight years, the House considered an average of 16 amendments per budget resolution, agreeing to an average of four of them. In contrast, during the past 33 years, the House has considered very few amendments to budget resolutions, averaging between two and three per budget resolution and agreeing to even fewer of these. Of the 121 amendments considered by the House during this time period, 5 have been adopted. Contributing to this trend, the House special rule typically has allowed for consideration of only amendments in the nature of a substitute to the budget resolution. For example, between 1983 and 2015 (for the FY1984-FY2016 budget resolutions), 117 of the 121 amendments to the budget resolution made in order by the special rule were amendments in the nature of a substitute. Only two of these 117 amendments in the nature of a substitute were agreed to; those two contained the budget resolution text recommended by the House Budget Committee offered by its chair at the time, Representative William H. Gray III and Representative Tom Price, respectively. Table 10 lists the amendments in the nature of a substitute to the budget resolution made in order by the special rule. Amendments in the Senate In the Senate, the terms of debate and the consideration of amendments are not structured by a special rule, as in the House, but instead are governed by the procedures set forth in Section 305(b) of the Budget Act. Typically, the Senate considers many amendments to the budget resolution, most addressing specific issues instead of proposing a complete substitute as in the House. During the period between 1975 and 2015, the Senate considered an average of almost 54 amendments per budget resolution, agreeing to an average of 31 of these. The largest number of amendments considered was 254 in 2015; the largest number agreed to was 146, also in 2015. Table 11 identifies the number of amendments adopted, rejected, ruled out-of-order, and withdrawn during Senate consideration of budget resolutions. In contrast to the House, the number of amendments considered by the Senate has increased over the last two decades or so. For the last 18 budget resolutions considered on the floor, for example, the Senate considered an average of almost 90 amendments per budget resolution, agreeing to an average of over 56 of these. Amendments have been agreed to in the Senate at a much higher rate compared to the House as well. For instance, in 13 of the past 18 years in which a budget resolution was considered on the floor, the success rate for amendments has equaled or exceeded 60%. Timing of Action on the Budget Resolution The Budget Act sets April 15 as a target date for completing action on the annual budget resolution. Table 12 lists the dates of final adoption of budget resolutions for FY1976-FY2015. During this period, Congress adopted the budget resolution by the target date only six times, most recently in 2003 with the FY2004 budget resolution. Under the original timetable (prior to 1986, the deadline was May 15), Congress adopted the annual budget resolution by the target date twice: in 1975 and 1976. After the target date was changed to April 15 by the 1985 Deficit Control Act, Congress has completed action on the budget resolution by the target date four times: in 1993, 1999, 2000, and 2003. Further, as noted above, Congress did not complete action on a budget resolution for nine fiscal years, most recently for FY2015. In those years in which Congress has adopted a budget resolution (that is, not including FY1999, FY2003, FY2005, FY2007, and FY2011 through FY2015), it has adopted the budget resolution an average of 36 days after the target date. The FY1991 budget resolution was adopted the latest, on October 9, 1990, or 177 days after the target date. The earliest adoption of a budget resolution was for FY1994 on April 1, 1993, or 14 days before the target date. Table 13 and Table 14 provide a list of dates related to the consideration and adoption of the budget resolution in the House and the Senate, respectively. Modifications to the Procedures and Requirements Pertaining to the Development, Content, and Consideration of the Budget Resolution Full Employment and Balanced Growth Act of 1978 ("Humphrey-Hawkins Act"; P.L. 95-523 ; 92 Stat. 1887-1908; October 27, 1978) Called for a period of up to four hours for debate on economic goals and priorities following the presentation of opening floor statements on the budget resolution. Temporary Increase in the Public Debt Limit ( P.L. 96-5 ; 93 Stat. 8; April 2, 1979) Mandated that the President's budget and the Budget Committees' reported budget resolution for FY1981 and FY1982 be in balance. (Provision was repealed in 1982.) Balanced Budget and Emergency Deficit Control Act of 1985 (Title II of P.L. 99-177 ; 99 Stat. 1038-1101; December 12, 1985) Required Congress to complete action on a budget resolution by April 15 of each year (deadline moved from May 15). Eliminated the requirement that Congress adopt a second budget resolution annually by September 15. Formalized the practice of adopting a three-year budget resolution, with the second and third fiscal years non-binding. (Current law requires budget resolutions to cover at least five fiscal years.) Called for off-budget entities, except Social Security, to be included in the budget resolution and the President's budget. Formalized the practice of including credit authority (direct and guaranteed loans) in the budget resolution. Mandated that neither chamber may consider a budget resolution, amendment to a budget resolution, or conference report on a budget resolution that recommends a deficit amount greater than the applicable maximum deficit amount established in the 1985 Balanced Budget Act. Excluded Social Security from budget totals, except for purposes of calculating the deficit in order to determine if sequestration is required. The budget resolution may contain two deficit totals: one with Social Security and one without. Budget Enforcement Act (BEA) of 1990 (Title XIII of the Omnibus Budget Reconciliation Act of 1990; P.L. 101-508 ; 104 Stat. 1388-573 through 630; November 5, 1990) Added language to the Budget Act allowing the option to include pay-as-you-go procedures for the Senate and House in the budget resolution (Sections 301(b)(7) and 301(b)(8)). Required that the budget resolutions for FY1991-FY1995 cover five fiscal years. (Current law permanently requires at least five fiscal years; see BEA of 1997 below.) In the Senate, prohibited the consideration of a reported budget resolution calling for a reduction in Social Security surpluses. Changed deadline for submitting views and estimates reports from "on or before February 25 of each year" to "within 6 weeks after the President submits a budget." Added language to the Budget Act allowing the option of including Social Security outlays and revenues in the budget resolution for purposes of Senate enforcement. In the Senate, created a point of order that prohibits the consideration of any budget resolution that would exceed any of the discretionary spending limits. (Initially, this point of order was added to the Budget Act as a temporary Section (601(b)); the BEA of 1997 permanently added this point of order to the Budget Act as Section 312(b) and applied the point of order to any legislation.) Omnibus Budget Reconciliation Act of 1993 (Title XIV of P.L. 103-66 ; 107 Stat. 683-685; August 10, 1993) Extended through FY1998 the BEA requirement that budget resolutions cover five fiscal years. Budget Resolution for FY1995 ( H.Con.Res. 218 ; 103 rd Congress; May 12, 1994) Made permanent a temporary modification found in the budget resolutions for FY1993 and FY1994, which applied Section 301(i) to a budget resolution at any stage of consideration. Section 301(i) of the Budget Act prohibits the Senate from considering any reported budget resolution that would decrease the excess of Social Security revenues over Social Security outlays for any of the fiscal years covered by the resolution, subject to a three-fifths waiver requirement. This creates a "firewall" to protect Social Security balances. Budget Enforcement Act of 1997 (Title X of P.L. 105-33 ; 111 Stat. 677-712; August 5, 1997) Permanently required the budget resolution to cover at least five fiscal years. Made optional rather than mandatory the inclusion of total direct loan obligation and total primary loan guarantee commitment levels in the budget resolution and the accompanying report. Modified the optional contents of the budget resolution to include special pay-as-you-go procedures in the Senate pertaining to the use of reserve funds. Allowed the Budget Committees to set an alternative deadline for committees to submit their views and estimates instead of the usual deadline of within six weeks after the President submits a budget. Applied the Senate point of order against a budget resolution recommending a decrease in the projected surplus in the Social Security trust funds to all its legislative stages. Budget Resolution for FY2000 ( H.Con.Res. 68 ; 106 th Congress; April 15, 1999) Created a point of order that prohibited consideration of a revised FY2000 or a FY2001 budget resolution setting forth an on-budget deficit for any fiscal year (i.e., excluding any surplus resulting from the Social Security trust fund). The provision did not apply if the deficit for a fiscal year resulted solely from legislation that made structural programmatic reforms to enhance retirement security. Budget Resolution for FY2001 ( H.Con.Res. 290 ; 106 th Congress; April 13, 2000) Applied the point of order against budget resolutions setting forth an on-budget deficit for any fiscal year (see FY2000 budget resolution) to a revised FY2001 or a FY2002 budget resolution. The provision would not apply if the economy experienced low growth in two consecutive quarters or if a declaration of war was in effect. Specified that amendments that contain predominately "precatory" language, such as sense-of-the-Senate amendments, are not germane, effectively prohibiting such amendments to budget resolutions and reconciliation legislation. Budget Resolution for FY2004 ( H.Con.Res. 95 ; 108 th Congress; April 11, 2003) Extended through September 30, 2008, the three-fifths vote requirement in the Senate to waive and to sustain an appeal of a ruling of the chair on certain points of order specified in Sections 904(c)(2) and 904(d)(3) of the Budget Act. Budget Resolution for FY2006 ( H.Con.Res. 95 ; 109 th Congress; April 28, 2005) Extended through September 30, 2010, the three-fifths vote requirement in the Senate to waive and to sustain an appeal of a ruling of the chair on certain points of order specified in Sections 904(c)(2) and 904(d)(3) of the Budget Act. House Rule XXI, Clause 7 ( H.Res. 6 ; 110 th Congress; January 5, 2007) Created a point of order against the consideration of a budget resolution containing budget reconciliation directives having a net effect of reducing the surplus or increasing the deficit. (Clause was modified at the beginning of the 112 th Congress; see below.) Budget Resolution for FY2008 ( S.Con.Res. 21 ; 110 th Congress; May 17, 2007) Extended through September 30, 2017, the three-fifths vote requirement in the Senate to waive and to sustain an appeal of a ruling of the chair on certain points of order specified in Sections 904(c)(2) and 904(d)(3) of the Budget Act. House Rule XXI, Clause 7 ( H.Res. 5 ; 112 th Congress; January 5, 2011) Modified the rule to prohibit the consideration of a budget resolution containing reconciliation directives that would result in budget reconciliation legislation that would cause a net increase in direct spending (i.e., mandatory spending) over the period of the budget resolution. Separate Order in House for 113 th Congress (Section 3(e) of H.Res. 5 ; 113 th Congress; January 3, 2013) Created a requirement that the budget resolution (as well as any amendments thereto and any conference report thereon) include for means-tested direct spending and non-means-tested direct spending the following information: (1) the average growth rate (in terms of outlays) for the 10 years preceding the budget year; (2) estimates under current law for the period covered by the budget resolution; and (3) information on proposed reforms. (This requirement was extended to the 114 th Congress by Section 3(h) of H.Res. 5, 114 th Congress, January 6, 2015.) Budget Resolution for FY2016 ( S.Con.Res. 1 1 ; 11 4 th Congress; May 5, 2015 ) Extended through September 30, 2025, the three-fifths vote requirement in the Senate to waive and to sustain an appeal of a ruling of the chair on certain points of order specified in Sections 904(c)(2) and 904(d)(3) of the Budget Act.

The Congressional Budget Act of 1974 (Titles I-IX of P.L. 93-344, as amended; 2 U.S.C. 601-688) provides for the annual adoption of a concurrent resolution on the budget each year. The congressional budget resolution represents a budget plan for the upcoming fiscal year and at least the following four fiscal years. As a concurrent resolution, it is not presented to the President for his signature and thus does not become law. Instead, when adopted by Congress, the budget resolution serves as an agreement between the House and Senate on a congressional budget plan. As such, it provides the framework for subsequent legislative action on budget matters during each congressional session. In 32 of the 41 years under the Budget Act, Congress adopted at least one budget resolution for the fiscal year beginning in such year. Congress did not complete action on a budget resolution for nine fiscal years, most recently for FY2015. A second budget resolution for a fiscal year was adopted in each of the first seven years, and a third budget resolution was adopted in one year (for FY1977). Since 1982, Congress has considered only one budget resolution for each fiscal year. Congress initially was required to cover only the upcoming fiscal year in the budget resolution, but over the years Congress has expanded this time frame. Currently, the budget resolution must include at least five fiscal years. The budget resolution may include budget reconciliation directives instructing one or more committees to recommend legislative changes to meet the direct spending and revenue levels included in the budget resolution. In the past 41 years, Congress included budget reconciliation directives in 22 budget resolutions. Such directives have resulted in 24 budget reconciliation measures and the enactment of 20 of them. (Four budget reconciliation measures have been vetoed.) The House has considered and adopted fewer amendments to the budget resolution than the Senate. For the last three decades, the House has considered the budget resolutions under special rules that generally have made in order only amendments in the nature of a substitute. Since 1983, the House typically has considered between three and seven such amendments to the budget resolution each year, rejecting all but two of these. In contrast, during the period between 1975 and 2015, the Senate considered an average of almost 54 amendments per budget resolution, agreeing to an average of about 31 of these. The Budget Act sets April 15 as a target date for completing action on the annual budget resolution. (Prior to 1986, the date was May 15.) During the past 41 years, when Congress has completed action on a budget resolution, Congress adopted the budget resolution by the target date only six times, most recently in 2003 with the FY2004 budget resolution. Budget resolutions have been adopted an average of almost 36 days after the target date. This report will be updated as warranted.

Introduction A diverse array of efforts to reduce greenhouse gas (GHG) emissions is currently under way or being developed on the international, national, and sub-national level (e.g., individual state actions or regional partnerships). Proposals in the U.S. Congress have generally focused on market-based approaches, but some proposals have included a mix of market and non-market strategies. Market-based mechanisms that limit GHG emissions can generally be divided into two types: quantity control (e.g., cap-and-trade) and price control (e.g., carbon tax or fee). To some extent, a carbon tax and a cap-and-trade program would produce similar effects: both are estimated to increase the price of fossil fuels, which would ultimately be borne by consumers, particularly households. Preference for a carbon tax or a cap-and-trade program ultimately depends on which variable one wants to directly control—emissions or costs. Although Members have introduced and debated GHG emission control proposals—both cap-and-trade and carbon tax programs—in previous Congresses, the Obama Administration's stated commitment to GHG emission reduction has spurred interest in developing a workable program. This position contrasts starkly with the previous Administration, which had rejected the concept of mandatory emissions reductions, instead focusing on voluntary initiatives to reduce the growth in GHG emissions (i.e., emissions intensity targets). In addition to the policy shift in the executive branch, a number of states have taken actions in recent years that directly address GHG emissions. For example, 23 states have joined one of the three regional partnerships that would require GHG (or just carbon dioxide) emission reductions. One of these partnerships—the Regional Greenhouse Gas Initiative (RGGI)—took effect January 2009. Industry stakeholders are especially concerned that the states will create a patchwork of climate change regulations across the nation. This prospect is causing some industry leaders to call for a federal climate change program. Some have stated a preference for a cap-and-trade system; others have indicated a preference for a carbon tax approach. Another potential driver of market-based federal legislation is activity by the Environmental Protection Agency (EPA) to control GHG emissions under existing Clean Air Act authority. On December 15, 2009, EPA finalized an "endangerment finding" under Section 202 of the Clean Air Act, which requires the agency to regulate pollutants due to their GHG impacts. In addition, on May 19, 2009, President Obama announced a plan to integrate federal fuel economy standards (under the Energy Policy and Conservation Act) with federal vehicle emissions standards (under the Clean Air Act) and state standards (driven by California's rulemaking action). The Administration finalized GHG and fuel economy standards in the May 7, 2010, Federal Register . In the context of these events and efforts, Members in the 111 th Congress have introduced several proposals that would use market-based approaches to reduce GHG emissions. This report focuses on these legislative proposals. Legislative Proposals In the 111 th Congress, Members have introduced nine bills that include provisions to impose or permit some form of market-based controls on GHG emissions. General descriptions of these bills follow. The major provisions of the House bills are compared in Table 1 ; the Senate bills are compared in Table 2 . H.R. 2454 , introduced May 15, 2009, by Representatives Waxman and Markey, passed the House on June 26, 2009. It includes numerous energy policy provisions as well as cap-and-trade provisions (Titles III, IV, and V). H.R. 2454 would set up a cap-and-trade system that would reduce GHG emissions from covered sources to 17% below 2005 levels by 2020 and 83% below 2005 levels by 2050. Covered entities would account for approximately 85% of U.S. total GHG emissions. The proposal would allow covered entities to submit offsets to cover an increasing percentage (approximately 27% in 2016) of compliance obligations. Unlike previous cap-and-trade proposals (from previous Congresses), the program would create a rolling two-year compliance period. H.R. 2454 would distribute allowances to both covered and non-covered entities at no cost to support various policy objectives. In addition, an increasing percentage (approximately 17% in 2016) of the allowances would be sold through auction. As with the distribution of no-cost allowances, auction revenues would be used to further various policy objectives. S. 1733 , introduced September 30, 2009, by Senator Kerry, was ordered reported by the Senate Committee on Environment and Public Works on November 5, 2009. Largely similar to H.R. 2454 , S. 1733 would establish an economy-wide GHG cap-and-trade program, while addressing other energy-related matters through numerous energy policy provisions. Although the similarities outweigh the differences, six key distinctions include the following: (1) the Senate bill has a more stringent emissions cap between 2017 and 2029; (2) the two bills allocate emissions allowances and auction revenue to different recipients at different levels; (3) the bills would treat offsets differently; (4) the House bill would establish extensive carbon market regulation (the Senate bill currently has a placeholder for this topic); (5) the House bill would establish a requirement that importers purchase special emission allowances for certain imports from countries without greenhouse gas controls (the Senate bill currently has a placeholder for this topic); and (6) both bills would limit EPA's authority to regulate greenhouse gases under the Clean Air Act, although in different ways. For a more comprehensive comparison between H.R. 2454 and S. 1733 , see CRS Report R40896, Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733 , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. H.R. 594 , introduced January 15, 2009, by Representative Stark, would impose a carbon-content tax on fossil fuels starting at $10/ton and increasing by $10 every year. The tax would apply to fossil fuels as they enter the U.S. economy (i.e., at the production or importation level). The bill does not specify how the tax revenues would be applied. H.R. 1337 , introduced March 5, 2009, by Representative Larson, would impose a carbon-content tax on fossil fuels starting at $15/ton. The tax would increase by $10 each year, but if identified emission targets (established by EPA, based on reaching 80% below 2005 emissions by 2050) are not met, the tax would increase by $15 in that year. The tax revenues would be used to support (1) a payroll tax rebate; (2) affected industry transition assistance; and (3) clean energy technology. The vast majority of the revenue would support the payroll tax rebate. The proposal also would impose a carbon equivalency fee on imported carbon-intensive goods. H.R. 1666 , introduced March 23, 2009, by Representative Doggett, would establish a cap-and-trade program to reduce greenhouse gas emissions from covered sources from 6.2 billion metric tons in 2012 to 253 million in 2050. The program would be administered through the Department of the Treasury and 100% of the allowances would be auctioned. In order to mitigate price volatility in the early years of the program, the bill would establish a Climate Program Oversight and Coordination Board to set targets for allowance prices and manage quarterly auctions to maintain a smooth allowance price path. The managed price program would run from 2012 through 2019, and, depending on a review, revisions would be made for 2020 and beyond. If the price path resulted in excess emissions from the expectations set out in the bill, those emissions would be made up through additional reduction in the years 2020 through 2030. Auction revenues would be put in an Auction Revenue Trust Fund at Treasury, but no specific purpose is delineated in the bill for them. H.R. 1683 , introduced March 24, 2009, by Representative McDermott, would establish a hybrid approach to GHG emission control. The approach may be described as a dynamic carbon-content tax. Producers and importers of GHG emission substances—fossil fuels and other GHG emission inputs—would be required to purchase emission permits for each ton of emissions that would occur from the combustion or use of the GHG emission substance. Permits may not be traded or exchanged, thus the purchase requirement would effectively act as a carbon-content tax (or fee). The Department of the Treasury would determine the (annual) price for emission permits based on annual emission allocations (or caps) identified in the bill. Treasury would publish price schedules every five years, but the sale price may be modified (under certain conditions and to a limited extent) within the five-year periods. If the permits sold exceed allocations allotted in a particular year, subsequent year allocations would be reduced, thus imposing an overall cap. H.R. 1862 , introduced April 1, 2009, by Representative Van Hollen, would cap emissions associated with the combustion of CO 2 . Fossil fuel producers and importers would be required to surrender carbon permits in relation to the carbon dioxide emissions generated through the combustion of fossil fuels the entities sold during the previous year. The cap would decline annually, leading to an 85% reduction below 2005 CO 2 emissions from covered entities by 2050. All of the carbon permits would be sold through an auction process. Nearly 100% of the auction proceeds would be redistributed monthly to those with a social security number. H.R. 2380 , introduced May 13, 2009, by Representative Inglis, would impose a carbon-content tax on fossil fuels starting at $15/ton. The tax rate would increase by an equal percentage each year (approximately 6.5%), until it reached $100/ton in 2040 (not including inflation adjustments). All of the tax revenue would be used to offset reductions in the payroll tax paid by employees, employers, and self-employed persons. The proposal would impose a tax on carbon-intensive imported goods. S. 2877 , introduced December 11, 2009, by Senator Cantwell, would create a program that seeks to combine both emission and price control. The program would apply only to CO 2 emissions (covering 80% of U.S. GHG emissions), requiring fossil fuel producers (e.g., coal mines, wellheads) and importers to submit "carbon shares" for the carbon dioxide (CO 2 ) emissions related to the fossil fuels they produce or import. The President would limit (or cap) the quantity of carbon shares available for submission each year, and the Department of Treasury would distribute all of the carbon shares through monthly auctions. The auctions would have a price floor and a price ceiling (i.e., safety valve). If the price ceiling were reached in a given auction, additional carbon shares would be sold to accommodate all bids. Offsets would not be allowed for compliance purposes; however, if the price ceiling is reached during an auction—the possibility of which would be increased by not allowing offsets—revenues from the additional carbon shares would be used exclusively on domestic mitigation activities, including offset-like projects from agriculture and forestry sectors. S. 2877 would distribute 75% of its auction revenue to individuals on a monthly basis; the remaining 25% would be allotted (through the appropriations process) to support a range of policy objectives. Two bills— H.R. 1759 and S. 2729 —have been introduced to address specific issues. H.R. 1759 , introduced by Representatives Inslee and Doyle on March 26, 2009, would set up an allowance distribution scheme to assist energy-intensive industries that are trade-exposed and potentially subject to carbon leakage. S. 2729 , introduced by Senator Stabenow on November 4, 2009, includes (among other provisions) comprehensive offset provisions that could serve as an alternative to offset program text in other cap-and-trade proposals. On May 12, 2010, Senators Kerry and Lieberman released a draft of new climate change legislation. A comprehensive energy and climate change policy proposal, the draft would set GHG reduction goals similar to those of H.R. 2454 . Employing a market-based cap-and-trade scheme for electric generators and industry with a separate set-price mechanism to allocate allowances to cover transportation fuels, the proposal allocates a substantial percentage of the allowances created for the benefit of energy consumers and low-income households. As the program proceeds through the mid-2020s, it shifts to more government auctioning with most of the proceeds returned to households. The bill's allocation scheme includes free allowance allocations to energy-intensive, trade-exposed industries, and other measures to prevent carbon leakage. While it is expected that the Kerry-Lieberman proposal would be rolled into S. 1462 , it does contain other energy initiatives, including incentives for nuclear power, carbon capture and storage technology, and natural gas vehicles. Legislative Activity H.R. 2454 (Waxman/Markey, introduced May 15, 2009) was subsequently modified (both technical and substantive changes) and offered as a "Manager's Amendment" on May 18, 2009. On that day, the bill began markup in the House Committee on Energy and Commerce. After making several amendments to the bill—most of which did not affect the cap-and-trade program—the committee reported the bill on June 5, 2009 ( H.Rept. 111-137 , Part I). The House of Representatives passed H.R. 2454 on June 26, 2009. The version summarized in Table 1 reflects the bill as passed by the House. On September 30, 2009, Senators Kerry and Boxer introduced S. 1733 , which was referred to the Senate Committee on Environment and Public Works. The committee held hearings on the bill starting October 27, 2009, and markup of the bill began November 3. On November 5, the committee approved Senator Boxer's "Manager's Amendment" as a substitute, and ordered S. 1733 reported. The version summarized Table 2 reflects the bill as amended by the Manager's Amendment released by Senator Boxer on October 30, 2009.

As of the date of this report, Members in the 111th Congress have introduced nine stand-alone proposals that would control greenhouse gas (GHG) emissions. The proposals offered to date would employ market-based approaches—either a cap-and-trade or carbon tax system, or some combination thereof—to reduce GHG emissions. The legislative proposals are varied in their overall approaches in controlling GHG emissions. Some control emissions by setting a quantity (or cap); others control emissions by setting a price (or tax/fee). In addition, the proposals differ in their inclusion of particular design elements, such as whether or not to allow offsets (emission reduction opportunities from economic sectors not directly addressed by the primary approach). H.R. 2454, the American Clean Energy and Security Act of 2009 (Waxman/Markey), and S. 1733, the Clean Energy Jobs and American Power Act (Kerry/Boxer), have been the primary energy and climate change legislative vehicles in the 111th Congress. On June 26, 2009, the House passed H.R. 2454. On November 5, the committee approved Senator Boxer's "Manager's Amendment" as a substitute, and ordered S. 1733 reported. In addition to establishing a cap-and-trade system to regulate GHG emissions, both H.R. 2454 and S. 1733 would address energy efficiency, renewable energy, and other energy topics. Other proposals—H.R. 1862 (Van Hollen) and H.R. 1666 (Doggett)—would control emissions by limiting quantity, but would differ in their structure and implementation. Three of the proposals—H.R. 594 (Stark), H.R. 1337 (Larson), and H.R. 2380 (Inglis)—would use a carbon tax approach to address carbon dioxide (CO2) emissions from fossil fuel combustion. Other proposals do not fit precisely into either a price or quantity control category. H.R. 1683 (McDermott) would establish a program that may be described as a dynamic carbon tax: its tax rate would be linked with annual emission allocations (or caps). S. 2877 (Cantwell) would establish a CO2 emission control program on fossil fuel producers and importers. Although the bill would limit the number of carbon shares auctioned each year, the auctions would include a price safety valve, allowing for the purchase of additional shares. To counter the emissions from these additional shares (above the cap), the price safety-valve revenues would be used to support mitigation efforts outside of the emission control program. On May 12, 2010, Senators Kerry and Lieberman released a draft of new climate change legislation. A comprehensive energy and climate change policy proposal, the draft would set GHG reduction goals similar to those of H.R. 2454. The proposal would employ a market-based cap-and-trade scheme for electric generators and industry with a separate set-price mechanism to allocate allowances to cover transportation fuels. A key element in GHG emission reduction bills is how, to whom, and for what purpose the value of emission allowances or carbon tax revenue would be distributed. The distribution strategy is a critical policy decision, because it would affect (1) the overall cost of the program and (2) how program costs are distributed throughout the economy. In the early years of the program, H.R. 2454 and S. 1733 would distribute allowances at no cost to both covered and non-covered entities to support various policy objectives. In addition, an increasing percentage of the allowances would be sold through auction. As with the distribution of no-cost allowances, auction revenues would be used to further various policy objectives.

Background National security letter (NSL) authority began with dissatisfaction with the exception to the privacy provisions of the Right to Financial Privacy Act (RFPA). Congress initially acted, without a great deal of analysis on the record, to be sure the exception was not too broadly construed. But the exception was just that, an exception. It was neither an affirmative grant of authority to request information nor a command to financial institutions to provide information when asked. It removed the restrictions on the release of customer information imposed on financial institutions by the Right to Financial Privacy Act, but it left them free to decline to comply when asked to do so. [I]n certain significant instances, financial institutions [had] declined to grant the FBI access to financial records in response to requests under [S]ection 1114(a). The FBI informed the Committee that the problem occurs particularly in States which have State constitutional privacy protection provisions or State banking privacy laws. In those States, financial institutions decline to grant the FBI access because State law prohibits them from granting such access and the RFPA, since it permits but does not mandate such access, does not override State law. In such a situation, the concerned financial institutions which might otherwise desire to grant the FBI access to a customer's record will not do so, because State law does not allow such cooperation, and cooperation might expose them to liability to the customer whose records the FBI sought access. Congress responded with passage of the first NSL statute as an amendment to the Right to Financial Privacy Act, affirmatively giving the FBI access to financial institution records in certain foreign intelligence cases. At the same time in the Electronic Communications Privacy Act, it afforded the FBI comparable access to the telephone company and other communications service provider customer information. Together the two NSL provisions afforded the FBI access to communications and financial business records under limited circumstances—customer and customer transaction information held by telephone carriers and banks pertaining to a foreign power or its agents relevant to a foreign counterintelligence investigation. Both the communications provider section and the Right to Financial Privacy Act section contained nondisclosure provisions and limitations on further dissemination except pursuant of guidelines promulgated by the Attorney General. Neither had an express enforcement mechanism nor identified penalties for failure to comply with either the NSL or the nondisclosure instruction. In the mid-1990s, Congress added two more NSL provisions—one permits NSL use in connection with the investigation of government employee leaks of classified information under the National Security Act; and the other grants the FBI access to credit agency records pursuant to the Fair Credit Reporting Act, under much the same conditions as apply to the records of financial institutions. The FBI asked for the Fair Credit Reporting Act amendment as a threshold mechanism to enable it to make more effective use of its bank record access authority: FBI's right of access under the Right of Financial Privacy Act cannot be effectively used, however, until the FBI discovers which financial institutions are being utilized by the subject of a counterintelligence investigation. Consumer reports maintained by credit bureaus are a ready source of such information, but, although such report[s] are readily available to the private sector, they are not available to FBI counterintelligence investigators.... FBI has made a specific showing ... that the effort to identify financial institutions in order to make use of FBI authority under the Right to Financial Privacy Act can not only be time-consuming and resource-intensive, but can also require the use of investigative techniques—such as physical and electronic surveillance, review of mail covers, and canvassing of all banks in an area—that would appear to be more intrusive than the review of credit reports. H.Rept. 104-427 , at 36 (1996). The National Security Act NSL provision authorized access to credit and financial institution records of federal employees with security clearances who were required to give their consent as a condition for clearance. Passed in the wake of the Ames espionage case, it is limited to investigations of classified information leaks. As noted at the time, The Committee believes [S]ection 801 will serve as a deterrent to espionage for financial gain without burdening investigative agencies with unproductive recordkeeping or subjecting employees to new reporting requirements.... The Committee recognizes that consumer credit records have been notoriously inaccurate, and expects that information obtained pursuant to this [S]ection alone will not be the basis of an action or decision adverse to the interest of the employee involved. Both the Fair Credit Reporting Act section and the National Security Act section contain dissemination restrictions as well as safe harbor (immunity) and nondisclosure provisions. Neither has an explicit penalty for improper disclosure of the request, but the Fair Credit Reporting Act section expressly authorizes judicial enforcement. The USA PATRIOT Act amended three of the four existing NSL statutes and added a fifth. In each of the three NSL statutes available exclusively to the FBI—the Electronic Communications Privacy Act section, the Right to Financial Privacy Act section, and the Fair Credit Reporting Act section (§505 of the USA PATRIOT Act) expanded FBI issuing authority beyond FBI headquarter officials to include the heads of the FBI field offices (i.e., Special Agents in Charge [SACs]); eliminated the requirement that the record information sought pertain to a foreign power or the agent of a foreign power; required instead that the NSL request be relevant to an investigation to protect against international terrorism or foreign spying; and added the caveat that no such investigation of an American can be predicated exclusively on First Amendment-protected activities. The amendments allowed NSL authority to be employed more quickly (without the delays associated with prior approval from FBI headquarters) and more widely (without requiring that the information pertain to a foreign power or its agents). Subsection 358(g) of the USA PATRIOT Act amended the Fair Credit Reporting Act to add a fifth and final NSL section, and the provision had one particularly noteworthy feature: it was available not merely to the FBI but to any government agency investigating or analyzing international terrorism: Notwithstanding section 1681b of this title or any other provision of this subchapter, a consumer reporting agency shall furnish a consumer report of a consumer and all other information in a consumer's file to a government agency authorized to conduct investigations of, or intelligence or counterintelligence activities or analysis related to, international terrorism when presented with a written certification by such government agency that such information is necessary for the agency's conduct or such investigation, activity or analysis. Although the subsection's legislative history treats it as a matter of first impression, Congress's obvious intent was to provide other agencies with the national security letter authority comparable to that enjoyed by the FBI under the Fair Credit Reporting Act. The new section had a nondisclosure and a safe harbor subsection, but no express means of judicial enforcement or penalties for improper disclosure of a request under the section. NSL Amendments in the 109th Congress Both USA PATRIOT Act reauthorization statutes— P.L. 109-177 ( H.R. 3199 ) and P.L. 109-178 ( S. 2271 )—amended the NSL statutes. They provided for judicial enforcement of the letter requests and for judicial review of both the requests and accompanying nondisclosure requirements. They established specific penalties for failure to comply or to observe the nondisclosure requirements. They made it clear that the nondisclosure requirements do not preclude a recipient from consulting an attorney. They provided a mechanism to lift the nondisclosure requirement. Finally, they expanded congressional oversight and called for an Inspector General's audit of use of the authority. Inspector General's Reports The Department of Justice Inspector General reports, one released in March of 2007, the second in March of 2008, and the third in January of 2010, were less than totally favorable. The first report noted that FBI use of NSLs had increased dramatically, expanding from 8,500 requests in 2000 to 47,000 in 2005, IG Report I at 120. During the three years under review, the percentage of NSLs used to investigate Americans ("U.S. persons") increased from 39% in 2003 to 53% in 2005. A substantial majority of the requests involved records relating to telephone or e-mail communications. The report is somewhat critical of the FBI's initial performance: [W]e found that the FBI used NSLs in violation of applicable NSL statutes, Attorney General Guidelines, and internal FBI policies. In addition, we found that the FBI circumvented the requirements of the ECPA NSL statute when it issued at least 739 "exigent letters" to obtain telephone toll billing records and subscriber information from three telephone companies without first issuing NSLs. The second IG Report reviewed the FBI's use of national security letter authority during calendar year 2006 and the corrective measures taken following the issuance of the IG's first report. The second report concluded that the FBI's use of national security letters in 2006 continued the upward trend previously identified; the percentage of NSL requests generated from investigations of U.S. persons increased from 39% of all NSL requests in 2003 to 57% in 2006; the FBI and DOJ are committed to correcting the problems identified in IG Report I and have made significant progress; and it is too early to say whether the corrective measures will resolve the problems previously identified. The third IG Report examined the FBI's use of exigent letters and other informal means of acquiring communication service provider's customer records in lieu of relying on NSL authority during the period from 2003 to 2007. The IG's Office discovered that "the FBI's use of exigent letters became so casual, routine, and unsupervised that employees of all three communications service providers sometimes generated exigent letters for FBI personnel to sign and return to them." NSLs in Court Prior to amendment, two lower federal court cases had indicated that the NSLs and practices surrounding their use were contrary to the requirements of the First Amendment. On appeal, one was dismissed as moot and the other sent back for reconsideration in light of the amendments. Following remand and amendment of the NSL statutes, the District Court for the Southern District of New York again concluded that the amended NSL secrecy requirements violated both First Amendment free speech and separation of powers principles. The Court of Appeals was similarly disposed, but concluded that the government could invoke the secrecy and judicial review authority of the 18 U.S.C. 2709 and 18 U.S.C. 3511 in a limited but constitutionally permissible manner. It stated that If the Government uses the suggested reciprocal notice procedure as a means of initiating judicial review, there appears to be no impediment to the Government's including notice of a recipient's opportunity to contest the nondisclosure requirement in an NSL. If such notice is given, time limits on the nondisclosure requirement pending judicial review, as reflected in Freedman , would have to be applied to make the review procedure constitutional. We would deem it to be within our judicial authority to conform subsection 2709(c) to First Amendment requirements, by limiting the duration of the nondisclosure requirement, absent a ruling favorable to the Government upon judicial review, to the 10-day period in which the NSL recipient decides whether to contest the nondisclosure requirement, the 30-day period in which the Government considers whether to seek judicial review, and a further period of 60 days in which a court must adjudicate the merits, unless special circumstances warrant additional time. If the NSL recipient declines timely to precipitate Government-initiated judicial review, the nondisclosure requirement would continue, subject to the recipient's existing opportunities for annual challenges to the nondisclosure requirement provided by subsection 3511(b). If such an annual challenge is made, the standards and burden of proof that we have specified for an initial challenge would apply, although the Government would not be obliged to initiate judicial review. Given the possibility of constitutional application, the court saw no reason to invalidate Sections 2709(c) and 3511(b) in toto. The exclusive presumptions of Section 3511 cannot survive, the court declared, but the First Amendment finds no offense in the remainder of the two sections except, the court observed, "to the extent that they fail to provide for Government-initiated judicial review. The Government can respond to this partial invalidation ruling by using the suggested reciprocal notice procedure." On remand under the procedure suggested by the Court of Appeals, the government submitted the declaration of the senior FBI official concerning the continued need for secrecy concerning the NSL. Following an ex parte, in camera hearing, the district court concluded the government had met its burden, but granted the plaintiff's motion for an unclassified, redacted summary of the FBI declaration. The possibility of a conflicting view has arisen in the Ninth Circuit. A federal district court there agreed with the Second Circuit that the NSL confidentiality and judicial review provisions were constitutionally suspect. Yet it could not agree with the Second Circuit that NSL authority might be used if the confidentiality and judicial review provisions were implemented to satisfy constitutional demands. The statutory language was too clear and the congressional intent too apparent for the court to feel it could move in the opposite direction. It declared: The statutory provisions at issue—as written, adopted and amended by Congress in the face of a constitutional challenge—are not susceptible to narrowing conforming constructions to save their constitutionality ... [I]n amending and reenacting the statute as it did, Congress was concerned with giving the government the broadest powers possible to issue NSL nondisclosure orders and preclude searching judicial review of the same ... [T]he sorts of multiple inferences required to save the provisions at issue are not only contrary to evidence of Congressional intent, but also contrary to the statutory language and structure of the statutory provisions actually enacted by Congress. The district court also concluded that, if the confidentiality and judicial review provisions relating to Section 2709 could not survive; neither could the remainder of the section. The court, therefore, barred the government from using Section2709's NSL authority and from enforcing related NSL confidentiality provisions. It stayed the order pending appeal. Recommendations of the President's Review Group In the wake of leaks relating to the National Security Agency's (NSA's) purported bulk meta-data collection program, the President established a Review Group on Intelligence and Communications Technology. The Group released its report and recommendations on December 12, 2013. Several of its recommendations addressed NSLs. NSL procedures, it said, should more closely resemble those of Section 215 FISA court orders. Thus, it proposed that (1) the courts approve all NSLs except in emergency circumstances; (2) Section 215 orders be used only in international terrorism and international espionage investigations; (3) the NSL statutes be amended to track Section 215 minimization requirements; (4) both NSLs and Section 215 orders should be subject to greater oversight and public reporting requirements. USA FREEDOM Act Congress did not adopt the recommendations of the President's Review Group, but the USA FREEDOM Act addresses the judicially perceived NSL shortcomings in other ways. It eliminates the prospect of Section 215-like bulk metadata collection under NSL authority. It revises the procedures for the issuance of NSL nondisclosure provisions and for judicial review of their issuance. Finally, it augments existing reporting requirements for greater transparency. Each of the NSL statutes now includes a requirement that the NSL demand be limited to specifically identified information rather than insisting on delivery of record information for all of a recipient's customers. The USA FREEDOM Act handles the judicial review of nondisclosure orders with complementary amendments to the NSL statutes and to Section 3511. Nondisclosure orders under the amended NSL statutes are available only if the issuance officials notify recipients of their right to judicial review and certify that disclosure may result in a danger to national security; in interference with a criminal, counterterrorism, or counterintelligence investigation; in interference with diplomatic relations; or in endangerment of an individual's physical safety. A nondisclosure order notwithstanding, a recipient may disclose to those necessary for execution of the order, to an attorney for related legal advice, and to anyone else approved by the issuance agency. The exception is conditioned upon the recipient's notification of the issuance agency and advising those he tells of the nondisclosure requirements binding on both of them. The USA FREEDOM Act amends Section 3511 so that the issuing agency must petition for judicial review upon request of the recipient. The petition must include a statement of specific facts evidencing the risks that warrant a nondisclosure order—a risk of a danger to national security, of interference with diplomatic relations or with a particular investigation, or of physical injury. The court must issue the order if it finds reason to believe disclosure "during the applicable time period" would bring with it such risks. The reference to "the applicable time period" is the only indication of the permissible tenure of a nondisclosure order. The phrase seems to contemplate that the petition will propose a time limit on any nondisclosure order or at least the court will impose one. The legislative history suggests that was the practice immediately prior to enactment of the USA FREEDOM Act. Of course, the government was operating at the time under the pre-USA FREEDOM Act version of Section 3511, which afforded the opportunity for annual (and only annual) judicial review, and in the shadow of the Second Circuit's John Doe, Inc. decision. The USA FREEDOM Act's final NSL adjustment occurs in the area of public disclosures. It directs the Director of National Intelligence to post on his website annually the number of NSLs issued and the number of requests covered by those NSLs during the previous year. It also permits a recipient of a FISA order or an NSL to publicly report, in one of four statutorily defined alternatives, the total number of such FISA orders and NSLs and the total number of customers covered by such orders or requests. Comparison of NSL Attributes The following table summarizes the differences among the five NSL sections: Section 1114(a)(5) of the Right to Financial Privacy Act (12 U.S.C. 3414); Sections 626 and 627 of the Fair Credit Reporting Act (15 U.S.C. 1681u, 1691v); Section 2709 of Title 18 of the United States Code (18 U.S.C. 2709); and Section 802 of the National Security Act (50 U.S.C. 3162).

Five federal statutes authorize intelligence officials to request certain business record information in connection with national security investigations. The authority to issue these national security letters (NSLs) is comparable to the authority to issue administrative subpoenas. The USA PATRIOT Act (P.L. 107-56) expanded the authority under the original four NSL statutes and created a fifth. Thereafter, the authority was reported to have been widely used. Then, a report by the Department of Justice's Inspector General (IG) found that in its use of expanded USA PATRIOT Act authority the FBI had "used NSLs in violation of applicable NSL statutes, Attorney General Guidelines, and internal FBI policies," although it concluded that no criminal laws had been broken. A year later, a second IG report confirmed the findings of the first, and noted the corrective measures taken in response. A third IG report, critical of the FBI's use of exigent letters and informal NSL alternatives, noted that the practice had been stopped and related problems addressed. The USA PATRIOT Improvement and Reauthorization Act (P.L. 109-177, and its companion, P.L. 109-178) amended the five NSL statutes to expressly provide for judicial review of both the NSLs and the confidentiality requirements that attend them. The sections were made explicitly subject to judicial enforcement and to sanctions for failure to comply with an NSL request or to breach NSL confidentiality requirements. Prospects of its continued use dimmed, however, after two lower federal courts held that the absolute confidentiality requirements and the limitations on judicial review rendered one of the NSL statutes constitutionally suspect. The President's Review Group on Intelligence and Communications Technologies recommended several NSL statutory adjustments designed to eliminate differences between NSLs and court orders under the Foreign Intelligence Surveillance Act ("§215 orders"), including requiring pre-issuance judicial approval of NSLs. Instead in the USA FREEDOM Act, P.L. 114-23 (H.R. 2048), Congress opted to adjust the NSL judicial review provisions governing the nondisclosure requirements that may accompany NSLs. It also precludes the use of NSL authority for bulk collection of communications or financial records. Finally, it adjusts existing reporting requirements to permit recipients to publicly disclose the extent to which they have been compelled to comply with NSLs. This is an abridged version of CRS Report RL33320, National Security Letters in Foreign Intelligence Investigations: Legal Background, without the footnotes, appendixes, and most of the citations to authority found in the longer report.

Title I—Use of Retirement Funds for Hurricane Katrina Relief Section 101 waives the 10% penalty tax that would otherwise apply on an early withdrawal from a retirement plan if the individual's principal place of abode on August 28, 2005, was in the Hurricane Katrina disaster area and the individual sustained an economic loss due to the Hurricane. The section applies to distributions made between August 24, 2005, and January 1, 2007, and the maximum amount that be withdrawn without penalty is $100,000. The funds may be re-contributed to a qualified plan over a three-year period and receive tax-free rollover treatment. Additionally, with respect to the taxable portion of the distribution, the individual may include one third of such amount in his or her income for three years rather than the entire amount in the year of distribution. Section 102 allows individuals to re-contribute, without tax consequences, distributions that were made between February 28, 2005, and August 29, 2005, to purchase or construct a principal residence in the Hurricane Katrina disaster area and were not used because of the Hurricane. The contributions must be made between August 24, 2005, and March 1, 2006. Section 103 increases the amount that Hurricane Katrina victims may borrow from their retirement plans without immediate tax consequences. The provision applies to individuals whose principal place of abode on August 28, 2005, was in the Hurricane Katrina disaster area and who sustained an economic loss due to the Hurricane. Under current law, the maximum amount that may be borrowed without being treated as a taxable distribution is the lesser of (a) $50,000, reduced by certain outstanding loans or (b) the greater of $10,000 or 50% of the present value of the employee's nonforfeitable accrued benefits. For loans made between September 23, 2005, and January 1, 2007, the act increases this to the lesser of (1) $100,000, reduced by certain outstanding loans, or (2) the greater of $10,000 or 100% of the present value of the employee's nonforfeitable accrued benefits. The section also extends repayment due dates by one year if the original date fell between August 24, 2005, and January 1, 2007. Section 104 contains transition rules for plans adopting these new provisions. Title II—Employment Relief Work opportunity tax credit Under IRC § 51, businesses that hire individuals from groups with high unemployment rates or special employment needs, such as high-risk youths and veterans, may claim the work opportunity tax credit. The credit may be claimed for the wages of up to $6,000 that were paid during the employee's first year. For an employee who worked at least 400 hours, the credit equals 40% of his or her wages—thus, the maximum credit is $2400. For an employee who worked between 120 and 400 hours, the credit equals 25% of his or her wages. The credit does not apply to wages paid after December 31, 2005. Section 201 allows the work opportunity credit to be claimed for wages of Hurricane Katrina employees. Eligible employees are individuals who had a principal place of abode in the core disaster area on August 28, 2005, and either (1) are hired during the 2-year period beginning on that date for a position in the area or (2) were displaced by the Hurricane and are hired between August 27, 2005, and January 1, 2006. Retention credit For employers with an active business that was rendered inoperable due to damage from Hurricane Katrina for any day between August 28, 2005, and January 1, 2006, section 202 provides a new credit for continuing to pay their employees' wages. The credit is equal to 40% of the wages, limited to $6,000, of each employee whose principal place of employment with the employer on August 28, 2005, was in the core disaster area. It applies to wages paid between the date the business became inoperable at the employee's principal place of employment and the date it resumed significant operations there, but no later than December 31, 2005. It may not be claimed by an employer with more than 200 employees or one who claims a work opportunity credit for the wages. Title III—Charitable Giving Incentives Limits on charitable deductions Under IRC § 170, individuals may not claim a charitable deduction that exceeds 50% of their "contribution base" (adjusted gross income with certain adjustments) and corporations may not claim a deduction that exceeds 10% of their taxable income with certain adjustments. Any excess contributions may be carried forward for five years. Section 301 suspends the 50% and 10% limitations for cash contributions made between August 27, 2005, and January 1, 2006. For individuals, the deduction may not exceed the amount that the taxpayer's contribution base exceeds his or her other charitable contributions. For corporations, the deduction is allowed only for contributions used for Hurricane Katrina relief efforts and may not exceed the amount that the corporation's taxable income exceeds its other contributions. The act also suspends the overall limitation on itemized deductions for individuals. Housing exemption Section 302 of the bill allows individuals who provide free housing for at least 60 consecutive days to persons displaced by Hurricane Katrina to claim personal exemptions for those persons. The exemption is $500 per person, with a maximum of four exemptions per year. They are available in 2005 and 2006, although a taxpayer may claim a person only once. The taxpayer must include on his or her return the displaced person's taxpayer identification number. In order to qualify, the displaced person must have had a principal place of abode on August 28, 2005, in the Hurricane Katrina disaster area. If the home was not in the core disaster area, then either the home had to have been damaged by the Hurricane or the person was evacuated due to it. Mileage rate for charitable contribution deduction Individuals who use their personal vehicles for charitable purposes may claim a deduction based on the number of miles driven. The statutory amount is 14 cents per mile. Section 303 sets the rate at 70% of the standard business mileage rate (rounded to the next highest cent) if the vehicle is used for Hurricane Katrina relief between August 24, 2005, and January 1, 2007. The standard business mileage rate is periodically set by the IRS and is currently 48.5 cents per mile. Mileage reimbursement Section 304 excludes from a charitable volunteer's gross income any qualifying mileage reimbursements received from the charitable organization for the operating expenses of the volunteer's passenger automobile. The expenses must arise from using the vehicle for Hurricane Katrina relief between August 24, 2005, and January 1, 2007. Inventory In general, donors of food inventory who are not C corporations may only claim a charitable deduction that equals their basis in the inventory (typically, its cost). C corporations may deduct the lesser of (1) the basis plus 50% of the property's appreciated value or (2) two times basis. Section 305 allows all donors of wholesome food inventory to benefit from this enhanced deduction if the donation is made between August 28, 2005, and January 1, 2006. Donors who are not C corporations may not compute the deduction using contributions in excess of 10% of their net business income. Section 306 allows C corporations to claim an enhanced deduction for donations of book inventory to public schools if made between August 27, 2005, and January 1, 2006. The corporation may deduct the lesser of (1) the basis plus 50% of the property's appreciated value or (2) two times basis. The school must certify that the books are suitable and will be used in its educational program. Title IV—Additional Tax Relief Provisions Discharge of indebtedness When all or part of a debt is forgiven, the amount of the cancellation is ordinarily included in the income of the taxpayer receiving the benefit of the discharge. There are currently several exceptions to the general rule that a cancelled debt is included in taxable income in the year of discharge. For example, no amount of the discharge is included in income if the cancellation is intended to be a gift or is from the discharge of student loans for the performance of qualifying services. There are also certain situations in which the taxpayer may defer taxation, with the possibility of permanent exclusion, on income from the discharge of indebtedness, such as if discharge occurs when the debtor is in title 11 bankruptcy proceedings or insolvent. Section 401 allows victims of Hurricane Katrina to exclude non-business debt that was forgiven by a governmental agency or certain financial institutions if the discharge occurred between August 24, 2005, and January 1, 2007. Individuals are eligible for this benefit if their principal place of abode on August 25, 2005, was in the core disaster area or if it was in the Hurricane Katrina disaster area and they suffered an economic loss due to the Hurricane. The exclusion does not apply if the real property that secured the debt was located outside of the Hurricane Katrina disaster area. Individuals with certain tax attributes (such as basis) would be required to reduce them by the amount excluded from income, which has the effect of deferring the tax on the cancelled debt. Casualty losses There are several circumstances under which taxpayers may deduct losses of property not connected to a trade or business, including when the losses are from a casualty, such as a hurricane. In addition to losses from the actual damage caused by the casualty, a taxpayer in a presidentially declared disaster area has a casualty loss if ordered, within 120 days of the area's designation, by the state to demolish or relocate his or her home because it is unsafe due to the disaster. The amount of the loss is the lesser of (1) the decrease in the property's fair market value due to the casualty or (2) the taxpayer's adjusted basis in the property (i.e., the cost of the property with certain adjustments). The cost of repairing the property may be used as evidence of the amount of loss. There is no loss if the taxpayer is reimbursed by insurance or other means. The taxpayer may only claim a deduction to the extent that the loss from the casualty exceeds (1) $100 plus (2) the sum of 10% of the taxpayer's adjusted gross income and any taxable gains from property that was involuntarily converted due to a casualty (discussed above). In general, the deduction may only be claimed in the year of the loss, although a loss in a presidentially declared disaster zone may be deducted in the year prior to the loss. Section 402 waives the $100 and 10% floors for casualty losses from Hurricane Katrina. IRS Authority to suspend tax-related deadlines Under IRC §§ 7508 and 7508A, the IRS has the authority to postpone tax-related deadlines for certain taxpayers, including those affected by a presidentially declared disaster. These deadlines include those for filing returns and making payments for income, gift, and estate taxes. Income taxes withheld at source and employment taxes are explicitly excluded, and excise taxes are not mentioned. Section 403 gives the IRS the authority to postpone deadlines related to employment and excise taxes. Additionally, while the IRS announced in News Release IR-2005-96 that it would extend deadlines for Hurricane Katrina victims until January 3, 2006, section 403 further extends the deadlines to February 28, 2006. Mortgage revenue bonds Mortgage revenue bonds are tax-exempt bonds used to finance below-market rate mortgages for low and moderate-income homebuyers who have not owned a home for the past three years. Homes in targeted areas, which are areas that are low-income or of chronic economic distress, are subject to special rules that, among other things, remove the requirement that the homebuyer not have owned a home for the past three years. Section 404 similarly removes the three-year requirement if the home is in the core disaster area or if it is a replacement residence for an individual whose original residence in the Hurricane Katrina disaster area was made uninhabitable by the Hurricane. The provision applies to financing provided before January 1, 2007. The section also increases the limitation on qualified home improvement loans from $15,000 to $150,000 for loans used to repair damage from the Hurricane. Involuntary conversions An involuntary conversion occurs when property is converted to money or other property because of its complete or partial destruction, theft, seizure or condemnation, or if it is disposed of under threat of condemnation. An example of an involuntary conversion is when an individual receives an insurance payment for damaged property. If the cash or property that was received is worth less than the basis of the property that was converted, the taxpayer has a loss, which may qualify for deduction under the casualty loss rules discussed below. If the cash or property received is worth more than the basis of the property that was converted, then the taxpayer has a gain, which may or may not be immediately taxable. There are no immediate tax consequences if the property is converted to property that is similar or related in service or use ("similar property"). If, on the other hand, the property is involuntarily converted to cash or dissimilar property, the taxpayer must recognize any gain unless he or she purchases similar property within a certain time period. If the taxpayer purchases the replacement property in a timely manner, then he or she may elect to only recognize gain to the extent that the amount realized from the involuntary conversion exceeds the cost of the new property. The time period is generally two years. It is increased to three years if the converted property is business real property and to four years if the property is the taxpayer's principal residence or its contents which were involuntarily converted due to a presidentially-declared disaster. Additionally, the IRS has the discretion to extend the time period on a case-by-case basis. Section 405 increases the time period to purchase the replacement property to five years. The extended period applies for property in the Hurricane Katrina disaster area that was converted due to the Hurricane so long as substantially all of the use of the replacement property occurs in the disaster area. Credit computations Section 406 allows Hurricane Katrina victims to elect to use last year's earned income for computing the child tax credit [IRC § 24] and the earned income tax credit [IRC § 32] instead of this year's income. It applies to individuals whose principal place of abode on August 25, 2005, was in the core disaster area or was in the Hurricane Katrina disaster area and who were displaced by the Hurricane. Authority to make adjustments relating to status Section 407 allows the Treasury Secretary to make adjustments in the application of the tax laws for tax years 2005 and 2006 so that temporary relocations due to Hurricane Katrina or the receipt of relief does not cause taxpayers to lose dependency exemptions or child credits or to have a change of filing status.

On September 23, 2005, President Bush signed the Katrina Emergency Tax Relief Act of 2005 (KETRA; H.R. 3768 ) into law, P.L. 109-73 . It primarily contains temporary tax relief intended to directly and indirectly assist individuals in recovering from Hurricane Katrina. The provisions cover a variety of areas, including work credits, charitable giving, and casualty losses. This report summarizes the act.

Overview of Sanctions The United States imposes sanctions on Burma through a variety of means, including certain laws and presidential executive orders (E.O.s) specifically targeting Burma, as well as laws that impose sanctions on countries for unacceptable behavior related to functional issues of importance to the U.S. government, such as nuclear proliferation or human trafficking. The Burma-specific laws and E.O.s were issued between 1990 and 2012, often in response to actions on the part of Burma's ruling military junta, the State Peace and Development Council (SPDC), that were considered sufficiently egregious to warrant the imposition of sanctions. In addition, several presidential determinations, memoranda, proclamations, and other documents have been issued that refine and/or alter the implementation of the sanctions. The result is a web of overlapping sanctions subject to differing restrictions, waiver provisions, expiration conditions, and reporting requirements. U.S. sanctions targeted solely at Burma are specified in six federal laws, a series of presidential executive orders, and other presidential documents. The six laws are: Section 138 of the Customs and Trade Act of 1990 (Section 138) ( P.L. 101-382 )—requires the President to impose "such economic sanctions upon Burma as the President determines to be appropriate," unless the President certifies certain conditions pertaining to human rights and counternarcotics have been met; Section 307 of the Foreign Assistance Act of 1961 (Section 307) (P.L. 87–195), as amended by the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 ( P.L. 103-236 )—withholds U.S. contributions to selected international organizations with programs in Burma; Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997 (Section 570) ( P.L. 104-208 ) —imposes various specific sanctions on Burma, unless the President certifies that certain human rights and democracy standards have been met; The Burmese Freedom and Democracy Act of 2003 (2003 BFDA) ( P.L. 108-61 )—requires the President to impose a ban on the import of products of Burma; freeze assets of certain Burmese officials; block U.S. support for loans from international financial institutions (IFIs); and allows the President to ban visas for certain Burmese officials; The Tom Lantos Block Burmese JADE (Junta's Anti-Democratic Efforts) Act of 2008 (Tom Lantos Block Burmese JADE Act) ( P.L. 110-286 )—bans the direct and indirect import of products containing Burmese jadeite and rubies; expands the list of Burmese officials subjected to visa bans and financial sanctions; and allows for the placement of restrictions on use of correspondent accounts to provide services to Burmese officials; and P.L. 112-192 —provides the President with the authority to waive U.S. opposition to assistance to Burma from IFIs, subject to certain conditions. Six presidential executive orders (E.O.) have imposed sanctions on Burma. The six E.O.s are: E.O. 13047 —Issued on May 20, 1997, by President Bill Clinton, it bans all new investments in Burma, as required by Section 570; E.O. 13310 —Issued on July 28, 2003, by President George W. Bush, it brings the sanction regime into compliance with certain provisions of the BFDA, including the freezing of assets of certain Burmese officials and the prohibition of the provision of financial services to Burma; E.O. 13448 —Issued on October 18, 2007, by President Bush, it added to the list of Burmese officials and entities subject to the freezing of assets; E.O. 13464 —Issued on April 30, 2008, by President Bush, it added to the list of Burmese officials and entities subject to the freezing of assets; E.O. 13619 —Issued on July 11, 2012, by President Obama, it expanded the list of Burmese nationals subject to visa bans, the freezing of assets, and other targeted sanctions; and E.O. 13 651 —Issued on August 6, 2013, by President Obama, it prohibits the import of jadeite and rubies extracted from Burma, and articles of jewelry containing jadeite and rubies extracted from Burma; waives restrictions on the provision of financial services to certain Burmese nationals as specified in Section 5(b) of the Tom Lantos Block Burmese JADE Act; and lifts restrictions contained in E.O. 13310 on the provision of articles "intended to be used to relieve human suffering." Beyond the laws and E.O.s, a number of presidential determinations, memoranda, proclamations and other documents have been issued that either refine the specifics of the sanctions to be imposed or alter the scope of the sanctions in effect. For example, President Clinton issued Presidential Proclamation 6925 on October 3, 1996, denying entry into the United States of "persons who formulate, implement, or benefit from policies that impede Burma's transition to democracy, and the immediate family members of such persons." On May 2, 2013, Secretary of State John Kerry terminated Presidential Proclamation 6925, while leaving other laws and presidential decisions restricting the provision of visas to certain Burmese nationals in place. Similarly, President Bush issued Pres idential Determination No. 2009- 11 on January 15, 2009, providing a limited waiver of some of the sanctions in the Tom Lantos Block Burmese JADE Act, stating that doing so was "in the national interest of the United States." President Obama issued Presidential Determination No. 2012-15 on September 14, 2012, waiving the restrictions on U.S. assistance to Burma under Foreign Relations Authorization Act, Fiscal Year 2003 ( P.L. 107-228 ) by determining that doing so was in the "national interests of the United States." References to the relevant presidential documents are discussed later in the report under the specific type of sanction affected or altered by the documents. The E.O.s sanctioning Burma rely on the authority vested in the President by the Constitution, the five Burma sanctions laws, and the following laws: The International Emergency Economic Powers Act of 1997, or IEEPA ( P.L. 95-223 ; 50 U.S.C. 1701 et seq.)—authorizes the President to impose certain types of international trade or financial sanctions to deal with a threat to national security, foreign policy, or economy of the United States; and The National Emergencies Act, or NEA ( P.L. 94-412 ; 50 U.S.C. 1601 et seq.)—authorizes the President (under certain conditions) to declare a national emergency. To carry out and execute the authority conveyed by the IEEPA, the President must declare a national emergency by invoking the NEA. Invocations of the IEEPA are subject to annual renewal requirements. Section 301 of U.S.C. Title 3, Chapter 35 allows the President to delegate authority (under certain conditions) to other government officials to carry out responsibilities on behalf of the President. In most cases, this has been either the Secretary of State or the Treasury Secretary. President Obama gave official notice to Congress on May 2, 2013, that he was continuing for another year the international emergency with respect to Burma, and renewing the provisions of E.O. 13047, E.O. 13310, E.O. 13448, E.O. 13464, and E.O. 13619 which are still in force. The implementation of the Burma-specific sanctions instituted by the preceding laws and E.O.s, and that have been delegated to the Treasury Secretary, is governed by Part 537 of Title 31 of the Code of Federal Regulations (CFR). These Burmese sanction regulations cover the import ban, the prohibition of the provision of financial services, and the prohibition of new investments in Burma. Other portions of the CFR cover some portions of Burmese-specific sanctions. Recent U.S. Sanctions Policy Current U.S. policy towards Burma can be characterized as the balancing of bilateral engagement and the maintenance of an assortment of political and economic sanctions. The stated intent of U.S. policy is to persuade and/or pressure Burma's Union Government to release all political prisoners from detention and advance the nation's transition to a representative, democratically elected civilian government that will respect the human rights of the people of Burma, including its ethnic minorities. Since Burma's former ruling military junta, the State Peace and Development Council (SPDC), formally transferred power to a mixed military/civilian government in March 2011, Burma's Union Government and Union Parliament have implemented a number of political reforms that the Obama Administration sees as progress towards the fulfillment of U.S. objectives in Burma. The Obama Administration's strategy was previously described as an "action for action" approach. In an April 4, 2012, press briefing, two unnamed senior Administration officials gave some indication of the current principles underlying current Burma policy. The first principle is "to send a clear signal of support for the reform process and reformers." The second principle is to remove the "bluntness" of the existing sanctions and refocus them onto "the regressive elements, the corrupt elements, the elements that are not looking forward and consistent with reform going forward." However, an unnamed senior state department official provided a slightly different formulation for the Obama Administration's approach to U.S. policy towards Burma following the May 2013 announcement to terminate Presidential Proclamation 6925 and renew the IIEEPA emergency: [L]et me first say a few words about our Burma policy and our specific actions today. From our perspective, Burma continues to make important progress in areas of concern to the United States.... We'll continue political engagement and technical and capacity-building assistance to Burma's reform efforts. We've also eased many sanctions. We've done so working very closely with Congress to reflect our move from quite general broad restrictions to more calibrated engagement. And with the calibration, we target those who persist in hindering the country's democratic transition. But it's a fundamentally different approach to Burma than in past years. So the steps today acknowledged the important changes the Government of Burma has made, and encourage and empower the government and the people of Burma to continue on the path of political and economic reform. Since the autumn of 2011, the Obama Administration has taken steps to terminate or waive many of the sanctions on Burma in an effort to foster further reforms in Burma and support individuals identified as being generally supportive of political and economic reforms. Secretary Clinton announced plans to ease certain sanctions during her historic trip to Burma in late 2011, the first made by a U.S. Secretary of State since 1955. Another easing of sanctions was announced following Burma's April 2012 parliamentary by-elections. More relaxations of sanctions were announced to coincide with the visits of President Thein Sein and Aung San Suu Kyi to the United States in September 2012. Subsequent changes in the sanctions regime were made in October and November 2012. As previously mentioned, Secretary Kerry terminated the visa ban in Presidential Proclamation 6925 on May 2, 2013. A major element of the Obama's Administration's efforts to foster reforms in Burma has been the utilization of presidential authority to waive or terminate some of the existing political and economic sanctions on Burma. Although the presidential waivers effectively lift the sanctions, they do not revoke or remove the sanctions, which can be reimposed at any time. Table 1 summarizes the sanction actions authorized to date, as well as which sanctions remain in effect. Details of each presidential waiver are discussed in the relevant sections below. Brief History of U.S. Sanctions on Burma U.S. sanctions on Burma are the result of a general, but uneven decline in U.S. relations with Burma and its military, the Tatmadaw, after World War II and continuing until the establishment of the Union Government. For the most part, the decline was due to what the U.S. government saw as a general disregard by the Burmese military for the human rights and civil liberties of the people of Burma. However, part of the tensions between the Tatmadaw and the United States can be attributed to a failure to address Burma's internal security concerns in the early years after its independence. During World War II, the United States utilized Burma as a base of operations against Japanese forces in China and Southeast Asia, engendering generally cordial relations with Burma's civilian and military leadership. Following the war, the former British colony of Burma became an independent nation, led by a civilian government. The new nation became a member of the United Nations in 1948, was a founding member of the General Agreement on Tariffs and Trade (GATT), and joined the International Monetary Fund (IMF) in 1952—with the full support of the United States. The United States and Burma also established full diplomatic relations. Relations between the two nations began to sour following World War II for various reasons. First, Burma was increasingly frustrated by U.S. reluctance to resolve the status of displaced Kuomintang (KMT) soldiers operating out of northeastern Burma against the newly established People's Republic of China (PRC). In 1953, U.S. economic assistance to Burma temporarily ceased in part because of the friction over these KMT soldiers. Second, Burma's civilian government proved to be unstable, due in part to various ethnic-based militia groups operating in the country, and in part due to a 1962 coup d'état staged by the military under the name of the Burmese Socialist Programme Party (BSPP). The new military government chose to foster closer ties to the PRC, a decision that the United States did not like. Third, the military government also demonstrated a general lack of respect for the human rights of its citizens, clamping down on opposition groups calling for a return to civilian rule. Despite the cooling of relations, U.S. policy towards Burma remained relatively normal. The United States accepted Burma as one of the original beneficiaries of its Generalized System of Preference (GSP) program in 1976. It also granted Burma Most Favored Nation (MFN, now referred to as Normal Trade Relations, or NTR) status, and supported the provision of developmental assistance by international financial institutions. There were also close military-to-military relations (including a major International Military Education and Training [IMET] program) until 1988. The implementing of sanctions on Burma did not begin until after the Tatmadaw brutally suppressed a peaceful, popular protest that has become known as the 8888 Uprising. Starting in the fall of 1987, popular protests against the military government sprang up throughout Burma, reaching a peak in August 1988. On August 8, 1988, the military quashed the protest, killing and injuring an unknown number of protesters. In the aftermath of the event, the military regrouped and the State Law and Order Restoration Council (SLORC) assumed power. Three days following the crackdown, the Senate passed S.Res. 464 , condemning the killings and mass arrests, supporting a return to democracy in Burma, and calling on the Reagan Administration to raise the issue of human rights and reconciliation with Burmese officials. On September 7, 1988, the House of Representatives passed H.Res. 529 condemning the killing of unarmed protesters, paying tribute to the people of Burma and their struggle for democracy, and calling on the executive branch to review assistance programs in Burma. The Reagan Administration responded on September 23, 1988, by suspending all U.S. aid to Burma, including counternarcotics programs, and stopping all arms sales—starting the gradual progress of sanctions on Burma. On April 13, 1989, President George H. W. Bush issued Presidential Proclamation 5955, amending the Generalized System of Preferences (GSP) program and suspending preferential treatment. After assuming power, SLORC announced that it intended to expedite the return to civilian rule by holding parliamentary elections to form a Pyithu Hluttaw (Union Assembly) on May 27, 1990. On September 27, 1988, SLORC released a new law governing the registration of political parties, and on May 31, 1989, it issued a new law governing the upcoming parliamentary election. Although 235 political parties registered for the election, only 4 parties won more than 10 of the 485 contested seats. In a surprise to many, the National League for Democracy (NLD), led by Aung San Suu Kyi, received 59.9% of the valid votes and won 382 seats, while SLORC's political party, the National Unity Party, received 21.2% of the vote, but only 10 seats. SLORC and Burma's military were shocked by the election results, and refused to allow the Union Assembly to meet. Instead, the Burmese military arrested and detained many of the opposition leaders, including Aung San Suu Kyi (who was under detention prior to the election). Protests, led by Buddhist monks and university students, were brutally suppressed. SLORC declared martial law. Congress responded to the post-election crackdown by including Burmese sanction language in the Customs and Trade Act of 1990 ( P.L. 101-382 ), which it passed on August 20, 1990. Section 138 of the law granted the President the authority to impose "such economic sanctions upon Burma as the President determines to be appropriate, including any sanctions appropriate under the Narcotics Control Trade Act of 1986." A version of the act which passed the Senate by a vote of 92-0 would have prohibited all imports from Burma. As previously noted, President Bush had already suspended Burma's eligibility for the Generalized System of Preferences (GSP) program on April 13, 1989. President Bush also designated Burma as a drug-producing and/or drug-trafficking country under the Foreign Assistance Act of 1961 on February 28, 1990, which required the United States to oppose loans to Burma by international financial institutions. After the passage of Customs and Trade Act of 1990, the Bush Administration invoked the law's authority on August 5, 1991, and refused to renew the Bilateral Textile Agreement with Burma, which had lapsed on December 31, 1990. During the 1990s, Congress considered a number of bills and resolutions calling for additional sanctions on Burma. Most of those measures failed to emerge from committee, with a few notable exceptions. On April 30, 1994, Congress passed the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 ( P.L. 103-236 ) which amended the Foreign Assistance Act of 1961 and withheld a portion of U.S. contributions to international organizations with programs for Burma, including the United Nations Development Program (UNDP), but excluding the International Atomic Energy Agency (IAEA) and the United Nations Children's Fund (UNICEF). Language restricting U.S. funding for UNDP if it conducted programs in Burma was included in legislation up to FY2008, but not since then. In July 1995, the Free Burma Act of 1995 ( S. 1092 ) was introduced, which would have placed a broad range of sanctions on Burma, including a ban on U.S. investment and assistance, the suspension of GSP privileges and normal trade relations, the prohibition of all imports of Burmese goods, travel restrictions to and from Burma, and U.S. opposition to all multilateral assistance. According to some scholars, the severity of the sanctions in this bill was sufficient to persuade SLORC to release Aung San Suu Kyi from house arrest on July 10, 1995. Even after the release of Aung San Suu Kyi, Congress approved new sanctions on Burma in Section 570 of the Omnibus Consolidated Appropriations Act, 1997 ( P.L. 104-208 ), including a cessation of all non-humanitarian assistance, a ban on the issuance of entry visas for Burmese government officials, and instructions for U.S. representatives for international financial institutions to vote against loans or funding to Burma. On October 3, 1996, President Clinton issued Presidential Proclamation 6925, suspending visas for "persons who formulate, implement, or benefit from policies that impede Burma's transition to democracy, and the immediate family members of such persons." In addition, the law required the President to prohibit new investments in Burma by U.S. persons. On May 20, 1997, President Clinton released E.O. 13047 banning all new investments in Burma. Since 2000, additional bills and resolutions have been introduced in Congress seeking to apply more sanctions on Burma. In October 2000, identical bills were introduced in the House and the Senate ( H.R. 5603 and S. 3246 ; 106 th Congress) that would have banned all textile and apparel imports from Burma. In the spring of 2001, similar bills ( H.R. 2211 and S. 926 ; 107 th Congress) were introduced that would have "prohibited the importation of any article that is produced, manufactured, or grown in Burma." However, Congress did not pass any new sanction legislation until after the spring 2003 crackdown on opposition parties (which included the detention of Aung San Suu Kyi and other opposition leaders), when it approved the Burmese Freedom and Democracy Act of 2003 ( P.L. 108-61 ). Similarly, Congress did not pass the Tom Lantos Block Burmese JADE Act until the SPDC crushed a nationwide protest initiated by Buddhist monks in the autumn of 2007—the so-called "Saffron Revolution." After the protests had been quashed, the SPDC arrested and imprisoned many of the leaders, and defrocked and relocated a number of the Buddhist monks involved in the protests. The George W. Bush Administration did not take significant action on Burma until after the attacks on the Burmese opposition in the spring of 2003 and the passage of the Burmese Freedom and Democracy Act of 2003 (BFDA). Using authority granted by the BFDA and other laws (see " Summary of Burma-Specific Sanctions "), President George W. Bush issued E.O. 13310, E.O. 13448, and E.O. 13464 on July 28, 2003, October 18, 2007, and April 30, 2008, respectively. From the preceding overview, some distinct patterns emerge in the history of U.S. relations with Burma. First, despite the general decline in relations following World War II, the imposition of sanctions did not begin until after the suppression of the 8888 Uprising in 1988. Second, subsequent U.S. sanctions were generally imposed after Burma's military had severely violated the human rights and civil liberties of its political opponents and/or the Burmese people. Third, Congress has been more proactive in pushing for the imposition of sanctions on Burma than the White House. Fourth, it is unclear if the imposition of sanctions had a demonstrable effect on the SPDC or its predecessors. Fifth, it is equally unclear if the absence of U.S. sanctions on Burma would have led to an improvement in the political situation in Burma. Summary of Burma-Specific Sanctions The existing U.S. sanctions specifically targeted at Burma can be generally divided into several broad categories: Bans on issuing visas to certain past and present Burmese government officials (particularly the leadership of the State Peace and Development Council [SDPC] and the Union Solidarity Development Association [USDA]), members of their families, and their business associates. Restrictions on the provision of financial services to certain past and present Burmese government officials, members of their families, and their business associates. "Freezing" certain assets of selected individuals held by U.S. entities. A general prohibition on the import of goods of Burmese origin. A prohibition on the import of certain types of goods and goods from certain companies. A ban on new U.S. investments in Burma, including investments in third country companies. Restrictions on the provision of bilateral and multilateral assistance to Burma. As previously mentioned, the enforcement of many of these sanctions have been waived, but the legal authority to impose the sanctions remain in effect and their enforcement could be resumed at any time. Some of the types of sanctions are included in more than one of the laws or E.O.s listed above, with at times apparently overlapping provisions. In addition, depending on the specific provisions of the laws or E.O.s, the sanctions may be subject to differing presidential waiver provisions, renewal or extension conditions, or reporting requirements. A summary of the various provisions in the laws or E.O.s for each type of sanction follows in tabular form. In cases where the Obama Administration has waived or eased a sanction, a brief description of what steps were taken, as well as possible ambiguities about the resulting situation, is provided. Visa Bans Three laws include restrictions on the issuance of visas to certain Burmese nationals: Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997; the 2003 BFDA; and the Tom Lantos Block Burmese JADE Act. In addition E.O. 13619 and Presidential Proclamation 6925 also include restrictions on the issuance of visas. The nature and scope of the visa restrictions differ in each case. On April 4, 2012, Secretary Clinton said that the Obama Administration was prepared to facilitate "travel to the United States for selected government officials and parliamentarians." In a subsequent press briefing, unnamed Administration officials indicated that the intent is to allow visits by "select reform-minded authorities." Existing sanctions laws—most notably Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997 and the Tom Lantos Block Burmese JADE Act—authorize the President to waive restrictions on the issuance of visas to Burmese officials. In the case of the Tom Lantos Block Burmese JADE Act, the President is to determine and certify in writing to Congress that the waiver is in the national interest of the United States. Presumably, such a written notification to Congress is required for each case in which the President invokes the authority to waive the visa ban. On July 11, 2012, President Obama released E.O. 13619, "Blocking Property of Persons Threatening the Peace, Security, or Stability of Burma." Section 5 of E.O. 13619 prohibits the entry into the United States as immigrants or nonimmigrants "aliens determined to meet one or more of the criteria in subsection 1(a) of the document." On May 2, 2013, Secretary of State John Kerry terminated Presidential Proclamation 6925 denying entry into the United States of "persons who formulate, implement, or benefit from policies that impede Burma's transition to democracy, and the immediate family members of such persons." The State Department presumably maintains a list of Burmese nationals that it has determined are subject to the visa bans contained in the three laws and E.O. 13619, but it has chosen not to make this list public. As a result, it is not known how many—if any—Burmese nationals have been added to the sanctions list under the provisions of E.O. 13619. Similarly, it is difficult to determine if the Obama Administration has properly notified the designated congressional committees on the occasions when visas have been granted to Burmese nationals who should have been subject to the visa sanction under the current sanction laws. Restrictions on Financial Services Restrictions on the provision of certain types of financial services to Burma from the United States or by a "United States person" are in the Tom Lantos Block Burmese JADE Act, E.O. 13047, E.O. 13310, E.O. 13619, and E.O. 13651. The Tom Lantos Block Burmese JADE Act also allows the Secretary of the Treasury to place restrictions on the use of correspondent or payable-through accounts in U.S. financial institutions, but the Secretary has not exercised this option. Section 5(b)(2) of the Tom Lantos Block Burmese JADE Act prohibits engaging in financial transactions with certain designated Burmese nationals. President Obama issued E.O. 13651 on August 6, 2013, which waived these restrictions on the provision of financial services in the Tom Lantos Block Burmese JADE Act. However, this waiver does not apply to persons included in the Department of Treasury's List of Specially Designated Nationals and Blocked Persons. On May 17, 2012, Secretary Clinton stated, "Today, I am announcing new steps to permit American investment in the country and the export of U.S. financial services—the most significant adjustments to our sanctions to date." She also said that the United States will "allow Burmese citizens access to international credit markets and dollar-based transactions." On July 11, 2012, the Office of Foreign Assets Control (OFAC) of the Department of the Treasury issued General License No. 16, authorizing the exportation or reexportation of financial services to Burma, except "to any person whose property and interests in property are blocked pursuant to 31 C.F.R. §537.201(a), Executive Order 13448 …, Executive Order 13464 …, or Executive Order 13619.…" Section 2 of E.O. 13310 established the general prohibition on the export or reexport of financial services to Burma, subject to the restrictions on financial transaction sanctions contained in Section 203(b) of IEEPA. Section 13 allows the continuation of financial transactions related to U.S. investments or agreements in Burma that pre-date the implementation of the new investment ban on May 21, 1997. Given that these provisions of E.O. 13310 are based on IEEPA, the President has the authority to waive, amend, or terminate the general prohibition of the export or reexport of financial services to Burma. However, Section 1703 of IEEPA requires that the President report to Congress anytime he exercises IEEPA authority. The report to Congress must contain: the circumstances which necessitate such exercise of authority; an explanation of why the President believes those circumstances constitute an unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States; the authorities to be exercised and the actions to be taken in the exercise of those authorities to deal with those circumstances; a statement as to why the President believes such actions are necessary to deal with those circumstances; and identification of any foreign countries with respect to which such actions are to be taken and why such actions are to be taken with respect to those countries. "Frozen Assets" The "freezing" of assets of sanctioned Burmese officials is included in five executive orders—E.O. 13310, E.O. 13448, E.O. 13464, E.O. 13619, and E.O. 13651—as well as the 2003 BFDA and the Tom Lantos Block Burmese JADE Act. The first four executive orders broadened the list of Burmese persons and entities subjected to the asset freeze. Section 5(b)(1) of the Tom Lantos Block Burmese JADE Act directly tied the list of sanctioned persons to the visa ban list. The last executive order waived the freezing of assets as provided for by Section 5(b)(1) of the Tom Lantos Block Burmese JADE Act. General Import Restrictions Restrictions on the import of goods of Burmese origin in general are included in two laws—Section 138 of the Customs and Trade Act of 1990 and the 2003 BFDA—and one executive order, E.O. 13310. While the two laws ban the import of Burmese products, the executive order provides a waiver to comply with existing international obligations of the United States. On August 2, 2012, Congress passed H.R. 5986 ( P.L. 112-163 ), extending the general import ban to July 25, 2013. Because the 113 th Congress did not pass the required joint resolution to extend the general import ban in the 2003 BFDA, the sanctions specified in Sections 3(a)(1), 3(a)(2), and 3A of the 2003 BFDA expired on July 26, 2013. On November 15, 2012, Deputy Secretary of State William J. Burns issued a determination that "it is in the national interest of the United States to waive the prohibitions described in Section 3(a) of the BFDA." Section 3(a) contains two distinct import bans—a general ban on "the importation of any article that is a product of Burma" (discussed in this section), and a "ban on imports from certain companies" (discussed in " Specific Import Restrictions " below). As indicated in the determination, Deputy Secretary Burns had the authority to issue the determination pursuant to Section 3(b) of the BFDA and Section 9 of E.O. 13310 (in which President Bush authorized the Secretary of State to exercise the presidential authority granted in Section 3(b) of the BFDA and redelegate that authority). Based on the State Department determination, the Office of Foreign Assets Control (OFAC) of the Department of the Treasury issued General License No. 18 on November 16, 2012, indicating the types of products on Burma that could be imported into the United States. According to OFAC, any product of Burma may be imported into the United States except: Jadeite or rubies mined or extracted from Burma, or articles of jewelry containing jadeite or rubies mined or extracted from Burma, or any other activity prohibited by Section 3A of the BFDA, as amended by Section 6 of the Tom Lantos Block Burmese JADE Act; and Transactions, directly or indirectly, with any person whose property or interest in property are blocked by E.O. 13448, E.O. 13464, or E.O. 13619, as well as 31 C.F.R. §537.201(a). The latter condition insures compliance with restrictions on payments to persons whose assets have been frozen or have otherwise been identified as being subject to sanctions (see "Frozen Assets" and " Restrictions on Financial Services "). OFAC removed General License No. 18 after the termination of the import sanctions in the 2003 BFDA and the issuance of E.O. 13651. Specific Import Restrictions Both the 2003 BFDA and the Tom Lantos Block Burmese JADE Act contain specific import restrictions in addition to the general prohibition on the import of products described above. Section 3(a)(2) of the 2003 BFDA bans import of products and services from certain companies. The Tom Lantos Block Burmese JADE Act prohibits the importation of certain products by adding Section 3A to the 2003 BFDA. On July 26, 2013, the specific import bans contained in Section 3(a)(2), as well as Section 3A of the BFDA (as amended by the Tom Lantos Block Burmese JADE Act) ceased to be in effect after Congress failed to pass the necessary joint resolution to maintain the sanctions. On August 6, 2013, President Obama issued E.O. 13651, reinstating the ban on the "importation into the United States of any jadeite or rubies mined or extracted from Burma and any articles of jewelry containing jadeite or rubies mined or extracted from Burma," that had been imposed by Section 3A of the 2003 BFDA. On November 15, 2012, Deputy Secretary Burns issued a determination waiving the import restrictions in Section 3(a) of the BFDA, including Section 3(a)(2) that banned the import of Burmese goods from select entities (see Table 6 below). General License No. 18, issued the following day by OFAC, indicated that the prohibition on transactions, directly or indirectly, with any person whose property or interest in property are blocked by E.O. 13448, E.O. 13464, or E.O. 13619, as well as 31 C.F.R. §537.201(a) remained in effect, thereby blocking the import of goods from these entities. OFAC, however, removed General License No. 18 after the termination of the import sanctions in the 2003 BFDA and the issuance of E.O. 13651. As a result, the restrictions on the importation of products from companies specified in Section 3(a)(2) of the 2003 BFDA are no longer in effect. Investment Ban The ban on new investments in Burma is in Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997, and E.O. 13047, with the law providing the presidential authority and the E.O. exercising that authority. On May 2, 2013, President Obama issued an official notice renewing the national emergency with respect to Burma. On April 4, 2012, Secretary Clinton stated that the Obama Administration was considering easing the ban on new investments in Burma. In a subsequent press briefing, two unnamed senior Administration officials indicated that no final decision had been made on the nature of the easing of the investment ban, but consideration was being given to select certain sectors such as agriculture, tourism, and potentially telecommunications as they are more likely to provide "the most benefit for the average Burmese." Other sectors, associated with "regressive elements [of] the Burmese economy and Burmese society" such as gems and timber, may not be opened to new investments at this time. The financial services sector was also being considered. On July 11, 2012, the Obama Administration issued several documents to waive the ban on new U.S. investments in Burma, subject to certain conditions on with whom the investment can be made. General License No. 17, issued by the Office of Foreign Assets Control of the Department of the Treasury, explicitly prohibits U.S. investments with: Burma's Ministry of Defense (including its Office of Procurement); Any state or non-state armed group; Any entity in which the Ministry of Defense or an armed group own 50% or more interest; or Any person whose property is blocked pursuant to 31 C.F.R. §537.201(a); E.O. 13448, E.O. 13464, or E.O. 13619. Among the people covered by 31 C.F.R. §537.201(a); are persons determined by the U.S. Treasury to be "a senior official of the Government of Burma, the State Peace and Development Council of Burma, the Union Solidarity and Development Association of Burma, or any successor entity to any of the foregoing." Bilateral and Multilateral Assistance Ban Restrictions on bilateral assistance to Burma are in Section 570 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997; and Section 307 of the Foreign Assistance Act of 1961, which withholds U.S. funding for international organizations with programs in Burma, with some specific exceptions. Section 5 of the 2003 BFDA requires the U.S. executive director of each international financial institution (IFI) in which the United States participates to vote against the extension of any loan, financial or technical assistance to Burma. Although the United States lacks enough votes to block an IFI from providing loans or assistance to Burma, in practice, it is unlikely that any IFI will proceed if the United States opposes the aid. The 112 th Congress passed H.R. 6431 in September 2012, granting the President the authority to waive U.S. opposition to IFI assistance to Burma required under Section 5 of the 2003 BFDA if the President determines to do so is in the national interest of the United States. It also states that prior to the President making such a determination, the Secretary of State and the Secretary of the Treasury shall consult with "the appropriate congressional committees on assistance to be provided to Burma by an international financial institution, and the national interest served by such assistance." The law defines the "appropriate congressional committees" to be "the Committees on Foreign Relations, Banking, Housing and Urban Affairs, and Appropriations of the Senate, and the Committees on Financial Services, Foreign Affairs, and Appropriations of the House of Representatives." The term "assistance" includes loans, financial or technical assistance, or "any other use of funds." The bill became P.L. 112-192 on October 5, 2012. President Obama issued a memorandum on October 10, 2012, delegating the authority granted by P.L. 112-192 to Secretary Clinton, who then issued a determination stating that "it is in the national interest of the United States to support assistance for Burma." A memorandum of justification provided to Congress on October 12, 2012, states that IFI assistance for Burma "encourages Burma's transition to democracy and economic reforms efforts," and is thereby in the national interest of the United States. The memorandum specifically mentions a World Bank vote to be taken on October 30, 2012, to provide a grant of $80 million for community-driven development in Burma. The World Bank approved the grant on November 1, 2012. It is not clear if Secretary Clinton's determination was intended to permit U.S. support for any IFI assistance for Burma in the future, or was meant to apply solely to the pending World Bank grant. Section 2 of P.L. 112-192 requires that Secretary of State and the Secretary of the Treasury consult with "the appropriate congressional committees" prior to the making of the determination required by Section 1 on the nature of the assistance and "the national interests served by such assistance," which can be read as restricting the determination to specific assistance about which the congressional committees were consulted. The Departments of State and the Treasury did not respond to requests for a clarification of their understanding of the interpretation of the determination of October 12, 2012. With regard to Secretary Clinton's announcement that the United States would support the UNDP establishing a "normal country program" in Burma, current sanction laws may preclude the United States contributing funds to the program. Section 307 of the FAA (22 U.S.C. 2227), "Withholding of United States proportionate share for certain programs of international organizations," states: Notwithstanding any other provisions of law, none of the funds authorized to be appropriated by this part shall be available for the United States proportionate share for programs for Burma [emphasis added], North Korea, Syria, Iran, Cuba, or the Palestine Liberation Organization or for projects whose purpose is to provide benefits to the Palestine Liberation Organization or entities associated with it, or at the discretion of the President, Communist countries listed in section 2370(f) of this title. In other words, Section 307 prohibits the use of U.S. funds contributed to the UNDP and other international organizations for programs for Burma. In practice, according to the State Department, for the past decade it has sent a letter to UNDP indicating that the United States may withhold a portion of its contributions if the UNDP funded new programs and activities in Burma. Subsection (c) provides an exemption for the International Atomic Energy Agency (IAEA) and the United Nations Children's Fund (UNICEF). The FAA does not grant the President the authority to waive the funding restrictions in Section 307. As a result, the United States cannot financially support a "normal country program" of the UNDP in Burma without Congress passing legislation to permit such funding. In addition, several past laws—including some appropriation laws—included language that either prohibited the use of U.S. contributions to UNDP for programs and activities in Burma or withheld a portion of U.S. contributions to UNDP until the President or the Secretary of State certified to Congress that the UNDP was in compliance with specific conditions on its programs and activities in Burma. Among the past laws that contained language tying U.S. contributions to UNDP to its programs and activities in Burma were: Section 431 of the Foreign Relations Authorization Act for Fiscal Years 1994 and 1995 ( P.L. 103-236 ); Section 108(c) of the Consolidated Appropriations Act of 2000 ( P.L. 106-113 ); and Section 6689b) of the Consolidated Appropriations Act of 2008 ( P.L. 110-161 ). However, the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ) does not contain language regarding the use of U.S. contributions to UNDP in Burma. It does, however, state in Section 7044(b)(1) that "The Secretary of the Treasury shall instruct the United States executive directors of the appropriate international financial institutions to vote against any loan, agreement, or other financial support to Burma." Additional Sanctions Based on Functional Issues In addition to the targeted sanctions, Burma is currently subject to a number of sanctions specified in U.S. laws based on various functional issues. In many cases, the type of assistance or relations restricted or prohibited by these provisions is also addressed under Burma-specific sanction laws. The functional issues include: Child Soldiers: Burma is prohibited from receiving certain types of foreign assistance under the provisions of the Child Soldiers Preventions Act of 2008 (Title IV of P.L. 110-457 ) because of its designation as a foreign government that hosts governmental armed forces or supports armed groups that recruit and use child soldiers. As a result, Burma is ineligible to receive aid under International Military Education and Training (IMET), Foreign Military Financing (FMF), and Section 1206 assistance, as well as excess defense articles and the issuance of licenses for direct commercial sales of military equipment. Human Trafficking: Burma had been prohibited from receiving non-humanitarian and non-trade-related foreign assistance because of its designation by the President as a "Tier 3" country in the 2012 Trafficking in Persons (TIP) Report. In the 2013 TIP report, Burma was elevated to the Tier 2 Watch List, ending the restrictions on non-humanitarian and non-trade-related foreign assistance. However, under the provisions of the Victims of Trafficking and Violence Protection Act of 2000 (TVPA, P.L. 106-386 , as amended), countries that remain on the Tier 2 Watch List for two consecutive years are automatically redesignated as Tier 3 nations and subject to the assistance restrictions. Illicit Drug Transit or Drug Production : Section 706 of the Foreign Relations Authorization Act, Fiscal Year 2003 (FRAA) ( P.L. 107-228 ) requires the President provide to designated congressional committees a report by September 15 each year listing countries that the President has determined to be major drug transit and/or major illicit drug producing countries as defined in Section 481(e) of the Foreign Assistance Act of 1961 (P.L. 87-195). On September 13, 2013, President Obama issued Presidential Determination 2013-14, identifying Burma as a major drug transit and/or major illicit drug producing country. Designation as a major drug transit and/or major illicit drug producing country may result in a reduction in bilateral assistance and U.S. opposition to IFI assistance. However, in the same document, President Obama determines that providing assistance to Burma "is vital to the national interest of the United States," thereby waiving the restriction on assistance to Burma. An accompanying memorandum of justification states that a waiver was warranted because of the Burmese government's "demonstrated commitment to reform, and promising sign on future poppy eradication." Money Laundering and Organized Crime: In 2004, Burma's Mayflower Bank and Asia Wealth Bank, and the jurisdiction of Burma as a whole, including its state-run banks, were designated as "primary money laundering jurisdictions of concern" under Section 311 of the USA PATRIOT Act ( P.L. 107-56 , as amended) for the country's absence of money laundering regulations, weak oversight of the banking sector, and private bank connections to account holders involved in organized crime, particularly drug trafficking. Under this provision, the Treasury Department imposed a "special measure" to prohibit certain U.S. financial institutions from establishing, maintaining, administering, or managing correspondent or payable-through accounts for, or on behalf of, Myanmar Mayflower Bank, Asia Wealth Bank, and any other Burmese banking institution. This prohibition extends to correspondent or payable-through accounts maintained for other foreign banks when such accounts are used to provide banking services to Burmese banks indirectly. The Department of the Treasury repealed the special measures against Myanmar Mayflower Bank and Asia Wealth Bank effective October 1, 2012. Religious Freedom: The International Religious Freedom Act (IRFA, P.L. 105-292 , as amended) requires that the President conduct an annual review of the status of religious freedom in other nations, and authorizes the imposition of various types of sanctions on nations that seriously violate religious freedom. Burma has been designated a "country of particular concern for religious freedom" pursuant to this act since 1999. As the sanctioning action imposed on Burma pursuant to IRFA and currently in effect, the Secretary of State has elected to continue the existing arms embargo against Burma. Workers ' Rights: The Trade Reform Act of 1974 ( P.L. 93-618 , as amended) grants the President the authority to withdraw preferential trade treatment under the U.S. generalized system of preferences (GSP) program if a country "has not taken or is not taking steps to afford internationally recognized worker rights to workers in the country." On April 13, 1989, President George H. W. Bush issued Presidential Proclamation 5955 suspending Burma's preferential treatment under the GSP program, invoking his authority under the Trade Reform Act of 1974. On April 15, 2013, the Office of the U.S. Trade Representative issued a notice in the Federal Register indicating that it was undertaking a review of the Union of Burma's eligibility for the GSP program. World Peace and the Security and Foreign Policy of the United States: The President has the authority under the Arms Export Control Act of 1976 ( P.L. 94-329 ) to prohibit all arms exports to a country "in furtherance of world peace and the security and foreign policy of the United States." On September 23, 1988, President Reagan invoked his powers under this law to impose an arms embargo on Burma. In addition, on June 9, 1993, the State Department issued a public notice implementing an immediate ban on export of defense articles and services to Burma. The U.S. arms embargo on Burma remains in effect. Options for the 113th Congress Various recent developments in Burma have sparked a general reexamination of U.S. policy towards Burma, and a discussion of whether U.S. sanctions continue to be an effective means of achieving policy goals or effecting change in Burma. After Senior General Than Shwe formally dissolved the SPDC on March 30, 2011, and officially transferred power to the new Union Government, an era of political reforms and improved communications with the United States has ensued. Since taking office, President Thein Sein has issued prisoner amnesties on 11 occasions, resulting in the release of 29,545 prisoners, including 946 political prisoners. The Union Parliament has enacted laws that allowed the NLD and other opposition parties to participate in parliamentary by-elections in April 2012, and permit the formation of labor unions. In addition, the Union Government has begun ceasefire talks with several of the nation's ethnic-based militias, concluding preliminary agreements in some cases. Over the last two years, the Obama Administration has fostered closer ties with the Burmese government and eased restrictions on political and economic relations in the hopes that such actions will foster changes in Burma consistent with U.S. policy towards that nation. In most cases, these actions have been taken using existing presidential authority provided by the Constitution and existing laws, including Burmese sanctions laws—an approach that was generally acceptable to both the White House and Congress. The Obama Administration, however, is nearing the limits of steps it can take without Congress passing new legislation. The White House has waived existing sanctions for most of the situations in which current law provides for such presidential authority, so additional easing of restrictions on political and economic relations with Burma would likely require Congress to pass new laws. In addition, maintaining the current status in bilateral relations would also take congressional action as certain provisions in the sanctions laws are subject to annual renewal by Congress and the appointment of a Special Representative and Policy Coordinator for Burma is subject to Senate approval. It is unknown if and when the White House may approach Congress about the possible removal or amending of remaining sanctions on Burma. Serious human rights violations continue to occur in Burma. According to Assistance Association for Political Prisoners (Burma), over 180 political prisoners remain in detention. The government-backed Union Election Commission refuses to register several ethnic-based political parties. Some labor unions have been unable to register and union organizers have been subjected to harassment and arbitrary dismissal, despite the passage of the new law. Although President Thein Sein issued instructions to stop all attacks on ethnic-based militias, the Tatmadaw continues its assaults and commits severe human rights abuses against civilians in conflict areas. Burma and the 112th Congress The 112 th Congress acted several times to retain or reaffirm the existing sanctions on Burma. In its first session, it passed H.R. 2017 ( P.L. 112-33 ) on September 30, 2011, extending the import restrictions in Section 3 of the 2003 BDFA through July 2012. It subsequently renewed the general import restrictions for a second time on October 5, 2011, when it passed H.R. 2608 ( P.L. 112-36 ). The Consolidated Appropriations Act, 2012 ( P.L. 112-74 ), passed on December 15, 2011, reaffirmed other existing sanctions by barring the use of funds for international military education and training, foreign military financing, excess defense articles, or Section 1206 assistance; restricting the use of the State Department's Economic Support Fund to humanitarian assistance in Burma; and restating the requirement that the U.S. executive directors to IFIs vote against "any loan, agreement, or other financial support to Burma." In its second session, the 112 th Congress passed P.L. 112-163 extending the import restrictions in Section 3 of the 2003 BDFA through July 2013, and P.L. 112-192 , described previously in the report. In general, the 112 th Congress allowed the Obama Administration to take the lead on deciding when to selectively ease or waive some of the existing sanctions (see " Recent U.S. Sanctions Policy "). The relative dearth of legislative action does not imply that the 112 th Congress did not demonstrate an interest in U.S. policy in Burma. The House Committee on Foreign Affairs Subcommittee on Asia and the Pacific held oversight hearings in June 2011 and April 2012 on U.S. policy in Burma. The Senate Committee on Foreign Relations held nomination hearings for Ambassador Mitchell in June 2011 for the position as Special Representative and Policy Coordinator for Burma and in June 2012 for the position of ambassador to Burma, plus a policy oversight hearing in April 2012. Several congressional delegations from both the House of Representatives and the Senate traveled to Burma to assess the extent of the political reforms and discuss U.S. policy with various political leaders. During the 112 th Congress, the Obama Administration frequently consulted with key Members of Congress regarding possible policy options, as well as to inform Congress of the Administration's interpretation of the situation in Burma. Several Members of Congress also released statements on Burma, ranging from support for the removal of all sanctions to disapproval of "pragmatic engagement" and the endorsement of the maintenance of all sanctions. Issues for the 113th Congress The 113 th Congress may be asked by the Administration either to waive or extend waivers for existing sanctions, or to take legislative action to fully remove sanctions. It will also play a role in U.S. policy towards Burma when it considers appropriating funds for various assistance programs in the country. Possibly the largest and most noteworthy will be consideration of funds for the newly established U.S. Agency for International Development (USAID) mission located in the U.S. embassy in Rangoon, Burma. However, funding for other forms of assistance programs—including some previously prohibited by sanction laws, but not possible due to presidential waivers—would also face congressional consideration. The 113 th Congress has the option of continuing to monitor and oversee the administration of existing laws establishing U.S. policy towards Burma, as well as the general conduct of U.S. policy. Certain aspects of current enforcement may not be fully within the spirit or the letter of the existing laws, particularly with respect to visa bans, assets freezes, and restrictions on the provision of financial services. In addition, recent discussions about closer military-to-military relations have raised concerns about the limits on such interactions. While the 112 th Congress held hearings on U.S. policy towards Burma in general, the 113 th Congress may consider hearings targeted at specific aspects of U.S. policy and/or critical issues in the dynamic situation in Burma. Sanction Renewal Section 9(b) of the BFDA requires Congress annually to renew the general import ban contained in Section 3(a)(1), 3(a)(2) and 3A. Congress had done so regularly since the BFDA went into effect on July 28, 2003, with the most recent renewal occurring on August 2, 2012, when Congress passed H.R. 5986 ( P.L. 112-163 ), extending the BFDA's import ban to July 25, 2013. The 113 th Congress, however, did not take up the renewal resolution before the sanctions expiration, effectively terminating the sanctions. The Obama Administration waived the general import ban contained in Section 3(a)(1) of the BFDA on November 15, 2012 (see " General Import Restrictions " above), but reinstated the trade restrictions in Section 3A by issuing E.O. 13651. Prior to the 2012 congressional passage of renewal resolution, the State Department indicated its support for the extension of the general import ban for another year. It is unclear if the Obama Administration would support or oppose the passage of a renewal resolution given the issuance of E.O. 13651. Sanction Removal Although presidential waivers permit the temporary suspension of sanctions, the actual removal of existing sanctions may be a more complex proposition because of the overlapping provisions of the laws governing the current sanction regime. In addition, because Burma is subject to sanctions based on assessments related to certain functional issues (e.g., human trafficking, religious freedoms), the repeal of Burma-specific sanction laws or E.O.s may not eliminate certain types of restrictions on Burma. In addition, Congress would likely give consideration to matching the importance or weight of the sanction to the intended message it would be trying to convey to the Burmese government and the people of Burma. Such a balance would also heavily depend on the course of events in Burma in the months ahead. Congress can select among several alternative approaches to remove sanctions on Burma, if it decides such actions are warranted. One approach would be to pass legislation superseding the existing laws. Such legislation would require cautious wording to avoid unintentionally revoking sanctions other than those targeted in the bill. An alternative would be to amend or repeal relative sections of the existing laws to remove the corresponding sanctions. Bills of this sort would also require special attention to insure that all relevant provisions are included without unintentional consequences. Congress could also provide the President with the authority to remove or revoke the sanction, possibly subject to certain conditions being met in Burma. Existing sanction laws already grant the President such authority for certain sanctions. Appropriations As part of the easing of sanctions on Burma, the Obama Administration has periodically announced its intention to provide various forms of assistance to Burma, including the reopening of a USAID mission there. While the various presidential waivers described above have provided the legal basis for the provision of such assistance, it remains for Congress to consider the appropriation of funds to finance the specific forms of assistance the White House would like to provide to Burma. Congressional appropriations for assistance programs for Burma have been around $38 million per year since FY2010, with most of the amount allocated through the State Department's Economic Support Fund (ESF). Under the President's proposed budget for FY2013, the overall amount is to remain relatively unchanged, but about $6 million is to be shifted from humanitarian assistance to health programs. Support for civil society and education projects—which have traditionally gone to programs outside Burma, mostly in Thailand—are to be reduced by about $1 million each, according to the President's proposal. The 113 th Congress has utilized appropriation legislation to restrict funding to Burma for fiscal year 2013. Section 8115 of P.L. 113-6 prohibits the use of appropriated funds for IMET, FMF, excess defense article and Section 1206 assistance in Burma, except as otherwise permitted under Section 404 of the Child Soldiers Prevention Act of 2008 ( P.L. 110-457 ). The 113 th Congress could decide to continue exert its appropriations authority in two distinct ways. First, it may refuse to fund or bar the usage of funds for certain types of assistance in Burma that Congress considers inappropriate at this time. Second, Congress could effectively set assistance priorities by its allocation of funds to differing projects to be conducted in Burma. General Policy Oversight The various presidential waivers have significantly altered the scope of sanctions that remain in force in Burma. The general pattern has been to lift the enforcement of global restrictions on political and economic relations, but to keep in effect sanctions on designated individuals or entities deemed to be counter-productive to U.S. policy goals in Burma. This selective process of sanction waivers has in some cases made the enforcement of the sanction laws more complex. For certain sanctions—particularly the visa ban, the freezing of assets, and restrictions on the provision of financial services—questions have been raised on whether the Department of State and the Department of the Treasury have acted in full compliance with the law and have taken sufficient steps to fully implement the sanctions laws. As described above, three laws and two presidential documents contain provisions specifying which Burmese nationals are to be denied a visa to enter the United States, as well as possible conditions for a waiver. Over the last two years, a number of Burmese government officials have been issued visas to visit the United States, but it is unclear if in each case the required waiver process was adequately followed, including the requirement that Congress be notified in writing that a waiver is to be provided. A similar issue of compliance arises with respect to the requirement that the assets of certain Burmese persons be frozen and the restriction of financial services to certain Burmese entities. The BFDA and the Tom Lantos Block Burmese JADE Act specify two similar but distinct categories of persons subject to the freezing of assets. The Tom Lantos Block Burmese JADE Act designates a number of different people who cannot be provided financial services by U.S. financial institutions. In practice, the Specially Designated Nationals (SDN) list maintained by OFAC has served as the mechanism for enforcing the provisions of these two laws. Several organizations have indicated to the State Department and OFAC that there are dozens of Burmese nationals that appear to meet the criteria set in the two laws that are not included on the SDN list. Secretary Clinton and other U.S. officials have stated that a more detailed review of the existing SDN list with respect to the Burmese sanctions should be conducted. Since the start of 2012, 15 names have been added to the SDN list for Burma and two names (President Thein Sein and Speaker of Burma's Parliament's lower house Shwe Mann) have been removed from the list. As previously stated, the 112 th Congress held hearings that examined the general conduct of U.S. policy in Burma. Given the questions that have arisen over the implementation of existing sanctions that remain in effect, the 113 th Congress may consider holding hearings to examine the effectiveness of current enforcement of U.S. sanctions on Burma.

In March 2011, Burma's ruling military junta, the State Peace and Development Council (SPDC) formally dissolved itself and transferred power to a semi-military/semi-civilian government known as the Union Government, headed by President Thein Sein, ex-general and former prime minister for the SPDC. President Thein Sein, with the support of Burma's Union Parliament, has implemented a number of political and economic reforms, to which the Obama Administration has responded by waiving or easing sanctions. Although the presidential waivers effectively lift the sanctions, they do not revoke or remove the sanctions, which can be reimposed at any time. Various recent developments in Burma have sparked a general reexamination of U.S. policy towards Burma, and a discussion of whether U.S. sanctions continue to be an effective means of achieving policy goals or effecting change in Burma. However, the continuation of serious human rights abuses has raised questions about the extent to which there has been significant political change in Burma, and if the easing of sanctions has been warranted. The United States is nearing the limits of steps it can take to ease Burma sanctions without Congress passing new legislation. Thus, President Obama may approach Congress about the selective repeal or removal of one or more of the current sanctions on Burma. The 113th Congress allowed some of the sanctions contained in the Burmese Freedom and Democracy Act of 2003 to expire on July 26, 2013, when it did not pass an annual renewal resolution. The 113th Congress may consider either the imposition of additional sanctions or the removal of the remaining sanctions on Burma, depending on the conduct of the Burmese government and other developments in the country. The current U.S. sanctions on Burma were enacted, for the most part, due to what the U.S. government saw as a general disregard by the SPDC for the human rights and civil liberties of the people of Burma. Burma-specific sanctions began following the Burmese military's violent suppression of popular protests in 1988, and have continued through several subsequent periods in which Congress perceived major human rights violations in Burma. The result is a web of overlapping sanctions with differing restrictions, waiver provisions, expiration conditions, and reporting requirements. Existing U.S. sanctions on Burma are based on various U.S. laws and presidential executive orders. They can be generally divided into several broad categories, such as visa bans, restrictions on financial services, prohibitions of Burmese imported goods, a ban on new investments in Burma, and constraints on U.S. assistance to Burma. This report provides a brief history of U.S. policy towards Burma and the development of U.S. sanctions, a topical summary of those sanctions, and an overview of actions taken to waive or ease those sanctions by the Obama Administration. The report concludes with a discussion of actions taken by the 112th Congress and options for the 113th Congress. In addition to the targeted sanctions, Burma may be subject to certain sanctions specified in U.S. laws addressing various functional issues, such as the use of child soldiers, drug trafficking, human trafficking. In many cases, the type of assistance or relations restricted or prohibited by these provisions is also addressed under Burma-specific sanction laws. Finally, Congress has used appropriation legislation to restrict or prevent the use of designated funds in Burma. This report will be updated as conditions warrant.

Most Recent Developments P.L. 109-295 Signed into law On October 4, 2006, P.L. 109-295 was signed into law. Both the House and Senate approved the conference report ( H.Rept. 109-699 ) on September 29, 2006; the House by a vote of 412-6, and the Senate by a voice vote. P.L. 109-295 provides gross total budget authority of $41.4 billion for the Department of Homeland Security (DHS) for FY2007. This amounts includes $1.8 billion in emergency funding that was added to the bill during conference. P.L. 109-699 provides net budget authority of $34.8 billion, including the emergency funding. Excluding the emergency funding, P.L. 109-295 provides nearly $33.0 billion in net budget authority for DHS for FY2007. Senate-Passed H.R. 5441 On July 13, 2006, the Senate passed H.R. 5441 . The bill contains a total of $32.8 billion in net budget authority for DHS for FY2007. This is $900 million more than the $31.9 billion net appropriation requested by the Administration for FY2007. The Senate-passed H.R. 5441 represents a $.9 billion, or 3% increase, from the FY2006 enacted net budget authority of $31.9 billion. Senate-passed H.R. 5441 also includes a $648 supplemental appropriation for FY2006; for more information on this supplemental appropriation please refer to Appendix A . House-Passed H.R. 5441 On May 22, 2006, the House passed H.R. 5441 . The bill contains a total of $33.2 billion in net budget authority for DHS for FY2007. This is $1.2 billion more than the $31.9 billion net appropriation requested by the Administration for FY2007. However, this difference is almost entirely ($1.2 billion) due to the aviation security fee increase requested by the Administration, but which would be denied by the House bill. The House-passed H.R. 5441 amount of $33.2 billion is $1.2 or a 4% increase compared with the FY2006 enacted net budget authority of $31.9 billion. President's FY2007 Budget Submitted The President's budget request for DHS for FY2007 was submitted to Congress on February 6, 2006. The Administration requested $42.7 billion in gross budget authority for FY2007 (including mandatories, fees, and funds). The Administration's request includes gross appropriations of $39.8 billion, and a net appropriation of $32.0 billion in budget authority for FY2007, of which $31.0 billion is discretionary budget authority, and $1 billion is mandatory budget authority. The FY2006 enacted net appropriated budget authority for DHS was $32.0 billion. Note on Most Recent Data Data used in this report are from the President's Budget Documents; the FY2007 DHS Congressional Budget Justifications; the FY2007 DHS Budget in Brief; the House Appropriations Committee tables of April 19, 2006; the House Committee Report to H.R. 5441 , H.Rept. 109-476 ; the Senate Committee Report to H.R. 5441 , S.Rept. 109-273 ; the Conference Committee report to H.R. 5441 , H.Rept. 109-699 ; and P.L. 109-295 . Data used in Table B -1 are taken from the Analytical Perspectives volume of the FY2007 President's Budget. These amounts do not correspond to amounts presented in Tables 4-11 , which are based on data from tables supplied by the Appropriations Subcommittees and from the FY2006 DHS Congressional Budget Justifications in order to best reflect the amounts that will be used throughout the congressional appropriations process. Most dollar amounts presented in this report are reported in millions of dollars. Where lesser amounts are presented, these amounts will be shown in italics. For example: $545,000 . Background This report describes the President's FY2007 request for funding for DHS programs and activities, as submitted to Congress on February 6, 2006. It compares the enacted FY2006 amounts to the request for FY2007. This report also tracks legislative action and congressional issues related to the FY2007 DHS appropriations bill, with particular attention paid to discretionary funding amounts. However, this report does not follow specific funding issues related to mandatory funding—such as retirement pay—nor does the report systematically follow any legislation related to the authorization or amendment of DHS programs. Department of Homeland Security The Homeland Security Act of 2002 ( P.L. 107-296 ) transferred the functions, relevant funding, and most of the personnel of 22 agencies and offices to the new Department of Homeland Security created by the act. Appropriations measures for DHS have been organized into four titles: Title I Departmental Management and Operations; Title II Security, Enforcement, and Investigations; Title III Preparedness and Recovery; and Title IV Research and Development, Training, Assessments, and Services. Title I contains appropriations for the Office of Management, the Office of the Secretary, the Office of the Chief Financial Officer (CFO), Analysis and Operations (A&O), the Office of the Chief Information Officer (CIO), and the Office of the Inspector General (OIG). Title II contains appropriations for the U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) program, Customs and Border Protection (CBP), Immigration and Customs Enforcement (ICE), the Transportation Security Administration (TSA), the Coast Guard, and the Secret Service. Title III contains appropriations for the Preparedness Directorate, the Federal Emergency Management Agency (FEMA), Infrastructure Protection and Information Security (IPIS), and the state and local grants programs. Title IV contains appropriations for U.S. Citizenship and Immigration Services (USCIS), the Science and Technology Directorate (S&T), and the Federal Law Enforcement Training Center (FLETC). Secretary Chertoff's Second Stage Review On July 13, 2005, the Secretary of DHS, Michael Chertoff, announced the results of the months-long Second Stage Review (2SR) that he undertook upon being confirmed as DHS Secretary. The proposed changes affect many aspects of the department. The Secretary has designed a six-point agenda based upon the results of the 2SR: increase overall preparedness, particularly for catastrophic events; create better transportation security systems to move people and cargo more securely and efficiently; strengthen border security and interior enforcement and reform immigration processes; enhance information sharing with our partners; improve DHS financial management, human resources development, procurement, and information technology; and realign the DHS organization to maximize mission performance. On July 22, 2005, the Administration also submitted a revised budget request for DHS to reflect the organizational and policy changes recommended by the 2SR. The Administration submitted its requested amendments to the FY2006 budget request for DHS after both the House and Senate had passed their versions of H.R. 2360 . Therefore, any proposed changes were addressed during the conference on H.R. 2360 . The conferees noted that, for the most part, they have complied with the Administration's request to restructure DHS, and P.L. 109-90 adopted the following changes: abolished the Office of the Undersecretary for Border and Transportation Security, redistributing its functions to other locations within DHS; split the Directorate of Information Analysis and Infrastructure Protection into two new operational components: Analysis and Operations, and the Preparedness Directorate; moved all state and local grants within DHS to the Preparedness Directorate; transferred the Federal Air Marshals program from ICE to TSA; and included and expanded the role of the Office of Policy. The DHS Congressional Budget Justifications for FY2007 also reflect these changes. 302(a) and 302(b) Allocations The maximum budget authority for annual appropriations (including DHS) is determined through a two-stage congressional budget process. In the first stage, Congress sets overall spending totals in the annual concurrent resolution on the budget. Subsequently, these amounts are allocated among the appropriations committees, usually through the statement of managers for the conference report on the budget resolution. These amounts are known as the 302(a) allocations. They include discretionary totals available to the House and Senate Committees on Appropriations for enactment in annual appropriations bills through the subcommittees responsible for the development of the bills. In the second stage of the process, the appropriations committees allocate the 302(a) discretionary funds among their subcommittees for each of the appropriations bills. These amounts are known as the 302(b) allocations. These allocations must add up to no more than the 302(a) discretionary allocation and form the basis for enforcing budget discipline, since any bill reported with a total above the ceiling is subject to a point of order. 302(b) allocations may be adjusted during the year as the various appropriations bills progress towards final enactment. The annual concurrent resolution on the budget sets forth the congressional budget. The Senate budget resolution, S.Con.Res. 83 was introduced on March 10, 2006, and passed the Senate on March 16, 2006. S.Con.Res. 83 , would provide $873 billion in discretionary budget authority for FY2007. H.Con.Res. 376 was introduced and reported on March 31, 2006, and passed the House on May 18, 2006. H.Con.Res. 376 would provide $873 billion in discretionary budget authority for FY2007. The anticipated difficulties in resolving the substantial differences between the House- and Senate-passed versions of the budget resolution led to both the House and the Senate adopting deeming resolutions. These deeming resolutions set the discretionary spending levels for FY2007 at $873 billion. Budget Authority, Obligations, and Outlays Federal government spending involves a multi-step process that begins with the enactment of a budget authority by Congress in an appropriations act. Federal agencies then obligate funds from the enacted budget authority to pay for their activities. Finally, payments are made to liquidate those obligations; the actual payment amounts are reflected in the budget as outlays. Budget authority is established through appropriations acts or direct spending legislation and determines the amounts that are available for federal agencies to spend. The Antideficiency Act prohibits federal agencies from obligating more funds than the budget authority that was enacted by Congress. Budget authority may be indefinite, however, when Congress enacts language providing "such sums as may be necessary" to complete a project or purpose. Budget authority may be available on a one-year, multi-year, or no-year basis. One-year budget authority is only available for obligation during a specific fiscal year; any unobligated funds at the end of that year are no longer available for spending. Multi-year budget authority specifies a range of time during which funds can be obligated for spending; no-year budget authority is available for obligation for an indefinite period of time. Obligations are incurred when federal agencies employ personnel, enter into contracts, receive services, and engage in similar transactions in a given fiscal year. Outlays are the funds that are actually spent during the fiscal year. Because multi-year and no-year budget authorities may be obligated over a number of years, outlays do not always match the budget authority enacted in a given year. Additionally, budget authority may be obligated in one fiscal year but spent in a future fiscal year, especially with certain contracts. In sum, budget authority allows federal agencies to incur obligations and authorizes payments, or outlays, to be made from the Treasury. Discretionary agencies and programs, and appropriated entitlement programs, are funded each year in appropriations acts. Discretionary and Mandatory Spending Gross budget authority, or the total funds available for spending by a federal agency, may be composed of discretionary and mandatory spending. Of the $42.7 billion gross budget authority requested for DHS in FY2007, 83% is composed of discretionary spending and 17% is composed of mandatory spending. Discretionary spending is not mandated by existing law and is thus appropriated yearly by Congress through appropriations acts. The Budget Enforcement Act of 1990 defines discretionary appropriations as budget authority provided in annual appropriation acts and the outlays derived from that authority, but it excludes appropriations for entitlements. Mandatory spending, also known as direct spending, consists of budget authority and resulting outlays provided in laws other than appropriation acts and is typically not appropriated each year. However, some mandatory entitlement programs must be appropriated each year and are included in the appropriations acts. Within DHS, the Coast Guard retirement pay is an example of appropriated mandatory spending. Offsetting Collections9 Offsetting funds are collected by the federal government, either from government accounts or the public, as part of a business-type transaction such as offsets to outlays or collection of a fee. These funds are not counted as revenue. Instead, they are counted as negative outlays. DHS net discretionary budget authority, or the total funds that are appropriated by Congress each year, is composed of discretionary spending minus any fee or fund collections that offset discretionary spending. Some collections offset a portion of an agency's discretionary budget authority. Some of these fees offset spending at the account level and are subtracted from the Appropriations Committee tables directly below the program they offset. An example of this is the Federal Protective Service, which is immediately offset in the appropriations tables by an intergovernmental transfer from the General Services Administration. Other discretionary fees offset spending at the agency level and are thus subtracted from the discretionary budget authority of the agency to arrive at the actual appropriated level. An example of this is the Immigration Inspection fee, which is collected at Ports of Entry by Customs and Border Protection (CBP) personnel and is used to offset both the CBP and Immigration and Customs Enforcement (ICE) appropriations. Other collections offset an agency's mandatory spending. They are typically entitlement programs under which individuals, businesses, or units of government that meet the requirements or qualifications established by law are entitled to receive certain payments if they establish eligibility. The DHS budget features two mandatory entitlement programs: the Secret Service and Coast Guard retired pay accounts (pensions). Some entitlements are funded by permanent appropriations, others by annual appropriations. The Secret Service retirement pay is a permanent appropriation and as such is not annually appropriated, whereas the Coast Guard retirement pay is annually appropriated. In addition to these entitlements, the DHS budget contains offsetting Trust and Public Enterprise Funds. These funds are not appropriated by Congress; they are available for obligation and included in the President's budget to calculate the gross budget authority. Table 3 tabulates all of the offsets within the DHS budget as enacted for FY2006 and in the FY2007 request. Appropriations for the Department of Homeland Security Summary of DHS Appropriations Table 4 is a summary table comparing the enacted appropriations for FY2006 and the requested amounts for FY2007. The President's budget request for FY2007 was submitted to Congress February 6, 2006. The Administration requested $42.7 billion in gross budget authority for FY2007 (including mandatories, fees, and funds). The Administration's request includes gross appropriations of $39.8 billion, and a net appropriation of $32.0 billion in budget authority for FY2007, of which $31.0 billion is discretionary budget authority, and $1 billion is mandatory budget authority. The FY2006 enacted net appropriated budget authority for DHS was $31.7 billion. P.L. 109-295 provides $39.8 billion in gross budget authority for DHS for FY2007. Including emergency funding, P.L. 109-295 provides $41.4 billion in gross budget authority for DHS. P.L. 109-295 provides $34.8 billion in net budget authority for DHS in FY2007 (including the emergency funding) and $33.0 billion in net budget authority (not including the emergency funding). House-passed H.R. 5441 would have provided $39.8 billion in gross budget authority and $33.2 billion in net budget authority for DHS in FY2007. Senate-passed H.R. 5441 would have provided $39.7 billion in gross budget authority and $32.7 billion in net budget authority for DHS in FY2007. Title I: Departmental Management and Operations10 Title I covers the general administrative expenses of DHS. It includes the Office of the Secretary and Executive Management (OS&EM), which is comprised of the immediate Office of the Secretary and 11 entities that report directly to the Secretary; the Office of Screening Coordination and Operations (OSCO); the Undersecretary for Management (USM) and its components, such as offices of the Chief Procurement Officer, Chief Human Capital Officer, and Chief Administrative Officer; the Office of the Chief Financial Officer (OCFO); the Office of the Chief Information Officer (CIO); Analysis and Operations Office (AOO); and the Office of the Inspector General (OIG). Table 5 shows Title I appropriations for FY2006 and congressional action on the request for FY2007. President's FY2007 Request FY2007 requests relative to comparable FY2006 enacted appropriations are as follows: OS&EM, $98 million, a decrease of $28 million (-22%); OSCO, $4 million, the same as previously provided; USM, $209 million, an increase of $40 million (24%); OCFO, $44 million, an increase of $25 million (+132%); OCIO, $324 million, an increase of $27 million (+9%); and OIG, $96 million, an increase of $13 million (+16%). The total FY2007 request for Title I was $1,074 million. This represents an increase of $167 million (18%) over the FY2006 enacted level (not including supplemental appropriations). House-Passed H.R. 5441 With slight exception, appropriators, in making their recommendations for Title I accounts, cut allocations relative to both FY2006 funding and the President's requests for FY2007. The requested amount for OS&EM was decreased by a little more than $1.5 million to a recommended amount of approximately $96 million, which, after adjustment for floor offset amendments, was reduced to $84 million. OSCO was not allocated monies as a separate entity, but its activities were funded in the Office of Policy within OS&EM. The USM request was slashed by almost $50 million, with $159 million recommended, which, after adjustment for floor offset amendments, was reduced to $70 million. OCFO received a modest reduction of less than $1 million in its request, with $43 million recommended. OCIO, however, was recommended an increase of $41 million above its request to make a total proposed allocation of $365 million, whereas OIG was recommended $96 million as requested. These recommended and otherwise adjusted amounts were approved by the House. Senate-Passed H.R. 5441 Appropriators largely funded OS&EM accounts at or below FY2006 levels, and the Senate ultimately approved almost $83 million, which was about $15 million less than the amount requested by the President. OSCO was not allocated monies as a separate entity, but its activities were funded in the Office of Policy within OS&EM. Other accounts in Title I—OCFO, OCIO, and OIG—were generally funded at levels below the President's request, but above FY2006 amounts. The Senate approved a total of $969 million for Title I accounts, $9 million more than the House allocation and $105 million less than the President's request. P.L. 109-295 P.L. 109-295 provides $94 million for OS&EM instead of the $84 million approved by the House and $83 million approved by the Senate. Conferees explained they had "made reductions to the [President's] budget request due to a large number of vacancies and unobligated balances within certain offices" of OS&EM. The Citizenship and Immigration Services Ombudsman and the Privacy Officer were funded at the requested levels, but all other OS&EM accounts were trimmed in conference. Conferees agreed to provide a little over $2 million for a separate Office of Counternarcotics Enforcement, which had previously been funded through the Office of Chief of Staff account. Other entities experiencing considerable reductions in their funding requests were USM (-$51 million), OCFO ($-18), and OIG (-$11 million), whereas OCIO received an increase (+$25 million) to its request. Analysis and Operations12 Background The DHS Intelligence mission is outlined in Title II of the Homeland Security Act of 2002 (codified at 6 U.S.C. 121). Organizationally, and from a budget perspective, there have been a number of changes to the information, intelligence analysis, and infrastructure protection functions at DHS. Pursuant to the Homeland Security Act of 2002, the Information Analysis and Infrastructure Protection (IAIP) Directorate was established. The act created an Undersecretary for IAIP to whom two Assistant Secretaries, one each for Information Analysis (IA) and Infrastructure Protection (IP), reported. The act outlined 19 functions for the IAIP Directorate, to include the following, among others: To assess, receive, and analyze law enforcement information, intelligence information, and other information from federal, state, and local government agencies, and the private sector to (1) identify and assess the nature and scope of the terrorist threats to the homeland, (2) detect and identify threats of terrorism against the United States, and (3) understand such threats in light of actual and potential vulnerabilities of the homeland; To develop a comprehensive national plan for securing the key resources and critical infrastructure of the United States; To review, analyze, and make recommendations for improvements in the policies and procedures governing the sharing of law enforcement information, intelligence information, and intelligence-related information within the federal government and between the federal government and state and local government agencies and authorities. Pursuant to DHS Secretary Michael Chertoff's Second Stage Review, and the Conference Report to H.R. 2360 , Department of Homeland Security Act FY2006, a number of organizational changes were announced. Some of these changes include the following: The IAIP Directorate was disbanded. Intelligence Analysis was organizationally separated from Infrastructure Protection. The Undersecretary of IAIP was dissolved and a new Undersecretary for Preparedness was created. Two new offices were created—the Office of Intelligence and Analysis, and the Office of Operations Coordination (which includes the Homeland Security Operations Center [HSOC]). The Assistant Secretary for the Office of Intelligence and Analysis was designated the DHS Chief Intelligence Officer and reports directly to the Secretary. A new budget account—Analysis and Operations (A&O)—was created within Title I, Departmental Management and Operations. The A&O account "supports the activities of the Office of Intelligence and Analysis and the Directorate of Operations. Even though these two offices are different and distinct in their missions, they work together to improve intelligence, information sharing, and coordination." There are two budget activities within this account—the Office of Intelligence and Analysis, which leads the DHS Intelligence Enterprise, and the Directorate of Operations Coordination, which "disseminate (s) threat information, provides domestic situational awareness, performs incident management, and ensures operations coordination among DHS components with specific threat responsibilities." Table 5 shows Title I appropriations for FY2006 and congressional action on the request for FY2007. Budget Structure Changes The budget for IAIP for FY2004 and FY2005 was located within Title IV (Research and Development, Training, Assessments, and Services) of the DHS Appropriations Bills. In FY2006, the budget for IA-related functions moved to Title I (Department Management and Operations). A new A&O account was established within Title I. According to the FY2006 Department of Homeland Security Appropriations Act ( P.L. 109-90 ), $256 million was appropriated for "necessary expenses for information analysis, as authorized by Title II of the Homeland Security Act of 2002 ... to remain available until September 30, 2007." President's FY2007 Request The FY2007 request for Title I, A&O is $299 million and 475 full-time equivalent positions (FTEs). This represents an increase of 18.1% more than the FY2006 revised enacted amount of $253 million, and an increase of 12 FTEs. House-Passed H.R. 5441 The House Appropriations Committee recommended $299 million, an amount equal to the level of funding requested by the President for FY2007. This amount is approximately $46 million in excess of the $253 million FY2006 appropriation for the activities associated with these DHS functions. In the report accompanying H.R. 5441 , the Appropriations Committee also made the following points: It denied DHS's request to rename the Directorate of Operations Coordination the Directorate of Operations based on the Committee's position that the Directorate's function is "...to support decision makers rather than to direct activities." It directed the HSOC and ICE report, not later than January 16, 2007, on the number, location, planned deployments, composition, and budgets of DHS-proposed situational awareness teams, noting that the House Select Bipartisan Committee to Investigate the Preparation for and Response to Hurricane Katrina found that the HSOC failed to provide valuable situational information to the White House. These teams are designed to provide "ground truth" as they are deployed throughout the country during an emergency. It directed the Office of Intelligence and Analysis to continue to provide the Committee with quarterly threat briefings, and noted that it is "...encouraged by the leadership put into place..." at the Department's OIA. It directed that a report be provided to the Committee by January 16, 2007, on the total number of intelligence fusion centers, their funding sources and amounts, and where additional fusion centers are necessary. The Committee "...strongly supports information sharing between the intelligence community and people responsible for taking action on that intelligence." It supports IA's recent effort to develop a staffing, recruitment, and training plan. Furthermore, "the Committee expects IA to expend unobligated personnel resources on recruitment and training, including fellowships and other tools deemed necessary and to report to the Committee bi-annually on its efforts." Senate-Passed H.R. 5441 The Senate Appropriations Committee recommended $299 million, an amount equal to the Administration's FY2007 request and the amount passed by the House. These funds, to remain available until September 30, 2008, are for "necessary expenses for information analysis and operations coordination activities, as authorized by title II of the Homeland Security Act of 2002 (6 U.S.C. 121 et seq.)" Of the recommended amount, no more than $5,000 "shall be for official reception and expenses." The committee further stated it "supports the activities to improve the analysis and sharing of threat information, including the activities of the Office of Intelligence and Analysis and the Office of Operations Coordination." The committee also made the following two additional recommendations: It directed "the Chief Intelligence Officer to report no later than 90 days after the enactment of this act on efforts to address concerns reported in the Office of Inspector General Report OIG-05-34." It "understands the operating procedures for the Homeland Security Operations Center [HSOC] have not changed since Hurricane Katrina. The committee directs the Government Accountability Office to analyze the role of the HSOC and the numerous DHS component operations centers and to make recommendations regarding the operation and coordination of these centers." During Senate floor action on July 12, S.Amdt. 4569 required the following report on data-mining, an issue which could affect research conducted by any DHS intelligence element: "The head of each department or agency in the Department of Homeland Security that is engaged in any activity to use or develop data-mining technology shall each submit a report to Congress on all such activities of the agency under the jurisdiction of that official. The report shall be made available to the public." P.L. 109-295 P.L. 109-295 provides $300 million, or $1 million more than the Administration's request, and level of funding recommended by the House and Senate. According to the conference report, "...Up to $1million is for an independent study on the feasibility of creating a counter terrorism intelligence agency." Such a study may consider the question of the establishment of an agency that might be the equivalent of the British Security Service (know as MI-5). However, numerous entities within the federal government, including DHS's Office of Intelligence and Analysis, the FBI's National Security Branch, and the interagency National Counterterrorism Center, among others, all currently perform a counterterrorism intelligence function. How the current organizational structure would be altered by the potential creation of a "counter terrorism intelligence agency," is an open question. Linkages to DHS Strategic Goals Although the Office of Intelligence and Analysis and the Office of Operations Coordination contribute to a broad array of DHS strategic goals, their activities are primarily targeted at achieving success in strategic goals one and two—awareness and prevention—respectively. According to DHS, the goal of awareness is to "identify and understand threats, assess vulnerabilities, determine potential impacts and disseminate timely information out to homeland security partners and the American public." Two programs under this goal include A&O and Intelligence. The performance goal for A&O is to "deter, detect and prevent terrorist incidents by sharing domestic situational awareness through national operational communications and intelligence analysis." The performance goal for intelligence is "100 percent distribution of sensitive threat information relative to Department of Homeland Security/Transportation Security Administration components, field elements, and stakeholders." Budget Caveats The FY2007 budget request for A&O represents an increase of nearly $46 million and 12 FTE. However, it is important to note that dis-aggregating intelligence analysis from operations is problematic because the budget of the Office of Intelligence and Analysis, an entity of the Intelligence Community, is classified. The figures cited above are the combined figures for the Office of Operations Coordination and the Office of Intelligence and Analysis. Budget Implications Some observers might argue that the requested A&O budget is sufficient, given the current stage of development for intelligence and operations within DHS. Others, however, might question whether the requested budget can achieve the ambitious intelligence analysis goals, as outlined by Charles Allen, DHS Chief Intelligence Officer (CIO). In recent testimony before the House Committee on Homeland Security, CIO Allen outlined at least five priorities laden with resource implications, including the following: (1) improving the quality of analysis across the Department, (2) integrating the DHS intelligence enterprise, (3) strengthening our intelligence support to State, local, and tribal authorities, as well as the private sector, (4) ensuring DHS intelligence takes its full place in the Intelligence Community, and (5) solidifying our relationship with the Congress by improving our transparency and responsiveness. These priorities and others might imply that in order to implement the integration of intelligence at DHS, additional funds may be necessary for department-wide information management systems and additional analysts—to be stationed both at Intelligence Community partner agencies, as well as at some of the 38 plus state, local, and regional intelligence fusion centers. The information management challenge at DHS is significant, as the organization must "know what it knows" in order to achieve the aforementioned priorities. According to CIO Allen, DHS has "...developed a comprehensive assessment of the existing intelligence information technology architecture in DHS, along with recommendations to improve and enhance it." Although integrated information management systems may not be a panacea, for an intelligence organization they are considered by many to be essential. In the absence of such systems, the coordination of intelligence can tend to rely on personal relationships and ad hoc arrangements. From a human resource perspective, DHS is stationing liaison officers and intelligence analysts at some of the 38 state and local fusion centers. When combined with the detailing of current staff to Intelligence Community partners, such as the National Counterterrorism Center (NCTC), such arrangements, though beneficial, may undermine the development of a permanent and experienced cadre of homeland security analysts at DHS headquarters. Personnel Issues36 In addition to the policy and planning issues, and the reorganization issues, several personnel issues may be of interest to Congress during the current appropriations cycle. The Office of Human Capital (OHC) provides overall management and administration of human capital in the DHS. It establishes policy and procedures and provides oversight, guidance, and leadership for human resources (HR) functions within the department. The Chief Human Capital Officer (CHCO) is responsible for designing and implementing the new human resources management (HRM) system in the DHS, referred to as MaxHR, including its human resources strategy and technology components. The OHC reports to the Undersecretary for Management and its appropriation is included in that of the Undersecretary. For FY2005, the OHC received an appropriation of $43 million—$7 million for HR Operations and $36 million for MaxHR—and staffing of 49 FTEs. The OHC received funding of nearly $38.511 million (down from $38.9 million, after a 1.0% rescission) and a staffing level of 62 FTEs for FY2006. This total was allocated as $8.811 million (down from $8.9 million, after a 1.0% rescission) for HR Operations and $29.7 million (down from $30 million, after a 1.0% rescission) for the development and implementation of MaxHR. Of the FTEs, 50 were attached to HR Operations and 12 were attached to MaxHR. President's FY2007 Request The President's FY2007 budget proposes funding of $81 million and staffing of 80 FTEs for the OHC. The request represents an increase of $43 million and 18 FTEs more than the FY2006 enacted appropriation and includes money for HR Operations and MaxHR as discussed below. HR Operations An appropriation of $10 million is requested for HR Operations, an increase of $1 million more than the FY2006 enacted funding. Attached to this account are 53 FTEs, 3 more FTEs than in FY2006. More than 90% of the requested money is for salaries and benefits ($7 million) and advisory and assistance services ($2 million). Among the activities that the DHS plans to emphasize during FY2006 are continued refinement of the department's hiring processes, establishment of an Executive Leadership and Learning Center, and use of a Chief Learning Officer to conduct needs analyses and identify "best practices." In FY2007, initiatives are expected to include improving customer service, enhancing training to inculcate a "team" spirit across the DHS, and expanding the use of program evaluation to begin measuring the effects of changes. MaxHR The appropriation requested for the department's new HRM system is $71 million, nearly $42 million more than the amount provided in FY2006. The FTEs attached to the account are 27, an increase of 15 FTEs over FY2006. Almost 94% of the requested money is for salaries and benefits ($3 million) and advisory and assistance services ($64 million). Accounting for the increased funding are (1) implementation costs of the new pay system for employees who were originally scheduled to be converted in FY2006 ($15 million), (2) implementation and operational costs for a market and performance-based compensation system in FY2007 ($22 million), and (3) funding the Homeland Security Labor Relations Board (HSLRB) ($5 million). The implementation of MaxHR will continue during FY2006 and include such activities as design and review of a new market-based pay system, creation of a compensation committee, and continued training of supervisors, managers, and HR professionals. Non-bargaining unit employees from Headquarters, ICE, FLETC, FEMA, USCG, and U.S. Secret Service will convert to the new performance system, and CBP and CIS will begin training on that new system. The HSLRB, designed to resolve labor-management disputes, may be established insofar as is legally permissible. Employees converted to the new performance system in FY2006 will convert to the new market-based pay system in FY2007, and those training on the new performance system in FY2006 will be converted to it in FY2007. The Under Secretary for Management at DHS, Janet Hale, resigned effective in early May 2006, and the department's CHCO, K. Gregg Prillaman, resigned effective in early June 2006. In testimony before the House Committee on Homeland Security's Subcommittee on Management, Integration, and Oversight on May 18, 2006, Mr. Prillaman discussed the progress of MaxHR implementation and management challenges facing the department. With regard to MaxHR, he said that the performance management program, which links individual and department performance goals, should cover 18,000 employees by the end of 2006; the design of the pay bands is being finalized; and the pay-for-performance compensation system is expected to begin in February 2007. Among the challenges that DHS is facing is the retirement eligibility of a significant percentage of high level officials during the next four years. According to Mr. Prillaman, "49% of SES [Senior Executive Service] level employees and 37% of GS-15 level employees [at DHS] will be eligible to retire" by 2009. At the Secret Service, 91% of SES members and 75% of GS-15's will be retirement eligible by 2010. On May 25, 2006, the Government Accountability Office (GAO) released an evaluation on the conversion of federal government employees from noncareer to career positions. GAO found that appropriate authorities and proper procedures may not have been followed for two of the three positions converted at DHS—a GS-13 staff assistant at the Federal Emergency Management Agency and a GS-15 Deputy Assistant Secretary for Legislative Affairs. For this latter position, GAO found that it may have been created specifically for a particular individual, which, if so, is a violation of federal law. Following the hearing and the release of the GAO report, the Ranking Members of the House Homeland Security Committee and its Subcommittee on Management, Integration, and Oversight sent a letter to Homeland Security Secretary Michael Chertoff on June 1, 2006, requesting answers to several questions. Those queries related to actions DHS will take given the GAO findings on the legislative affairs position and regarding implementation of MaxHR, and explaining why the resignation (tendered on May 15, 2006) of the CHCO was not disclosed prior to his testimony before the Homeland Security Committee. House-Passed H.R. 5441 As recommended by the Subcommittee on Homeland Security and the Committee on Appropriations, on June 6, 2006, the House passed an appropriation of $38.9 million for the OHC, $42.3 million less than requested. This amount would be allocated as $9.2 million for HR Operations (salaries and expenses) and $29.7 million for MaxHR; $600,000 and $41.7 million, respectively, less than requested. MaxHR is funded at the FY2006 enacted level. The OHC appropriation represents 24.4% of the funding provided for the Under Secretary for Management ($159.5 million). According to the report accompanying H.R. 5441 , the budget request assumed that increased aviation passenger fees would allow MaxHR to be funded at the requested level. Because such fees are outside the Appropriation Committee's jurisdiction, the committee's FY2007 recommended appropriation was adjusted accordingly. The OHC appropriation fully funds nine of the requested 15 FTEs for MaxHR. The six FTEs not included in the appropriation were for the Labor Relations Board. A general provision at Section 504 provides that not more than 50% of unobligated balances remaining at the end of FY2007 from appropriations for salaries and expenses remain available through FY2008 subject to guidelines on reprogramming. In a May 25, 2006, Statement of Administration Policy on H.R. 5441 , the Office of Management and Budget (OMB) stated its opposition to either reducing or eliminating funds for MaxHR. During consideration of H.R. 5441 in the House on May 25, 2006, H.Amdt. 936 , offered by Representative Martin Olav Sabo, was agreed to by voice vote. The amendment removes $15 million from the Under Secretary for Management and directs that it be used to fund grants for firefighters. If the entire $15 million is taken from MaxHR, the FY2007 funding for the new personnel system would be $14.7 million. Senate-Passed H.R. 5441 Following the recommendation of the Subcommittee on Homeland Security and the Committee on Appropriations, the Senate, on July 13, 2006, passed an appropriation of $44.8 million for the OHC, $36.4 million less than requested. Under the Senate-passed bill, the funding would have been allocated as $9.8 million for HR Operations (salaries and expenses) and $35 million for MaxHR. The salaries and expenses total matched the budget request, but the MaxHR funding was $36.4 million less than requested. As compared with the FY2006 appropriation and the FY2007 appropriation passed by the House, the amount represented an increase of $5.3 million for MaxHR. The report accompanying H.R. 5441 stated that the new personnel system was not funded at the level requested in the budget because of the "ongoing litigation." It also directed the Secretary of Homeland Security "to submit an updated expenditure plan" based on the final FY2007 appropriation to the Senate and House Committees on Appropriations within 90 days of the act's enactment. All contract obligations, listed by year, contractor, and purpose, are to be included in the report. The recommended appropriation for the OHC makes up 27.4% of the funding provided for the Under Secretary for Management ($163.4 million). The general provision on unobligated balances was included as Section 505 of the Senate-passed bill. OMB expressed the administration's strong opposition to any reduction or elimination of funding for MaxHR. An amendment ( S.Amdt. 4674 ) offered by Senator Barbara Boxer and agreed to by the Senate by unanimous consent would have prohibited the use of certain funds for travel by DHS officers and employees until the recommendations of the Inspector General on the National Asset Database are implemented by the Under Secretary for Preparedness or until the Under Secretary submits a report to the Senate Committee on Homeland Security and Governmental Affairs, the House Committee on Homeland Security, and the Senate and House Committees on Appropriations explaining why the recommendations have not been fully implemented. (This provision is not included in the law.) A Senate Committee on Homeland Security and Governmental Affairs hearing on July 19, 2006, received the results of a GAO audit on the use of purchase (government-issued credit cards) cards by DHS employees in the wake of Hurricane Katrina. Some 9,000 DHS employees have been issued such purchase cards and more than $435 million was spent in FY2005 using the cards. GAO found that about 45% of the purchases did not have the appropriate written authorization and that some 63% of purchases had no documentation of receipt of goods and services. The investigators also found weak internal controls, in terms of leadership, staffing, monitoring, and training, at DHS that resulted in questionable and wasteful transactions and that too many purchase cards had been issued by DHS (some 2,468 purchase cards had not been used for a year). An agency manual on procedures for purchase card use remained in draft for two years because of internal disagreements within DHS. GAO will be issuing a report that will include recommendations for improved management controls at DHS. P.L. 109-295 The law provides funding of $33.8 million for the OHC, some $47.5 million less than the President's budget proposal. The amount is to be allocated as $8.8 million for salaries and expenses (some $1.0 million below the President's request) and $25 million for Max-HR (some $46.4 million below the President's request). The $8.8 million matches the FY2006 appropriation for the salaries and expenses account after the rescission. The appropriation for the OHC makes up 22% of the funding provided for the Under Secretary for Management ($153.6 million). As provided in the Senate report, the Secretary of DHS is directed to submit an updated expenditure plan for Max-HR to the House and Senate Committees on Appropriations within 90 days after the act's enactment. The report must include all contract obligations, by contractor by year, and the purpose of the contract. As proposed by the House and Senate, the law continues a general provision at Section 513 on background investigations. The conference report directs that background investigations, including updates and reinvestigations, be processed expeditiously for DHS employees, particularly those in the Office of the Secretary and Executive Management; Office of the Under Secretary for Management, Analysis, and Operations; Immigration and Customs Enforcement; the Directorate of Science and Technology; and the Directorate for Preparedness. The general provision on unobligated balances is continued at Section 505 of the law, as proposed by the House and Senate. Both of these general provisions were addressed in the President's signing statement on H.R. 5441 . With regard to the background investigations, he stated that "the executive branch shall construe this provision in a manner consistent with the President's exclusive constitutional authority ... to classify and control access to national security information and to determine whether an individual is suitable to occupy a position in the executive branch with access to such information." The statement characterizes the provision on unobligated balances as one of several provisions in the law that "The executive branch shall construe as calling solely for notification." Title VI, Subtitle B of the law includes provisions on personnel policies for employees of the Federal Emergency Management Agency (FEMA). The Administrator of FEMA is directed to develop a strategic human capital plan for the agency's workforce and authorizes the Administrator to pay recruitment and retention bonuses to individuals in positions that are difficult to fill and to provide for the professional development and education of employees. Title II: Security Enforcement and Investigations Title II funds Security, Enforcement, and Investigations. Title II contains the appropriations for the U.S.-Visitor and Immigrant Status Indicator (US-VISIT) program, the Bureau of Customs and Border Protection (CBP), the Bureau of Immigration and Customs Enforcement (ICE), the Transportation Security Administration (TSA), the US Coast Guard, and the US Secret Service. Table 6 shows the FY2006 enacted and FY2007 enacted appropriation for Title II. US-VISIT55 In 1996, Congress first mandated that the former INS implement an automated entry and exit data system, now referred to as the US-VISIT program, that would track the arrival and departure of every alien. The objective for an automated entry and exit data system was, in part, to develop a mechanism that would be able to track nonimmigrants who overstayed their visas as part of a broader emphasis on immigration control. Following the September 11, 2001, terrorist attacks, however, there was a marked shift in priority for implementing an automated entry and exit data system. Although the tracking of nonimmigrants who overstayed their visas remained an important goal of the system, border security has become the paramount concern. President's FY2007 Request The Administration requested an appropriation of $399 million in budget authority for US-VISIT in FY2007, amounting to a nearly 18% (or $62 million) increase over the enacted FY2006 level of $340 million. House-Passed H.R. 5441 The House-passed version of H.R. 5441 would have provided $362 million for US-VISIT, which would have amounted to $37 million below the President's request for FY2007, and nearly $22 million above the FY2006 enacted level of $340 million. The House did not approve the requested aviation passenger fee increase requested by the Administration that would have funded US-VISIT at the requested level. Senate-Passed H.R. 5441 The Senate-passed version of H.R. 5441 would have fully funded the President's request of $399 million for US-VISIT in FY2007. The Senate would have made $200 million of the appropriation conditional, however, upon approval of an expenditure plan for the program by the House and Senate Committees on Appropriations. The Senate Appropriations Committee report also included language directing DHS to submit a report on the progress it has made toward creating the technical standards needed to implement the Western Hemisphere Travel Initiative. Senate-passed H.R. 5441 included a provision extending the current legislative deadlines for the implementation of this initiative. P.L. 109-295 The act provides $362 million for the US-VISIT program. Of this funding, $60 million is to be used for implementation of 10 fingerprint enrollment capability and to continue working towards the interoperability of the USBP's Automated Biometric Identification System (IDENT) and the Federal Bureau of Investigation's Integrated Automated Fingerprint Identification System (IAFIS). DHS is required to submit a strategic plan for modifying US-VISIT to allow for 10 fingerprint enrollment and for interoperability with IDENT and IAFIS and for the implementation of the exit component of the US-VISIT system. Customs and Border Protection (CBP)58 CBP is responsible for security at and between ports-of-entry along the border. Since 9/11, CBP's primary mission is to prevent the entry of terrorists and the instruments of terrorism. CBP's ongoing responsibilities include inspecting people and goods to determine if they are authorized to enter the United States; interdicting terrorists and instruments of terrorism; intercepting illegal narcotics, firearms, and other types of contraband; interdicting unauthorized travelers and immigrants; and enforcing more than 400 laws and regulations at the border on behalf of more than 60 government agencies. CBP is comprised of the inspection functions of the legacy Customs Service, Immigration and Naturalization Service (INS), and the Animal and Plant Health Inspection Service (APHIS); the Office of Air and Marine Interdiction, now known as CBP Air and Marine (CBPAM); and the Border Patrol (BP). See Table 6 for account-level detail for all of the agencies in Title II, and Table 7 for sub-account-level detail for CBP Salaries and Expenses (S&E) for FY2006 and FY2007. President's FY2007 Request The Administration requested an appropriation of $7,839 million in gross budget authority for CBP for FY2007, amounting to a nearly 11% increase over the enacted FY2006 level of $7,094 million. The bulk of the requested increase for FY2007, $635 million, is for various aspects of the Secure Border Initiative (SBI). However, additional amounts were also requested for other CBP initiatives, including, among others, $12 million for WMD detection staffing; nearly $7 million for enhancements to the National Targeting Center (NTC); $9 million for the Arizona Border Control Initiative (ABCI); nearly $5 million for Border Patrol training at FLETC; nearly $5 million for the Immigration Advisory Program (IAP); and $1 million for the Fraudulent Document Analysis Unit. House-Passed H.R. 5441 House-passed H.R. 5441 recommended an appropriation of $7,699 million in gross budget authority for CBP and an appropriation of $6,434 million in net budget authority (after offsetting fee receipts). The $7,699 million amounted to $140 million less than requested by the Administration for FY2007, and a nearly 9% increase over the enacted FY2006 level. In H.Rept. 109-476 , the House Appropriations Committee stated that the reductions to the request included $10 million that were attributed to the poor responsiveness of CBP in submitting reports to Congress, and the fact that the House recommended denying the Administration's request for an increase in the aviation passenger fees because such a fee increase lies outside the jurisdiction of the Committee. In the CBP Salaries and Expenses account, only the C-TPAT program would have received funding above the Administration's request: $15 million to improve validation capability. Senate-Passed H.R. 5441 Senate-passed H.R. 5441 would have provided an appropriation of $8,168 million in gross budget authority and $6,683 million in net budget authority for CBP in FY2007. This gross budget authority represented a $1.2 billion, or 15%, increase over the gross enacted FY2006 level of $7,094 million. The Senate Appropriations Committee included language requiring DHS to submit expenditure plans before receiving parts of its appropriation for the Secure Border Initiative and the Automated Commercial Environment. P.L. 109-295 P.L. 109-295 provides an appropriation of $9,302 million in gross budget authority for CBP, an appropriation of $8,036 million in net budget authority (after offsetting fee receipts). These amounts include $1,601 million in emergency funding that was attached inserted into H.R. 5441 during conference. Including the emergency funding, gross budget authority for FY2007 represents an increase of $2,208 million, or 24%, compared with the FY2006 enacted level of $7,094 million. Not including the $1.6 billion in emergency funding, P.L. 109-295 provides $7,701 million in gross budget authority and $6,435 million in net budget authority for CBP for FY2007. The $7,701 million in gross budget authority amounts to an increase of $607 million, or 9%, compared with the enacted FY2006 level. Issues for Congress The bulk of the increase in CBP's FY2007 request compared with the FY2006 enacted level is for a new DHS program, the Secure Border Initiative (SBI). DHS states that it "developed a three-pillar approach under the SBI that will focus on controlling the border, building a robust interior enforcement program, and establishing a Temporary Worker Program." Other CBP issues of interest to Congress include CBP staffing, Border Patrol vehicles, border technology, infrastructure construction, Tucson Border Patrol checkpoints, border tunnels, cargo and container security, radiation detection devices and non-intrusive inspection equipment, CBP Air and Marine, unmanned aerial vehicles, and the transfer of the Shadow Wolves from CBP to ICE. CBP Staffing Staffing issues have long been of interest to Congress, and there has been considerable debate concerning the appropriate level of staffing that CBP needs to effectively carry out its mission. CBP's staffing needs include not only Border Patrol Agents (discussed in the following section), but also officers stationed at the nation's ports of entry, import and trade specialists, pilots, and a variety of other positions. In addition to the debate over the appropriate level of staffing, other issues such as training resources, infrastructure demands, absorption of new staff, attrition, and hiring are also important. In an effort to address the concerns regarding CBP's staffing, the conference report to H.R. 5441 , H.Rept. 109-699 , requires CBP to submit a resource allocation model (RAM) to Congress no later than January, 23, 2007. The report is required to address the concerns and items contained in both the House ( H.Rept. 109-476 ) and Senate ( S.Rept. 109-273 ) reports. The report would be required to address staffing levels at all ports of entry and provide the complete methodology for aligning staff across mission areas. The conferees were particularly concerned with airport processing times, and directed CBP to specifically include in the RAM airports and the number of flights that took longer than 60 minutes to process. The House committee in its report, H.Rept. 109-476 , would require CBP to submit its staffing model with the FY2008 budget request. The model should address the operational assumptions in requesting resources by mission area; and the methodology for aligning staffing levels to threats, vulnerabilities, and workload across all mission areas and per port of entry, Border Patrol sector, and Foreign Trade Zone, in addition to several other items. The Senate committee in its report, S.Rept. 109-273 , would also require CBP to submit a RAM with current and future year staffing requirements, by February 7, 2007. The Senate committee was particularly concerned with CBP's ability to process growing passenger volumes at the nation's airports. GAO issued a report in July 2005, which stated that CBP did not systematically assess its staffing requirements at airports. S.Rept. 109-273 would required the report to be submitted by CBP to include assessments of optimal staffing levels at all ports for all missions, and stated that CBP should consult with appropriate nonfederal partners to estimate future passenger growth, throughput, and issues such as automatic secondary inspection requirements. Increase in CBP Officers P.L. 109-295 includes $34.8 million in funding for an additional 450 CBP officers in FY2007. The recently enacted Security and Accountability for Every Port Act (the SAFE Port Act, P.L. 109-347 ), authorizes 200 CBP officers per fiscal year for FY2008-FY2012, for a total of an additional 1,000 CBP officers in each of the next 5 fiscal years. The SAFE Port Act also would require the Commissioner of CBP to increase by not less than 50 full-time personnel, the number of personnel conducting validations and re-validations of certified C-TPAT participants in FY2008 and FY2009. The SAFE Port Act also authorizes additional funding for these personnel for FY2008-FY2012. Increase in Border Patrol Agents The President's request includes an increase of $459 million to increase the U.S. Border Patrol (USBP) workforce by an additional 1,500 agents in FY2007. This would bring the total of new agents hired since FY2005 to 3,000 and give the USBP an agent workforce of nearly 14,000. The request does not match the increase authorized by Congress in the Intelligence Reform and Terrorism Prevention Act of 2005 ( P.L. 108-458 ). IRTPA §5202 authorized DHS to increase the number of USBP agents by 2,000 each year from FY2006 to FY2010. The President's request is in line, however, with the 1,500 increase in USBP agents that was appropriated by Congress in FY2006. A potential issue for Congress could be whether the 1,500-agent increase in the President's request is adequate to provide for the security of the border, or whether the appropriate figure is the 2,000-agent increase authorized by IRTPA. The House included $385 million in funding for 1,200 new USBP agents, cutting the President's request by 300 agents and $74 million. The Senate recommended funding for an increase of 1,000 USBP agents, but noted that when combined with the 1,000 agents funded in the Emergency Supplemental Appropriations Act ( P.L. 109-234 ) brings the total FY2007 increase to 2,000 agents. In addition, a floor amendment was agreed to that would have added an additional 236 USBP agents, bringing the total additional USBP agents in the Senate bill to 1,236; taken together with the supplemental the total number of agents added in FY2007 would have been 2,236. The conferees appropriated funding for an increase of 1,500 USBP agents, or 2,500 total in FY2007 including the supplemental, and noted that they expect 10% of any increase in staffing to occur along the northern border. Border Patrol Vehicles The conferees noted that they were "extremely disappointed" with what they characterized as insufficient vehicle fleet planning on CBP's part. They noted that CBP's cost-benefit analyses for comparing the operating costs of standard commercial vehicles to those that may be more appropriate for the unique and challenging topographical and environmental features found at the border are unclear. The conferees direct CBP to re-submit its Vehicle Fleet Management Plan by January 23, 2007, and to fully describe its process for evaluating which vehicles meet its mission requirements and cost constraints. Border Technology Increase The President's request includes $100 million for border technologies to enhance the surveillance of the border and the USBP's ability to respond to incursions. DHS notes that it "will solicit and award a contract to complete the transition from the current, limited-scope technology plan to one that addresses the Department's comprehensive and integrated technological needs." A potential issue for Congress may involve the contracting process that DHS will pursue for this program. In FY2005, the General Services Administration's Inspector General (GSA IG) released a report which criticized the USBP for its contracting practices regarding the Remote Video Surveillance (RVS) system. The GSA IG found that the contracts were granted without competition, and that in many cases the contractor failed to deliver the services that were stipulated within the contract leading to RVS sites not being operational in a timely manner. In a 2005 report, the DHS Inspector General (DHS IG) noted that deficiencies in contract management and processes resulted in 169 incomplete RVS sites. Another potential issue for Congress could be the level of integration and scope of this border technology program. The RVS system mentioned above forms part of a larger program that integrates surveillance cameras with sensors. This program was originally called the Integrated Surveillance Intelligence System (ISIS), but was folded into the broader America's Shield Initiative (ASI) by DHS in 2005. DHS IG Richard Skinner stated in congressional testimony on December 16, 2005, that "to date, ISIS components have not been integrated to the level predicted at the onset of the program. RVS cameras and sensors are not linked whereby a sensor alert automatically activates a corresponding RVS camera to pan and tilt in the direction of the triggered sensor. However, even if ISIS was fully integrated, due to a limited number of operational RVS sites (255 nationwide), integration opportunities would be limited to the areas near these sites." Additionally, the DHS IG noted in its 2005 report that, due to a lack of integration, "ISIS remote surveillance technology yielded few apprehensions as a percentage of detection." For these reasons, the FY2006 DHS Appropriations Conferees noted that they were not fully funding the department's FY2006 request for ASI. The conferees stated that it was their understanding that DHS was currently reviewing the entire ASI program, and that major procurement for the program might be curtailed until DHS "has resolved fundamental questions about scope and architecture, and possibly its relation to overall, nationwide border domain security and awareness." The conferees noted that they expected to be kept informed of the results of this review and encouraged DHS to explore the use of off-the-shelf solutions for the program. Possible issues for Congress could thus include the relationship between SBI and ASI, whether the review process outlined above has been concluded and what its recommendations were, whether the DHS IG's recommendations concerning ISIS will be carried out, and what the overall extent of the technological integration featured in SBI will be. H.Rept. 109-476 voiced concern about DHS' request for SBI, noting that the submission and review of a strategic plan should have been the first step in creating the program. The House required that a strategic plan for SBI be submitted by November 1, 2006, and cut funding for SBI technologies by $17 million from the President's request. The Senate fully funded the President's request, but would make $100 million conditional on the submission to and approval of an expenditure plan by the House and Senate Appropriations Committees. Senate-passed H.R. 5441 would require any contract action related to SBI valued at more than $20 million to be reviewed by the DHS IG to ensure it adheres to applicable the cost requirements, performance objectives, and program milestones. The conferees continued this language from the Senate-passed bill. Infrastructure Construction DHS requests an increase of $30 million to continue construction of the border fence in San Diego, CA, as part of the SBI. Additionally, DHS is requesting $51 million to accelerate the construction of permanent vehicle barriers in western Arizona. DHS is also requesting $59 million to construct facilities for the additional USBP agents it is proposing to hire in FY2007. DHS has historically constructed tactical infrastructure under a Memorandum of Understanding (MOU) with the U.S. Corps of Engineers. Under this MOU, CBP was responsible for providing the funding for planning, engineering, and purchasing materials, while the actual construction was undertaken by military personnel at no charge. However, the department notes that using this traditional approach would take until 2010 to finish the projects currently underway. For this reason, the requested increase for tactical infrastructure includes funds for a commercial contract to construct almost half of the vehicle barriers in Arizona. DHS argues that it is at a critical point in its deployment of personnel and other resources at the border, and proposes using private contractors to accelerate the construction of this infrastructure. A potential issue for Congress could involve whether using private contractors to construct border infrastructure is the most cost-effective allocation of taxpayer resources given that under the current MOU with the Corps of Engineers CBP incurs no labor costs for these projects. Additionally, if contracts are issued for tactical infrastructure projects another potential issue for Congress could involve the oversight of the contracting process, given the contracting irregularities identified by the GSA IG in the RVS contracts mentioned earlier. H.Rept. 109-476 noted that while $30 million in funding was provided for San Diego tactical infrastructure improvements as requested, funding for Arizona tactical infrastructure projects was reduced due to poor budget justifications, uncertainty surrounding SBI procurement, and the lack of a strategic plan for SBI expenditures. The House withheld $25 million in funding until the Committees on Appropriations receive and approve an expenditure plan for SBI procurement and contracting. The Senate increased the President's request by $122 million, to $378 million. The Senate fully funded the infrastructure projects in Arizona and California, and included $59 million for the costs associated with constructing facilities for new Border Patrol agents. The Senate total also included an unspecified $90 million increase added as a floor amendment. The conferees agreed to provide $1,188 million for a new account entitled Border Security Fencing, Infrastructure, and Technology. This account will be used to fund integrated infrastructure projects at the border, including fencing, vehicle barriers, access roads, cameras, sensors, stadium lighting. Combined with the supplemental appropriation, the conferees noted that DHS will have $1,513 million for border infrastructure construction in FY2007. The conferees directed DHS to submit an expenditure plan for this funding within 60 days of the bill's enactment, and withheld $950 million of the funding until this plan is received and approved by the House and Senate Committees. DHS was also directed to ensure that CBP's future budget submissions consolidate funding for fencing, infrastructure, and technology between POE within this account. Lastly, the conferees directed CBP to work with the Secure Border Coordination Office, the Chief Procurement Officer, and the Chief Financial Officer to rigorously oversee all contracts awarded for border fencing, infrastructure, and technology and to work to minimize the use of subcontractors. Tucson Sector Border Patrol Checkpoints House-passed H.R. 5441 included language prohibiting any funds in the bill from being used for the construction, design, or the acquisition of sites for permanent checkpoints in the Tucson sector. The House bill would have also required the USBP to relocate its checkpoints in the Tucson sector at least once every seven days to "prevent persons subject to inspection from predicting the location of any such checkpoint." The Senate Appropriations Committee report noted that the DHS IG concluded that the permanent checkpoints permit safer and more efficient law enforcement and strongly encourages CBP to construct permanent checkpoints in the Tucson sector. The Senate-passed bill did not include any language concerning checkpoints in the Tucson sector. Border Tunnels Both the House and Senate Appropriations Committee reports raised concern over the existence and increase in tunnels underneath the land border. The House committee directed CBP to work with Science and Technology to establish a program for detecting and addressing this smuggling tactic and incorporate the costs of funding such a program into future budget submissions. The Senate voiced concern over the lack of a clear policy within DHS concerning which agency is responsible for securing, closing, and filling tunnels that are discovered and directs DHS to address this issue and to submit a report on their proposed policy by February 8, 2007; the conferees concurred with the reporting requirement. During floor consideration in the Senate, an amendment was accepted to H.R. 5441 that would criminalize the construction, financing, and use of tunnels crossing the U.S. international border. This amendment was agreed to in conference. Cargo and Container Security The recent Dubai Ports World controversy has brought significant attention to several issues surrounding port and maritime security, including cargo and container security. CBP's cargo security strategy includes two significant programs: the Container Security Initiative (CSI) and the Customs-Trade Partnership Against Terrorism (C-TPAT). CSI is a CBP program that stations CBP officers in foreign sea ports to target marine containers for inspection before they are loaded onto U.S.-bound vessels. C-TPAT is a public-private partnership aimed at securing the supply chain from point of origin through entry into the United States. The FY2007 request did not contain significant increases in funding for either the Container Security Initiative (CSI) or the Customs-Trade Partnership Against Terrorism (C-TPAT). Funding for C-TPAT remained flat with the FY2007 request of $76 million (which includes funding for the Free and Secure Trade (FAST) and NEXUS/SENTRIi programs), and the request for CSI increased by $2 million to $139 million for FY2007. P.L. 109-295 provides $139 million for CSI, $55 million for C-TPAT, and $11 million for FAST and NEXUS/SENTRI. The conferees in H.Rept. 109-699 noted that the conference agreement provides an additional $147 million for additional non-intrusive inspection technology (NII) and fully funds the requests for all cargo security and trade facilitation programs within CBP. H.Rept. 109-699 specifically directs CBP to comply with all aspects of the reporting requirements specified in the statement of managers and the House report regarding the port, cargo, and container, strategic plan (discussed below). The conferees also withhold $5 million from obligation, from the OSEM account (in Title I), until the Secretary of DHS submits the port, cargo, and container strategic plan to Congress. The conferees also note that they provide sufficient funding to allow CBP to meet the strategic plan requirements (specified in H.Rept. 109-699 and 109-476) of 100% initial validation and periodic re-validation of certified C-TPAT participants; and 100% manifest review at CSI ports. The House-passed version of H.R. 5441 would have provided an additional $15 million above the Administration's request for C-TPAT, and would fund CSI at the requested level. The Senate-passed version of H.R. 5441 would have funded both CSI and C-TPAT at the FY2007 requested level. Significant concerns have recently been raised regarding both of these programs. GAO has issued several reports noting that inadequate staffing levels for both the CSI and C-TPAT programs have hampered CBP's ability to conduct inspections overseas at foreign ports and to validate every C-TPAT member within three years of certification. Recent testimony by a CBP official has also noted that CBP itself is not satisfied with the current numbers of supply chain specialists available to conduct C-TPAT validations. GAO has raised a number of additional concerns regarding the C-TPAT program, which CBP has begun addressing, including the scope of effort and level of rigor applied to the validation process, how many and what types of validations are necessary to manage security risk, and the lack of a comprehensive set of performance measures for the program. GAO has also reported that several factors limit CBP's ability to successfully target maritime containers at foreign ports, including staffing imbalances, operational factors, lack of technical requirements for NII equipment used at foreign ports, and continued refinements to the strategic plan and performance measures needed to manage the program. The House Appropriations Committee in H.Rept. 109-476 expressed several concerns regarding the department's port, container, and cargo security programs, including lack of a "port, container, and cargo strategic plan...." The committee would have withheld $10 million from the Office of the Secretary and Management until this strategic plan was submitted. Several elements that would be required under this plan are similar to items that have been included in port security bills ( H.R. 4954 passed by the House, S. 2459 and S. 1052 both reported in the Senate, and S. 2791 introduced in the Senate). Significant provisions that would be required by the strategic plan outlined in H.Rept. 109-476 include having the Secretary ensure that all inbound cargo is screened by the Automated Targeting System (ATS); the percentage of inbound cargo inspected by CBP is doubled; by the end of FY2007: —CSI maintains a 100% manifest review rate; —C-TPAT conducts validations of new certified participants within one year, and once every three years thereafter; and —the percentage of containerized cargo screened for radiation as of January 1, 2006 is doubled. In addition to the above items, the plan would be required to include a discussion of how the CSI program is coordinated with the Department of Energy's Megaports program, how CBP is promoting non-intrusive inspection (NII) equipment in foreign countries, minimum standards for securing cargo containers, an evaluation of evaluation of cargo inspection systems utilized at high-volume foreign ports (such as Hong Kong), among other items. P.L. 109-295 requires CBP to comply with these strategic plan directives set out in H.Rept. 109-699 . Section 558 of P.L. 109-295 requires the Secretary of DHS to conduct a full-scale pilot of the integrated screening system (similar to the one being used at certain terminals in Hong Kong). This provision is similar to the provision passed in the Security and Accountability for Every Port Act (the SAFE Port Act, P.L. 109-347 ). Title VII of Senate-passed H.R. 5441 contains additional appropriations for port security, including $251 million for CBP for FY2006, but this funding was not included in P.L. 109-295 (though other emergency funding was included). For a full discussion, see Appendix A of this report. Screening Municipal Solid Waste The Senate-passed version of H.R. 5441 included provisions pertaining to CBP's screening of municipal solid waste (MSW). Sec. 555 would have required CBP to submit a report to Congress within 90 days of enactment indicating whether the methods used to inspect the trash trucks for chemical, nuclear, biological, and radiological weapons were as effective as methods used to screen other commerce. The report would also have been required to identify actions to improve the screening of MSW in the event the current screening methods are found deficient, including the acquisition of additional screening technology. Sec. 555 would have required the Secretary of DHS to deny the entry of any truck carrying MSW in the event that CBP failed to implement the required corrective actions within a specified time-frame. Sec. 557 would have required the Secretary of DHS to provide personnel and equipment to improve the inspection of commercial vehicles carrying MSW, and to levy a fee approximating the costs of the inspections. These provisions were not included in P.L. 109-295 . Radiation Detection Devices and Non-Intrusive Inspection (NII) Technology . CBP has deployed a number of non-intrusive inspection (NII) technologies at ports of entry to assist customs inspectors with the inspection of cargos. Large scale NII technologies include a number of x-ray and gamma ray systems. The Vehicle and Cargo Inspection Systems (VACIS), which uses gamma rays to produce an image of the contents of a container for review by the CBP inspector, can be deployed in a mobile or stationary capacity depending upon the needs of the port. Mobile Sea Container Examinations Systems are also deployed at ports to examine containers. CBP is also continuing to deploy nuclear and radiological detection equipment including personal radiation detectors, radiation portal monitors (RPMs), and radiation isotope identifiers to ports of entry (POEs). Recently, various concerns have been raised regarding in particular the radiation detection equipment. GAO reported in March of 2006, that although DHS has made progress in deploying radiation detection equipment at US POEs, the program goals are unrealistic (deployment has fallen behind schedule), and the program's cost estimate is uncertain. Delays have been caused by a variety of factors, including DHS's review process which has delayed the provision of acquisition and deployment information to Congress, and difficult negotiations with seaport operators concerning placement of the portal monitors and the screening of railcars. According to GAO, uncertainty regarding the cost and improved effectiveness of advanced technology portals are contributing to the difficulties in obtaining an accurate cost estimate of the radiation detection deployment program. In addition, GAO found that although DHS has improved the use of the detection equipment, CBP officers do not have access to data that would allow them to verify Nuclear Regulatory Commission (NRC) licenses (which are generally required for radiological materials transported into the U.S., though the licenses need not accompany the shipment), and that CBP secondary inspection procedures do not require CBP officers to open containers and inspect them to resolve an alarm (though GAO found that this does occur at some POEs). GAO recommended that DHS streamline its internal review procedures so that the department can provide Congress with spending data in a more timely fashion; update the RPM deployment schedule; analyze the benefits and costs of advanced portal technology and then revise the cost estimate; develop methods to effectively screen rail containers; revise agency container inspection procedures; and develop a way for CBP officers to verify NRC licenses. The House, in H.Rept. 109-476 , indicated its continuing concern with the issues cited by GAO in its report, and required CBP to report to Congress by January 16, 2007, on improvements to the process for combating nuclear smuggling. The Senate, in S.Rept. 109-273 , indicated its support for the acquisition and use of multiple technologies and advanced mobile inspection systems to screen cargo containers and conveyances. The committee also noted that GAO concluded that there was no specific plan to interdict hazardous materials that may be entering the United States, and the committee encouraged CBP to use the most up to date technology to address this issue. CBP Air and Marine . The Administration requested $338 million for the CBP Air and Marine Interdictions, Operations, Maintenance, and Procurement account. P.L. 109-295 provides $602 million for CBP Air and Marine. This amount includes $70 million for P-3 service-life extension and additional hours; $20 million for helicopter acquisition; $20 million for unmanned aerial vehicles (UAVs) and related support systems; $2 million for marine interceptor boat replacement; $10 million for the missionization of manned covert aircraft; $64 million for two medium lift helicopters; $58 million for multipurpose aircraft; and $19 million for the Northern Border Airwing (NBA). H.Rept. 109-699 would also require DHS to include funding for the fifth NBA, to be set up in Michigan, in the FY2008 budget request. House-passed H.R. 5441 provided $373 million for this account, nearly $36 million above the Administration's request and $23 million below the FY2006 enacted amount. The Senate-passed H.R. 5441 provided a total of $472 million for the CBP Air and Marine Interdictions, Operations, Maintenance, and Procurement account; and $173 million for CBP Air and Marine, Personnel, Compensation, and Benefits, in the CBP Salaries and expenses account. Title VI of Senate-passed H.R. 5441 contained a provision that provided an additional $105 million for air asset replacement and air operations facilities upgrades. The total amount provided in Senate-passed H.R. 5441 for the CBPAM Interdictions, Operations, Maintenance, and Procurement account was $577 million. The House Appropriations Committee remained concerned with several aspects of the CBP Air and Marine program. CBP had yet to submit a capitalization plan to Congress, and as a result the House recommended reduced funding for CBP's Headquarters, Management and Administration has been reduced by $4 million. In addition, H.Rept. 109-476 directed CBP to submit the Air and Marine Capitalization Plan no later than November 1, 2006. There have been several organizational changes made to CBP Air and Marine operations in the past couple of years. The most recent of these changes include the move of CBP Air and Marine from ICE to CBP and the consolidation of legacy Customs air and marine assets with the air and marine assets of the Border Patrol. Concerns have been raised regarding the impact of this consolidation on the deployment of CBP Air and Marine assets, particularly in the source and transit zones, and for investigative and surveillance support missions. H.Rept. 109-476 directed CBP to reflect a comprehensive approach to asset deployment that is not solely focused on the physical border. In addition, CBP was also directed to report to Congress no later than January 16, 2007, on requests for support made in 2006, the response to those requests, and on the consequences of reduced support to ICE. Unmanned Aerial Vehicles Senate-passed H.R. 5441 included a provision that would direct DHS to establish a pilot program for the use of Unmanned Aerial Vehicles to surveil the northern border. P.L. 109-295 provides $20 million within the CBP Air and Marine Interdictions, Operations, Maintenance, and Procurement account for the acquisition of unmanned aerial vehicles (UAV). The conferees (in H.Rept. 109-699 ) directed CBP to submit to the House and Senate Committees the official findings of the April 2006 UAV crash in Arizona no later than January 23, 2007. CBP was also encouraged to work with the Federal Aviation Administration to establish a pilot program to test the use of UAVs to surveil the northern border. Shadow Wolves Transfer Prior to the creation of DHS, the Shadow Wolves were a Customs Patrol investigative unit within the U.S. Customs Service charged with enforcing customs laws and interdicting smugglers within the Tohono O'odham reservation. The Shadow Wolves were created after years of negotiation between the Customs Service and the Tribe, and members of the unit must be certified Native American. The Shadow Wolves were originally placed within ICE when DHS was created, but were subsequently moved into CBP where they are administratively under the USBP. During floor debate on H.R. 5441 , an amendment was agreed to ( H.Amdt. 952 ) that would transfer $2 million in funding from CBP to ICE to effectively move the Shadow Wolves into ICE. P.L. 109-295 includes $3 million to effect the transfer of the Shadow Wolves from CBP into ICE. Immigration and Customs Enforcement (ICE)84 ICE focuses on enforcement of immigration and customs laws within the United States. ICE develops intelligence to reduce illegal entry into the United States and is responsible for investigating and enforcing violations of the immigration laws (e.g., alien smuggling, hiring unauthorized alien workers). ICE is also responsible for locating and removing aliens who have overstayed their visas, entered illegally, or have become deportable. In addition, ICE develops intelligence to combat terrorist financing and money laundering, and to enforce export laws against smuggling, fraud, forced labor, trade agreement noncompliance, and vehicle and cargo theft. Furthermore, this bureau oversees the building security activities of the Federal Protective Service, formerly of GSA. The Federal Air Marshals Service (FAMS) was returned from ICE to TSA pursuant to the reorganization proposal of July 13, 2005. The Office of Air and Marine Interdiction was transferred from ICE to CBP, and therefore the totals for ICE do not include Air and Marine Interdiction funding, which is included under CBP. See Table 6 for account-level detail for all of the agencies in Title II, and Table 8 for sub-account-level detail for ICE Salaries and Expenses (S&E) for FY2006 and FY2007. President's FY2007 Request The Administration requested $4,696 million in gross budget authority for ICE in FY2007, which represents a 20% increase over the enacted FY2006 level of $3,916 million. The Administration requested an appropriation of $3,928 million in net budget authority for ICE in FY2007, representing a 24% increase over the FY2006 enacted level of $3,175 million. Table 8 provides activity-level detail for the Salaries and Expenses account. The request included the following program increases: $66.9 million for the Office of Investigations pay and non-pay inflation; $16.6 million for additional compliance enforcement agents and law enforcement technicians; $364.6 million for custody management and detention bedspace; $64.7 million for Fugitive Operations; $13 million for Alternatives to Detention; $8.7 million for Institutional Removal Program (IRP); $174.9 million for transportation and removal within the detention and removal program; $41.9 million for worksite enforcement; and $59.1 million for legal proceedings. House-Passed H.R. 5441 House-passed H.R. 5441 would have appropriated $4,644 million in gross budget authority for ICE in FY2007, which represented a 19% increase over the enacted FY2006 level of $3,916 million, and $52 million less than the President's request. As shown in Table 6 , the bill would have appropriated $3,876 million in net budget authority for ICE in FY2007, which represented a 22% increase over the FY2006 enacted level of $3,175 million. Of the appropriated amount, $5.4 million would have been used to implement §287(g) of the INA; $11.2 million would have been designated to fund or reimburse other federal agencies for the cost of care, and repatriation of smuggled aliens, and $15.8 million would have been targeted for enforcement of laws against forced child labor. In addition, H.Rept 109-476 recommended an increase over FY2006 funding of $275 million for detention bedspace, transportation, and removal efforts associated with the SBI; $33.4 million for 70 fugitive operations teams; $13.7 million for financial and trade investigations; $1 million for the Human Smuggling and Trafficking Center; $5 million for alternatives to detention; and $40 million to expand the Criminal Alien Program (CAP). Senate-Passed H.R. 5441 Senate-passed H.R. 5441 would have appropriated $4,717 million in gross budget authority for ICE in FY2007, which would have represented a 20% increase over the gross enacted FY2006 level of $3,916 million, and $21 million more than the President's request. As shown in Table 6 , the bill would have appropriated $3,919 million in net budget authority for ICE in FY2007, which would have represented a 23% increase over the FY2006 enacted level of $3,175 million. Of the appropriated amount, $58 million would have been available to increase detention space (including related support) by 1,700 beds, $5.4 million would have been used to implement §287(g) of the INA; $11.2 million would have been designated to fund or reimburse other federal agencies for the cost of care, and repatriation of smuggled aliens, $15.8 million would have been targeted for enforcement of laws against forced child labor, $102,000 would have been used to promote public awareness of child pornography, and $203,000 would have funded project alert. Senate-passed H.R. 5441 (§601) would have directed the Secretary of DHS to adjust the fees charged to noncitizens to achieve no less than $350 million in additional receipts by September 30, 2007. Of the additional monies, $30 million would have been for vehicle replacement in ICE, and $15 million for ICE automation modernization. In addition, S.Rept. 109-273 recommended an increase over FY2006 funding of $10 million (27 FTEs) for compliance investigations related to visa overstays; $400,000 to implement §287(g) agreements; $3.9 million to respond to requests for assistance from state and local law enforcement; $38.5 million (128 FTEs) for DHS representation in removal proceedings; $165 million for DRO custody management; $94 million for DRO transportation and removal operations; $40 million for DRO fugitive operations; $1 million (4 FTEs) to establish the Office of Financial Management to oversee internal controls within ICE; $3.6 million (16 FTEs) to improve the Office of Procurement; $10 million to expand the Office of Professional Responsibility; and $2 million for the Cyber Crime Center. P.L. 109-295 P.L. 109-295 appropriates $4,727 million in gross budget authority for ICE in FY2007, representing a 21% increase over the gross enacted FY2006 level of $3,916 million. As shown in Table 6 , the bill would appropriate $3,928 million in net budget authority (not including the additional $30 million in emergency funding) for ICE in FY2007, representing a 24% increase over the FY2006 enacted level of $3,175 million. Of the appropriated amount, $5.4 million would be used to implement §287(g) of the INA, $11.2 million would be designated to fund or reimburse other federal agencies for the cost of care and repatriation of smuggled aliens, $15.8 million would be targeted for enforcement of laws against forced child labor, $102,000 would be used to promote public awareness of child pornography, and $203,000 would fund Project Alert. Of the monies, $30 million would be for vehicle replacement in ICE and $15 million for ICE automation modernization. P.L. 109-295 specifies that $13 million of the appropriated monies for automation modernization may not be obligated until the House and Senate Appropriations Committees receive and approve a plan for spending the funds. In addition, H.Rept. 109-699 recommends increased or new funding of $153.4 million for DRO custody management; $94 million for DRO transportation and removal operations; $76 million for DRO fugitive operations and associated bed space; $20 million for DRO vehicles; $2.5 million for Alternatives to Detention; $4.6 million for internal controls and procurement management; $5 million for the Office of Professional Responsibility; $10 million for Compliance Enforcement Units; $30 million for expanded worksite enforcement efforts; $10 million for additional vehicles for the Office of Investigations; $6.8 million for the Trade Transparency Unit; $2 million for the Criminal Alien Program; and $1 million for the Human Smuggling and Trafficking Center. Office of Investigations/Immigration Functions ICE's Office of Investigations (OI) focuses on a broad array of criminal and civil violation affecting national security such as illegal arms exports, financial crimes, commercial fraud, human trafficking, narcotics smuggling, child pornography/exploitation, worksite enforcement, and immigration fraud. ICE special agents also conduct investigations aimed at protecting critical infrastructure industries that are vulnerable to sabotage, attack, or exploitation. The Homeland Security Act of 2002 ( P.L. 107-296 ) abolished the INS and the United States Customs Service, and transferred most of their investigative functions to ICE effective March 1, 2003. There are investigative advantages to combining the INS and Customs Services, as those who violate immigration laws often are engaged in other criminal enterprises (e.g., alien smuggling rings often launder money). Nonetheless, concerns have been raised that not enough resources have been focused on investigating civil violations of immigration law and that ICE resources have been focused on terrorism and the types of investigations performed by the former Customs Service. P.L. 109-295 appropriates $1,285 million for OI domestic operations, which according to the conference report, includes increases in the base funding for two specific immigration enforcement programs, the Compliance Enforcement Unit ($10 million) and worksite enforcement ($30 million). The $1,457 million requested in the President's budget for the OI domestic operations also included increases for the Compliance Enforcement Unit and worksite enforcement. The President's budget requested an additional $41.9 million for worksite enforcement to add 206 positions responsible for investigating and prosecuting violations under immigration law for hiring unauthorized aliens. The President's budget also requested an additional $10.6 million for compliance investigations for an additional 54 positions. House-passed H.R. 5441 would have appropriated $1,325 million for OI domestic operations, whereas Senate-passed H.R. 5441 would have appropriated $1,286 million for OI domestic operations, $39 million less than House-passed H.R. 5441 , and $171 million less than the President's request. Detention and Removal Operations Detention and Removal Operations (DRO) in ICE provides custody management of aliens who are in removal proceedings or who have been ordered removed from the United States. DRO is also responsible for ensuring that aliens ordered removed actually depart from the United States. Many contend that DRO does not have enough detention space to house all those who should be detained. A study done by DOJ's Inspector General found that almost 94% of those detained with final orders of removal were deported whereas only 11% of those not detained who were issued final orders of removal left the country. Concerns have been raised that decisions on which aliens to release and when to release the aliens may be based on the amount of detention space, not on the merits of individual cases, and that the amount of space may vary by area of the country leading to inequities and disparate policies in different geographic areas. The Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 , §5204) authorized, subject to appropriations, an increase in DRO bed space of 8,000 beds for each year, FY2006-FY2010. The President's budget requested a total of $2,077 for DRO including an additional $364.6 million for custody operations, $174.9 million for transportation and removal, $64.8 million for fugitive operations, and $8.7 million for the Institutional Removal Program (IRP). P.L. 109-295 appropriates $1,984 million for DRO, 46% more than the FY2006 appropriation of $1,358 million and $93 million less than the President's request. H.Rept. 109-699 states that with the new DRO funding, ICE will be able to sustain an average bed space capacity of 27,500, as proposed by the President. P.L. 109-295 also requires DHS to submit reports to Congress on removal orders, detainee bonds, and detention space management. House-passed H.R. 5441 would have appropriated $1,915 million for DRO. According to H.Rept. 109-476 , the reduction from the President's request was due in part to inadequate information about DHS' detention management plan, and by budget constraints caused by the increase to aviation passenger fees. Senate-passed H.R. 5441 would have appropriated $1,833 million for DRO, and S.Rept. 109-273 would have required DHS to submit reports on removal orders, alien absconders, detention bonds, separation of families in detention, and detention of unaccompanied minors. Similar to House-passed and Senate-passed H.R. 5441 , P.L. 109-295 , appropriates $11.2 million to fund or reimburse other federal agencies for the costs associated with the care, maintenance, and repatriation of smuggled aliens. Alternatives to Detention Because of the cost of detaining aliens and because many nondetained aliens with final orders of removal do not leave the country, there has been interest in developing alternatives to detention for certain types of aliens who do not require a secure detention setting. In 2004, ICE began a pilot program, the Intensive Supervision Appearance Program, for low-risk, nonviolent offenders. In addition, ICE uses electronic monitoring devices as another alternative to detention. P.L. 109-295 appropriates $44 million for detention alternatives, $1 million more than the President's budget request. House-passed H.R. 5441 would have appropriated $46 million and the Senate-passed H.R. 5441 would have appropriated $41 million for detention alternatives Secure Border Initiative The Secure Border Initiative (SBI) is a DHS multi-year plan to secure the borders and reduce illegal migration by hiring more agents, expanding detention and removal capabilities, upgrading technology, increasing border infrastructure, and increasing interior enforcement of immigration laws. According to the President's budget, several of the requested increases are part of the SBI, including funds for detention beds ($364. million), worksite enforcement ($41.7 million), and fugitive operations ($64.7 million). House-passed H.R. 5441 would have included increases in fugitive operations ($33.4 million) and for detention bedspace, transportation, and removal efforts ($275 million) associated with the SBI. As in Senate-passed H.R. 5441 , P.L. 109-295 does not appropriate any money within ICE specifically for the SBI. State and Local Law Enforcement .101 Currently the INA provides limited avenues for state enforcement of both its civil and criminal provisions. One of the broadest grants of authority for state and local immigration enforcement activity stems from INA §287(g), which authorizes the Attorney General to enter into a written agreement with a State, or any political subdivision to allow an officer or employee of the State or subdivision, to perform a function of an immigration officer in relation to the investigation, apprehension, or detention of aliens in the United States. The enforcement of immigration by state and local officials has sparked debate among many who question what the proper role of state and local law enforcement officials should be in enforcing federal immigration laws. Many have expressed concern over proper training, finite resources at the local level, possible civil rights violations, and the overall impact on communities. Some localities, for example, even provide "sanctuary" for illegal aliens and will generally promote policies that ensure such aliens will not be turned over to federal authorities. Nonetheless, some observers contend that the federal government has scarce resources to enforce immigration law and that state and local law enforcement entities should be utilized. P.L. 109-295 appropriates $5.4 million to facilitate INA §287(g) agreements, the same amount that both House-passed and Senate-passed H.R. 5441 would have appropriated. Senate-passed H.R. 5441 would also have created a new grant program called the "Border Relief Grant Program." Under this program, subject to available appropriations, the Secretary would have awarded grants to tribal, state, and local law enforcement agencies located in counties no more than 100 miles from the U.S.-Mexico or U.S.-Canadian land border, or located in counties further than 100 miles from the U.S. land borders who had been certified by the Secretary as High Impact Areas. Two-thirds of the funds would have been allocated to the six states with the largest number of unauthorized alien apprehensions, and one-third would be set aside for High Impact Areas. The grants would have been used to provide additional resources to the law enforcement agencies to help address criminal activity that occurs in the jurisdiction by virtue of the agencies proximity to the U.S. land border, and the impact of any lack of security along the U.S. border. Priority would have been given to law enforcement agencies serving communities with populations less than 50,000 and located no more than 100 miles of the U.S. international land borders. The bill would have authorized $50 million each year FY2007 through FY2011 for the "Border Relief Grant Program." This program was not included in P.L. 109-295 . Transportation Security Administration (TSA)103 The TSA was created by the Aviation and Transportation Security Act (ATSA, P.L. 107-71 ), and it was charged with protecting air, land, and rail transportation systems within the United States to ensure the freedom of movement for people and commerce. In 2002, the TSA was transferred to DHS with the passage of the Homeland Security Act ( P.L. 107-296 ). The TSA's responsibilities include protecting the aviation system against terrorist threats, sabotage, and other acts of violence through the deployment of passenger and baggage screeners; detection systems for explosives, weapons, and other contraband; and other security technologies. The TSA also has certain responsibilities for marine and land modes of transportation including assessing the risk of terrorist attacks to all non-aviation transportation assets, including seaports; issuing regulations to improve security; and enforcing these regulations to ensure the protection of these transportation systems. TSA is further charged with serving as the primary liaison for transportation security to the law enforcement and intelligence communities. See Table 6 for account-level detail for all of the agencies in Title II, and Table 9 for sub-account-level detail for TSA for FY2006 and FY2007. President's FY2007 Request The President requested an appropriation of $6,299 million in gross budget authority for the TSA in FY2007. The FY2006 enacted level was $6,344 million. Table 9 provides FY2006 appropriated and FY2007 requested funding levels for each TSA budget activity. As in past years, the large majority of these funds are slated for aviation security functions. Direct funding for aviation security ($4,905 million) and air marshals ($699 million) comprises about 89% of the requested TSA budget. Additionally, much of the TSA credentialing activities, intelligence, and administrative functions and associated funding requests would provide both direct and indirect support for aviation security operations. Requested funding for transportation security threat assessments and credentialing totals $131 million. The Secure Flight system for prescreening airline passengers and the voluntary Registered Traveler program designed to expedite checkpoint screening of vetted airline passengers account for more than half of the requested amount in this category. Several of these vetting and credentialing programs—including the alien flight school applicant vetting program, the credentialing program for HAZMAT drivers, and the proposed Registered Traveler and Transportation Worker Identification Credential (TWIC) programs—either are, or are anticipated to be, fully funded through fee collections. The President has also requested $37 million for TSA surface transportation security activities, including support personnel and resources to assess terrorist threats, assess standards and procedures to mitigate these risks, and ensure compliance with transportation security regulations and policies in non-aviation modes. Although the overall funding request for surface transportation security is roughly equal to FY2006 appropriated levels, the President requested an increase of about $5 million for rail security but requested no specific appropriation for tracking trucks carrying hazardous materials, an initiative that received $4 million in FY2006. Highlighted Initiatives in the President's Funding Request The President proposed several funding initiatives in FY2007 designed to improve aviation security screening functions. The TSA requested $10 million as a component of screener benefits to improve screener retention. The TSA proposed to use this money to implement retention allowances, performance bonuses, college credit reimbursement, flexible staffing options, and pay-for-performance incentives. The goal is to reduce attrition rates, which are nearly 20% for full-time screeners and above 50% for part-time screeners. The TSA believes that lowering attrition could reduce recruitment and training costs. The TSA also requested $20 million to fund worker compensation payments owed to the Department of Labor. By some estimates, TSA on-the-job injury rates—which were close to 30% in 2005—far exceed the rates of other federal and private-sector jobs, and injuries cost the TSA about $52 million in 2005 in lost wages and medical treatment of injured workers. The TSA also requested slightly more than $80 million for emerging checkpoint technologies—such as whole body imaging systems, automated explosive spot samplers, and cast and prosthesis scanners—to improve the detection of weapons and explosives on passengers and their carry-on items. Congress and the 9/11 Commission have given a high priority to developing and deploying checkpoint technologies to screen passengers and carry-on items for explosives and nonmetallic, chemical, biological, and radiological weapons. The TSA also proposed a budget increase of $7.5 million to hire 30 additional procurement staff members to aid in the acquisition of new technologies and services and improve procurement processes and controls. The President's Proposal for Restructuring Aviation Security Fees In an effort to increase revenues from user fees and reduce the general fund contribution for aviation security functions, the President proposed a restructuring of the passenger security fees established under ATSA. The proposal would have replaced the current fee structure of $2.50 per flight segment and a maximum fee of $5.00 per one-way trip, with a flat fee of $5.00 per one-way trip. Although passengers making connections to reach their destination would not see a fee increase under this proposal, passengers on direct flights would see their aviation security fees double. The Administration argues that the flat fee proposal more closely parallels passenger utilization of the aviation security system since passengers and their baggage are typically screened only once regardless of how many connections they might make to reach their destination. In this regard, the Administration's proposed aviation security fee changes for FY2007 differed significantly from those previously proposed in the FY2006 budget request. That prior proposal, which was not widely supported in Congress, would have kept the per-segment fee structure in place and raised it to $5.50 per trip segment with a maximum of $8.00 per one-way flight. That proposal, however, was opposed in Congress not only because it was viewed by many as detrimental to the airline industry as a whole, but also because it was seen as disproportionately impacting certain passengers, particularly those using smaller airports, who are more dependent on connecting flights. It is notable, however, that this perceived imbalance in the aviation security fee structure stems from the original collection authority enacted under ATSA, which presently requires passengers taking connecting flights to pay twice as much in aviation security fees as passengers taking a direct flight. The Administration projected that if the newly proposed flat fee of $5.00 per one-way trip were enacted, the increase in fee collections from passengers on direct flights, along with a rise in the numbers of air travelers, would have boosted aviation security fee collections in FY2007 by about $1,726 million dollars, or roughly 85%, compared to expected FY2006 revenues. If this measure were enacted, the Administration expected the new fees to cover about 70% of core aviation security costs, compared to a contribution of about 38% in FY2005. The Administration asserts that having users pay for aviation screening and security is what Congress intended when it enacted the aviation security fee under ATSA and doing so would free up general funds for spending on other homeland security needs that are more generally applicable to all citizens. Critics of the proposal, on the other hand, argue that all citizens benefit from aviation security measures that are intended, in part, to prevent another terrorist attack like the attack of September 11, 2001, and therefore, aviation security should be funded, at least in part, through general fund contributions. Critics of the proposal also maintain that tacking the aviation security fee on to passenger tickets hurts airlines by increasing the overall ticket cost which may prompt some passengers to seek alternative transportation, particularly for shorter trips. These critics go on to argue that airlines are already burdened by other ticket taxes and higher fuel prices that can negatively impact passenger revenues. Also, industry experts believe that the proposed fee schedule would have a greater relative impact on low-cost carriers that offer more direct flights. The current fee schedule arguably has a greater relative impact on legacy carriers that route passengers on connecting flights to a much greater extent using a hub-and-spoke service model. The Administration also proposed to collect $644 million from security fees paid directly by the air carriers, known as the aviation security infrastructure fees (ASIF). This sum includes $448 million in projected FY2007 collections plus $196 million in retroactive fee collections using revised prior-year airline contribution amounts based on a GAO analysis. House-Passed H.R. 5441 House-passed H.R. 5441 would have provided a gross total of $6,364 million for the TSA in FY2007. This amount was $65 million more than the President's request and $20 million more than FY2006 enacted appropriations. The House-passed bill would have appropriated $4,704, roughly 74% of the total TSA budget, on direct spending for aviation security, including screening operations, security direction and enforcement, and the mandatory $250 million appropriation for the Aviation Security Capital Fund. The House-passed appropriation for aviation security was roughly $50 million higher than the President's request. This amount, however, did not include appropriations for the Federal Air Marshals Service (FAMS), for which the House-passed bill would have provided $699 million, matching the President's request. The amount for aviation security also did not include aviation-security related threat assessment and credentialing programs such as Secure Flight and the Registered Traveler program. The House-passed bill would have provided $74 million for the TSA's Transportation Threat Assessment and Credentialing (TTAC) mission area in all transportation modes which includes the following programs: Secure Flight (aviation), Crew Vetting (aviation), Transportation Worker Identification Credential—TWIC (currently limited to marine/seaports), Registered Traveler (aviation), HAZMAT Commercial Driver Credentialing (highway, freight trucking) and Alien Flight School vetting (aviation). Under the House-passed bill, TTAC funding for aviation-related functions included $55 million in direct appropriations, and an additional $37 million from fee collections, largely anticipated to be derived from the Registered Traveler program. Adding the House-passed funding for FAMS and aviation-related threat assessment and credentialing programs would have yielded a total spending package for aviation-related functions of $5,495 million, or 86% of total TSA funding included in the bill. The House-passed bill would also have provided $37 million for TSA surface transportation security functions, the same as the President's request. The committee report ( H.Rept. 109-476 ) also directed the TSA to use prior year unobligated funds designated for surface transportation staffing and operations on rail and mass transit security screening pilot programs in large metropolitan areas. The House bill would also have appropriated $20 million for the TWIC program in addition to the $20 million that the administration expects from fee collections and, in-line with the President's request, anticipated $19 million in fee collections for HAZMAT commercial driver credentialing. A general provision in the bill (Sec. 520) would have prohibited any funds designated for the TWIC program from being used to develop any type of credentialing program that is decentralized and not universal, and would have required that existing government card production facilities be used to carry out production of TWIC credentials. With regard to the Administration's proposal to modify the passenger fee schedule, this request was not considered in the House-passed bill because it sought to modify existing law that falls under the jurisdiction of the House Committee on Homeland Security. The appropriations committee estimated FY2007 passenger fee collections under the existing fee schedule to total $2,124 million. This included an initial $250 million to be deposited in the Aviation Security Capital Fund plus an additional $1,874 million to offset TSA spending on aviation security. In addition the House committee projected aviation security infrastructure fee (ASIF) collections directly from the airlines, including retroactive payments from FY2005 and FY2006, to total $546 million in FY2007, $98 million less than the administration projection. While the House-passed bill was based on the assumption of collecting significantly less in passenger and airline fees than administration projections, the only TSA program that was specifically reduced to derive cost savings was for headquarters administration, which was reduced by $4 million. House-passed funding for the Federal Flight Deck Officer (FFDO) program and flight attendant (cabin crew) training was also reduced, by $5 million, compared to the President's request. However, this cut was attributed to high unobligated balances of prior year appropriations for the program rather than as a specific cost cutting measure. The House-passed bill otherwise set funding at levels equal to or greater than requested amounts. The appropriations committee, however, indicated that reductions to key funding proposals throughout DHS were made to "make up for the shortfall in the President's budget brought on by this untenable fee proposal." In report language, the House appropriations committee encouraged TSA to develop innovative approaches and incentives for airports to pursue private screener operations instead of federal TSA-screeners. A general provision in the bill (Sec. 536) would have prohibited the TSA from hiring non-screener personnel at airports whose duties would be redundant with those performed by any non-screener personnel employed by a contract screening company participating in the Screening Partnership Program (SPP). As in past years, language in the House-passed bill capped TSA screener staffing levels to 45,000 full-time equivalents. The committee noted that this cap has been kept in place, in part, to ensure that the TSA accelerates technology deployment initiatives for passenger and baggage screening. Report language also directed the TSA to report on its efforts to decentralize screener hiring, and how these efforts might be encumbered by centralized financing of the hiring process. The committee also wanted the TSA to complete a study to identify those airports where passenger wait times at screening checkpoints are continually above system-wide averages. The House-passed bill would have provided $45 million more than the President's request for EDS purchase. The House-passed bill also included an additional $10 million, not included in the President's request, to begin refurbishing and upgrading EDS equipment, with the caveat that only those machines that manufacturers are willing to place back under warranty should be refurbished. The committee, however, emphasized that it did not believe that explosive trace detection (ETD) should be refurbished, and sought the long term reduction in the use of ETD equipment for baggage screening. House-passed language also required the TSA to develop standards and protocols for increasing the use of EDS to screen air cargo, and requires the TSA to use existing EDS equipment and screeners to screen cargo on passenger aircraft to the greatest extent practicable at each airport. The bill further would have required the TSA to provide Congress with air cargo inspection statistics by airport and by air carrier on a quarterly basis, and would have reduced aviation security appropriations by $100,000 for every day that the required report is late (Sec. 519). As in previous years, the House-passed bill would have prohibited the full deployment or implementation of Secure Flight beyond its testing phase until the DHS certifies and the GAO reports that the system satisfactorily addresses specific statutory requirements pertaining to system performance, data protection, privacy, and redress for aggrieved passengers. Language in the House-passed bill (Sec. 513) also would have prohibited the development of algorithms to assign passenger risk using any means other than official government watch lists, and prohibits the use of commercial, or non-federal, databases in the Secure Flight system. Senate-Passed H.R. 5441 The Senate-passed bill would have provided $6,562 million in total budget authority for the TSA, $198 million more than the House-passed amount and $276 million more than the requested funding amount. The Senate approved a total appropriation (including the Aviation Security Capital Fund) for aviation of $5,002 million, $48 million above the House-passed funding level and $97 million more than the President's request. Like the House, the Senate did not include the President's proposed increase to passenger aviation security fees and projected total collections from passengers and the airlines to equal $2,420 million in addition to the $250 million designated for mandatory spending in the Aviation Security Capital Fund. For most budget activities, the Senate-passed bill matches funding levels requested by the President and passed by the House. Notable exceptions to this are discussed below. The Senate approved $181 million for airport checkpoint support functions, $8 million more than the requested level that was agreed to by the House. While the committee did not specifically designate what this additional funding was to be used for, its report ( S.Rept. 109-273 ) indicated that the overall appropriation amount for this budget activity included funding for the development and piloting of an advanced checkpoint portal solution, and report language directed the TSA to develop a strategic plan and timeline for deploying emerging technologies to screen passengers for explosives. The Senate-passed bill also proposed bringing transportation security research and development functions back under the TSA, rather than in the Science and Technology Directorate (S&T), where they has been for the last two years. Much of these activities are directed at improving explosives detection capabilities in the aviation environment. The Senate agreed to $92 million for these aviation security research and development activities. The Senate-passed bill would have provided $141 million for EDS and ETD purchase, $50 million more than the President's request and $5 million more than the House-passed amount. The Senate committee report ( S.Rept. 109-273 ) expressed concerns over the President's budget request that would have cut this function by more that 50%. The report specified that out of the total funding amount for EDS and ETD purchase, $20 million or more should be put toward acquiring and deploying next-generation EDS machines, noting that the newer machines are potentially more efficient than current-generation units and may yield a significant improvement in installation, integration, and life-cycle costs. The Senate-passed bill also included $172 million for EDS and ETD installation, $127 million more than the FY2006 appropriated amount and $78 million more than both the President's request and the House-passed bill. S.Rept. 109-273 indicated that this sizable increase in funding would ensure that EDS and ETD installation is carried out in an expedited manner. The Senate-passed bill, however, recommended $24 million less that the President's request for EDS and ETD maintenance, noting that the TSA has already achieved sizable savings on maintenance, and encouraged the TSA to continue to work with contractors to further reduce maintenance costs. The bill language also limits the obligation of $25 million of these funds until the committee receives a report responding to the DHS IG's findings regarding contractor fees. The committee report also includes language supporting the TSA's expanded used of refurbished EDS equipment and directs the TSA to work aggressively to save costs by maximizing the refurbishment of EDS equipment. However, unlike the House-passed bill, the Senate-passed bill did not include a specific funding amount for EDS and ETD refurbishing. The Senate-passed bill included $23 million for the Federal Flight Deck Officer (FFDO) program for armed pilots and for crew security training, $7 million less than the FY2006 appropriation and the FY2007 request, and $2 million less than the House-passed funding amount. Like the House committee report, the Senate committee report ( S.Rept. 109-273 ) cited high unobligated balances in this program, rather than specific cost-cutting initiatives, as the reason for this proposed reduction. The Senate-passed bill specified $15 million for the Secure Flight program, $25 million less than the amount requested and agreed to by the House. The Senate committee report asserted that this amount, in conjunction with available carryover balances, should be sufficient to meet FY2007 program requirements. While the committee expressed its general support for the additional layer of aviation security that would be provided through the Secure Flight program, the committee concluded that the shape and size of the program still remains unclear because of continuing delays and another effort to re-scope the program. The committee indicated that it was therefore reluctant to provide any resources beyond the proposed $15 million. Also regarding Secure Flight, the Senate-passed language was identical to the House-passed bill requiring DHS certification and GAO oversight to confirm that the system is secure, protects the privacy of personal data, and has an adequate redress process for passengers that are erroneously flagged by the system. Like the House-passed bill, this language would have prohibited the use of commercial databases in the Secure Flight system for any purpose including authenticating passenger identity or assessing passenger risk. In addition, S.Amdt. 4635 directed the TSA to work more closely with the airlines to provide technical data and other assistance to better align their reservation systems with terrorist databases to minimize travel delays and inconvenience associated with mistaken identification, until the Secure Flight system or a successor system is fully deployed. Also, S.Amdt. 4619 would have required the DHS to establish revised procedures for clearing individuals whose names are mistakenly placed on a terrorist watch list or whose names are similar or identical to individuals included on a terrorist watch list. Often these "false positive" identifications are made when an individual attempts to board a flight and is singled out for additional screening or denied boarding based on use of the no-fly and selectee lists provided by the TSA to the airlines. The Senate also agreed to several amendments related to aviation security. S.Amdt. 4608 would have required the TSA to provide passenger and baggage screener and related resources at the New Castle Airport in Wilmington, DE, as long as commercial air service is provided at that airport. It is uncertain whether the wording of this amendment would have specifically restricted the use of private screeners, contracted by TSA under their Screening Partnership Program (SPP) – sometimes referred to as the opt-out program – under which airports can elect to use private screeners instead of TSA screeners. If so, this provision could be highly controversial as it could set precedent for legislators to seek similar restrictions at other airports, which could be viewed by advocates for private screening as potentially undermining the intent of the opt-out provision of the Aviation and Transportation Security Act (ATSA; P.L. 107-71 ). Another agreed-to amendment ( S.Amdt. 4582 ) would have required TSA to report on the effectiveness of screening operations resulting from its modification of the list of prohibited items in December 2005. Senate-passed S.Amdt. 4592 would have required air carriers to develop plans to comply with a provision of ATSA that gave emergency service personnel, such as firefighters, police officers, and medical technicians authority to voluntarily provide emergency services on commercial air flights during emergencies. The Senate also agreed to S.Amdt. 4552 , which would have removed the TSA's exemption from federal procurement law. When TSA was established as part of the Department of Transportation under ATSA, it was given authority to operate under the FAA's acquisition management system, which was statutorily exempt from many aspects of federal procurement law in order to provide for more timely and cost-effective acquisitions of equipment and materials to meet unique challenges in responding to the needs of the aviation industry. Also, in contrast to the House and prior-year appropriations language that capped the number of TSA screeners at 45,000, the Senate-passed S.Amdt. 4558 would have prohibited any statutory limitation on the number of TSA employees, or any administrative rule or regulation limiting the recruiting or hiring of TSA personnel. P.L. 109-295 P.L 109-295 provides gross funding of $6,374 billion for the TSA. That amount includes $4,731million for aviation security plus $250 million for the Aviation Security Capital Fund. This, combined with $714 million for the Federal Air Marshals Service (FAMS) and $67 million for aviation-related threat assessment and credentialing functions (namely, Secure Flight, Registered Traveler, Alien Flight School Fees, and Crew Vetting), brings the total direct appropriation for aviation security-related function to $5,762 billion. This amount comprises roughly 90% of the total TSA budget. By comparison, TSA's surface transportation security account was funded at $37 million, and related threat assessment and credentialing functions (namely, the TWIC program and HAZMAT Commercial Driver Fees) totaled $39 million. These activities collectively account for less than 2% of the TSA's total appropriations. While some in Congress have argued that increased funding for surface and maritime transportation initiatives is needed, this funding distribution is roughly inline with prior year funding allocations. Airport checkpoint explosives screening of passengers and carry-on items has been a priority, highlighted in 9/11 Commission recommendations and recently spotlighted by the foiled terrorist plot to down United States-bound aircraft from the United Kingdom using liquid explosives. Although the conference report encouraged the deployment of emerging airport checkpoint technologies, it funded checkpoint support at $173 million, consistent with the House-passed amount, instead of the $181 million funding level originally passed by the Senate. This was due to a large unobligated carryover balance of $56 million from previous fiscal years for this activity that can be used to support FY2007 checkpoint support initiatives. These initiatives remain a high priority, and the conference report directs the TSA to develop a strategic plan for screening all types of explosives on passengers and in carry-on baggage. The act, however, did not include the Senate-passed language that would have moved aviation security research and development activities back within the TSA. With regard to checkpoint screening, report language also directs the TSA to review airport checkpoint wait times over the past three years and provide a report, identifying airports with above average wait times, with the FY2008 budget. Conference report language also direct the TSA to provide screening at 24 commercial airports and heliports that have requested TSA screening, but continue to operate with temporary screening or none at all. The report further directs the TSA to consider contracting out screening functions at these locations if it does not believe it would be efficient to deploy TSA personnel to these sites. Conference language also directs the GAO to study the effects of changes to the permitted and prohibited items lists made in December 2005 on public safety and screening effectiveness. The act keeps in place the longstanding cap on full-time equivalent TSA screeners of 45,000. A provision of the act (Section 514) reiterates a prohibition on using funds for the Secure Flight passenger prescreening program in other than a test basis until the TSA demonstrates and the GAO certifies that certain conditions pertaining to data security, privacy, and redress have been adequately addressed. While the President's signing statement indicates that the executive branch considers this section to only be advisory in nature, the TSA has been cooperating with the GAO to address these unresolved issues. The cct further requires the TSA to submit a detailed plan of Secure Flight program milestones and certification within 90 days of enactment. The act provides $141 million for EDS purchase, as initially agreed to by the Senate and $5 million above the House-passed amount. Report language specifies that up to $6 million may be used for refurbishing existing EDS equipment so long as the manufacturers are willing to place these machines back under warranty. This is $4 million less than the direct appropriation for EDS and ETD refurbishing passed by the House. While the Senate report language expressed support for the TSA's EDS refurbishment efforts, it did not specify an appropriation level for this activity. The conference report further specifies that EDS purchase funding is not to be used to procure ETD equipment, unless necessary for secondary baggage screening, as replacements at airports primarily dependent of ETD technologies, or for use at small airports and heliports where screening operations are newly federalized. The act includes a total of $388 million for EDS installations, including $250 million from the Aviation Security Capital Fund and a separate appropriation of $138 million. This amount is $34 million less than the original Senate-passed amount, but it is $44 million more than the original House-passed amount. The act also includes $222 million for EDS and ETD maintenance, an even split between the original Senate and House amounts. Conference report language directs the TSA to combine maintenance costs for all equipment, including EDS, ETD, and checkpoint screening equipment, into one budget activity in FY2008 to provide a more complete picture of the total maintenance costs for security equipment deployed at the nation's airports. The conference report also directs the TSA to develop performance measures and targets with regard to alternative screening procedures; track the use of these alternative screening procedures at airports; assess their effectiveness; conduct covert tests at airports using these procedures; and develop a plan to stop the use of these alternative screening procedures which are sometimes used in lieu of EDS and ETD screening. A general provision of the act (Section 524) specifies that recovered or deobligated funds for TSA aviation security, administration security support from prior fiscal years shall only be available for procurement and installation of EDS equipment for use in air cargo, checkpoint, and baggage screening. However, a separate provision (Section 537) rescinds roughly $5 million of these prior-year unobligated funds. The act provides $714 million for the Federal Air Marshals Service (FAMS), $15 million above the original amounts passed in both the House and Senate. The increased funding is designated for travel and training. Conference language states that the pilot program using FAMS in transportation modes other than aviation "goes beyond what has been authorized for FAMS." The report further states that it is imperative for FAMS to focus on protecting aviation assets, particularly flights deemed to be a high security threat, before further expanding the role of FAMS. The act also maintains the Federal Flight Deck Officer (FFDO) program and crew training initiatives at a appropriated level of $25 million, consistent with the original House-passed amount and $2 million above the original Senate-passed funding level. The act provides $55 million for air cargo security, consistent with original House-passed and Senate-passed and requested amounts. While this funding is the same as FY2006 appropriations levels, the conference report noted that the TSA has been slow to obligate air cargo security funding, and expected that one-tenth of the total FY2006 appropriation would be carried into FY2007. The conference report language directs the TSA to use these carryover funds to hire additional staff to enhance the TSA's air cargo security analytic capabilities. A separate provision (Section 518) of the act directs the TSA, in consultation with industry stakeholders, to develop standards and protocols for increasing the use of EDS for screening air cargo when appropriate. With regard to surface transportation security, the act provides $37 million, consistent with both the original House-passed and Senate-passed amounts. The act also appropriates $20 million for the TWIC program, which is expected to be recouped through credentialing fees. Conference report language notes that due to the TSA's reprogramming of TWIC, an additional direct appropriation for FY2007 was not necessary. The TWIC is regarded as a high priority issue in response to public attention directed at seaport security over the past year, and conference report language reflects support for expeditious implementation of the TWIC program. Also, Section 558 of the act directs the TSA, in collaboration with the Department of Energy, to pilot test an integrated scanning system, that couples nonintrusive imaging equipment and radiation detection equipment, at three foreign seaports. TSA Issues for Congress Congress may consider several TSA-related transportation security issues during the FY2007 appropriations process. Central issues include the aviation fee structure and funding aviation security costs; passenger pre-screening efforts and the status of the Secure Flight program; the pending roll-out of the Registered Traveler (RT) program; progress in installing in-line baggage screening systems; initiatives to mitigate workplace injuries among TSA screeners; efforts to improve the screening of passengers and carry-on items for explosives; the status of the Transportation Worker Identification Credential Program (TWIC); and TSA initiatives in other surface transportation modes. The President's proposal to modify passenger aviation security fees has already been taken up by the Senate during debate over the FY2007 budget resolution ( S.Con.Res. 83 ). An amendment to that resolution offered by Senator Lautenberg ( S.Amdt. 3137 ) that would prohibit the proposed changes to aviation security fee collections was agreed to by unanimous consent. However, during consideration of the Transportation Security Administration Reorganization Act of 2005 ( H.R. 4439 ) in a markup session held by the House Subcommittee on Economic Security, Infrastructure Protection, and Cybersecurity on March 9, 2006, Representative Lungren offered an alternative aviation security fee proposal that is similar to the President's proposed fee structure. This alternative fee structure—agreed to by the subcommittee for inclusion in H.R. 4439 —includes a $4.00 fee per one-way trip that would directly fund the TSA, plus an optional $1.00 fee that could be charged by the airport of origin for funding qualified aviation security projects. Passenger aviation security fees under this plan would be capped at $5.00 per one-way trip and $10.00 per round-trip. Under the proposal, however, security fees paid directly by the airlines—the ASIF—would be eliminated. Noting that going along with the President's proposed passenger fee restructuring would not be in order as part of the appropriations process because it would require modifications to existing law, the House-passed appropriations bill does not address the issue of modifying passenger security fees. The status of the Secure Flight program to prescreen airline passengers against the consolidated terrorist watch list may be considered during the FY2007 appropriations debate. In prior years, appropriations legislation has contained language directing the GAO to review the program and making full implementation of the system beyond the testing phase contingent on the GAO finding that information security, privacy protection, and passenger redress issues have been adequately addressed. The GAO recently reported that these issues still largely remain unresolved and the program still faces many management hurdles, while the TSA has indicated that it is "re-baselining" the program before entering into the operational testing phase. As previously noted, the House-passed bill would keep the restrictions on full deployment of Secure Flight in force. It also would prohibit the TSA from using methods other than Government watch lists for assessing passenger security risk, and would prohibit the use of commercial databases for vetting passengers. During the FY2007 appropriations process, Congress may also examine the related Registered Traveler program, scheduled to be launched on a nationwide basis in FY2006. The status of the Registered Traveler program may be of particular interest to Congress since the airline industry, which once championed the program concept as a means to gain efficiency in passenger screening, is no longer backing the program amid concerns over the manner in which it is being implemented. Another aviation security-related issue that Congress may consider is the ongoing debate over resources and schedules for integrating checked baggage explosives detection equipment with airport baggage handling systems. Although deploying these in-line baggage screening systems is projected to significantly increase baggage throughput and reduce TSA manpower requirements for baggage screening, these capital projects are costly and will take several years to complete on a systemwide basis at current appropriations levels. A somewhat related issue is the TSA's effort to mitigate workplace injuries among TSA baggage screeners, which may benefit from in-line baggage screening systems and related ergonomic design considerations to the extent that they can eliminate or minimize the lifting and handling of baggage. Also, as previously discussed, the physical screening of passengers and their carry-on items for explosives and nonmetallic threats remains a high priority, and Congress may debate whether available technologies and TSA initiatives to deploy these technologies adequately respond to this stated need in a timely manner. Recent interest in seaport security stemming from the proposed acquisition of terminal operations at several large U.S. seaports by Dubai Ports World (DPW) may prompt more detailed examination of TSA's efforts to assess security risks at seaports as well as progress on the Transportation Worker Identification Credential (TWIC) program. According to the TSA, the TWIC program, which is currently in a prototype testing phase, will be rolled out to ports utilizing the national port criticality list that prioritizes posts based on risk, threat, and vulnerability analysis. Although initial deployment of TWIC was planned for FY2006, it has been delayed until FY2007 to accommodate program review and related rulemaking. In light of the current interest in port security, the TWIC program scope, status, and deployment schedule may be of particular interest during the appropriations process. More generally, Congress may examine the TSA's initiatives to address security in other surface transportation modes such as passenger and freight rail and HAZMAT trucking, and perhaps intermodal and supply-chain security issues in the context of the appropriations framework. United States Coast Guard116 The Coast Guard is the lead federal agency for the maritime component of homeland security. As such, it is the lead agency responsible for the security of U.S. ports, coastal and inland waterways, and territorial waters. The Coast Guard also performs missions that are not related to homeland security, such as maritime search and rescue, marine environmental protection, fisheries enforcement, and aids to navigation. The Coast Guard was transferred from the Department of Transportation to the DHS on March 1, 2003. The law that created the DHS ( P.L. 107-296 ) directed that the Coast Guard be maintained as a distinct entity within the DHS and that the Commandant of the Coast Guard report directly to the Secretary of DHS. See Table 6 for account-level detail for all of the agencies in Title II. President's FY2007 Request For FY2007, the President requested a total of $8,181 million in net budget authority for the Coast Guard, which is about a 0.5% increase over the FY2006 level. The President's request included slight increases in most Coast Guard accounts, including $5,519 million for operating expenses, $1,170 million for acquisition, construction, and improvements, $124 million for reserve training, $14 million for research, development, tests, and evaluation, $12 million for environmental compliance and restoration, and zero funding for the bridge alteration program (Congress appropriated $18 million for this program in FY2006). The President requested $62 million for a new mission for the Coast Guard—protecting the air space over Washington, DC, which used to be a responsibility of CBP. The funding would pay for five HH-65 Dolphin helicopters and their associated operating expenses to enforce a no-fly zone around the capital. The request also includes $50 million to relocate the Coast Guard's headquarters in Washington, DC. House-Passed H.R. 5441 The House-passed version of H.R. 5441 provided a total of $8,129 million for the Coast Guard, $52 million less than the President requested and $318 million more than was enacted in FY2006. Most of the difference between the House and the President's request concerned the operating expense account and the ACI account. Under operating expenses, the House did not include $50 million for the Coast Guard's headquarters relocation. Under the ACI account, the House did not include $42 million for production of the fast response cutter. The House provided $17 million for the bridge alteration program while the President requested no funds for this program. Senate-Passed H.R. 5441 The Senate-passed version of H.R. 5441 provided a total of $8,188 million for the Coast Guard, which is $7 million more than the President requested and $377 million more than was enacted in FY2006. The Senate did not include the $50 million for the Coast Guard's headquarters relocation that the President requested. The Senate provided $15 million for the bridge alteration program versus the President's request for no funds. The Senate provided $18 million for research, development, test and evaluation, which is $4 million more than the President requested. P.L. 109-295 P.L. 109-295 provides a total of $8,316 million for the Coast Guard for FY2007, which is about $136 million more than the President requested. P.L. 109-295 provides $5,478 million for operating expenses, which is $41 million less than the President requested. It provides $1,330 million for acquisition, construction, and improvements, which is $160 million more than the President requested. (This amount includes an additional $176 million appropriated as FY2007 emergency funding). Under the operating expenses account, P.L. 109-295 allows 5% of these funds to be transferred to the acquisition, construction, and improvements account for management and oversight of construction projects provided that the Coast Guard notifies the appropriations committees within 30 days of transfer. For the bridge alteration program, P.L. 109-295 provides $16 million versus the President's request for zero funds. P.L. 109-295 does not provide any funds for the Coast Guard's proposal to relocate its headquarters and the conference report requests a relocation plan from DHS. Issues for Congress Increased duties in the maritime realm related to homeland security have added to the Coast Guard's obligations and increased the complexity of the issues it faces. Congress is concerned with how the agency is operationally responding to these demands, including its plans to replace many of its aging vessels and aircraft. Deepwater The Deepwater program is a $24 billion, 25-year acquisition program to replace or modernize 93 Coast Guard ships and 207 Coast Guard aircraft. For FY2007, the President requested $934 million for the program, the House provided $893 million, and the Senate provided $994 million. P.L. 109-295 provides $1,066 million for the Deepwater program. As indicated above, the House did not provide funding for the fast response cutter, whereas the Senate did provide funding. P.L. 109-295 rescinds $79 million from the FY2006 unexpended balance for the fast response cutter and reprograms it for FY2007 for the service life extension program of the current 110-foot Island Class patrol boat fleet and the acquisition of traditional patrol boats. These patrol boats would act as "stand-in" assets until design issues with the fast response cutter are resolved. Issues for Congress include the Coast Guard's management of the program, which is the largest and most complex acquisition effort in Coast Guard history, the overall cost of the program, and the program's acquisition time-line. These issues are discussed in CRS Report RS21019, Coast Guard Deepwater Program: Background and Issues for Congress , by [author name scrubbed]. Security Mission The Dubai Ports World issue intensified debate on U.S. port and maritime security. Some Members of Congress have expressed strong concerns that the Coast Guard does not have enough resources to carry out its homeland security mission. During hearings on the Dubai Ports World transaction, some witnesses raised the issue of whether the Coast Guard had enough presence on port grounds to enforce new security regulations. About half of the Coast Guard's FY2007 budget request is for its homeland security mission. This amount includes $17 million for Maritime Domain Awareness, which is a term the Coast Guard uses to describe its efforts to identify threats as far from U.S. shores as possible by becoming more aware of the people, vessels, and cargo approaching and moving through U.S. ports and waterways. The $17 million includes funding for development of prototype Joint Harbor Operation Centers (JHOC). JHOCs are facilities where the Coast Guard and other federal and local law enforcement agencies can monitor harbor traffic, fuse intelligence data to screen ships and cargo, and coordinate response activity if the need arises. For monitoring harbor traffic, the President's FY2007 request includes $11 million to continue procurement plans and analysis for deployment of a nationwide system to identify, track, and communicate with vessels in U.S. harbors, called the Automatic Identification System (AIS). The FY2007 request also includes $5 million for a third, 60-member Maritime Security and Response Team, which will be based in Chesapeake, VA, and whose mission is to provide on-call maritime counter-terrorism response. H.Rept. 109-476 states that "The Committee is very concerned about DHS' progress towards securing our nation's ports and inbound commerce. While the Department is to be commended for establishing many noteworthy security programs to address this issue, sustained, measurable improvement of our nation's port and commerce security as a whole remains unclear." The House report recommended $15 million more than the President requested for Coast Guard port security inspectors to accelerate foreign port security assessments and increase the number of unannounced inspections at U.S. ports. The House report provided $15 million for AIS deployment, the same amount that the President requested. P.L. 109-295 provides $15 million as the House recommended for additional port security inspectors. S.Rept. 109-273 indicates that the Senate committee provided $3,767 million in the Coast Guard's budget for maritime border security. The Senate report also provided a program increase of $3 million for Maritime Security Response Teams and $5 million for Maritime Domain Awareness. The Senate report recommended no funding for AIS, noting that an unobligated balance is available. The Senate-passed version also included additional funding for FY2006 for the Coast Guard's security mission. As per an amendment offered by Senator Byrd, the Coast Guard would be provided $184 million for purchasing new patrol boats, maintaining existing cutters, purchasing new patrol aircraft, and for arming its helicopters. For further information, see Appendix A . Non-homeland Security Missions Some Members of Congress have expressed concern that with the Coast Guard's emphasis on its maritime security mission, the agency could have difficulty sustaining its traditional, non-homeland-security missions, such as fisheries enforcement or marine environmental protection. The Senate denied the President's request to terminate operations at LORAN (Long Range Aids to Navigation) stations nationwide and instead recommended that maintenance of these stations continue in Alaska, the far Northwest, and the far Northeast. The Coast Guard proposed dismantling the LORAN system in light of the availability of Global Positioning System (GPS) technology. Senators Stevens and Murray argued that GPS is not always reliable in their states because of line-of-sight obstacles and that fishermen, boaters, and pilots in their states rely on LORAN as a back up system to GPS. The House committee noted that the Coast Guard must first reach an agreement with the Department of Transportation before terminating the LORAN system. P.L. 109-295 also assumes continuation of the LORAN-C program until the appropriate entities within the executive branch have agreed in writing to the termination, the public has been notified, and the appropriate countries have been notified under existing international agreements. The conference report calls for a report from the Coast Guard providing details on how the above three requirements have been achieved. Rescue 21 is the Coast Guard's new coastal zone communications network that is key to its search and rescue mission. The Senate and House agreed with the President's request of $40 million to continue deployment of the new system, which began in 2002. However, the House committee expressed strong concerns with the Coast Guard's management of the program, noting a GAO audit which found a tripling of project cost from the original estimate, a likely further cost increase in the near future, and further delays in project completion which is already five years behind schedule. The conference report calls on the Coast Guard to brief the Committees on Appropriations on a quarterly basis regarding the Rescue-21 program. U.S. Secret Service125 The U.S. Secret Service (USSS) has two broad missions—criminal investigations and protection—both connected with homeland security (as well as other matters). Criminal investigations encompass financial crimes, identity theft, counterfeiting, computer fraud, and computer-based attacks on the nation's financial, banking, and telecommunications infrastructure, among other areas. The protective mission is the most prominent, covering the President, Vice President, their families, and candidates for those offices, along with the White House and the Vice President's residence (through the Service's Uniformed Division). Protective duties extend to foreign missions in the District of Columbia, and other designated individuals, such as the DHS Secretary and visiting foreign dignitaries. Separate from these specific mandated assignments, the Secret Service is responsible for National Special Security Events (NSSEs), which include the major party quadrennial national conventions as well as international conferences and events held in the United States. The NSSE designation, by the President, gives the Secret Service authority to organize and coordinate security arrangements; these involve various law enforcement units (along with the National Guard) from other federal agencies and state and local governments. FY2007 Budget Request For FY2007, the President's budget submission requested an appropriation of $1,265 million for the protection and criminal investigation missions of the Secret Service. This reflected an increase of $60 million or nearly 5% more than the FY2006 total of $1,204 million for the Service. The new FY2007 appropriations request broke down the amounts for the total protection function ($722 million) into specific categories—protection ($651 million), protective intelligence activities ($55 million), and White House mail screening ($16 million). But it did not specify an amount for the National Special Security Event fund (which was $5 million in FY2006), because of the uncertainty surrounding the number and extent of NSSEs, among other reasons. The total for field operations was $302 million, with specific amounts for field operations ($236 million), international field offices ($22 million), and electronic crimes program and task forces ($44 million). House-Passed H.R. 5441 For FY2007, the House-passed appropriations for DHS proposed a total appropriation of $1,293 million. H.R. 5441 proposed $956 million for protection, administration, and training; $312 million for investigations and field operations; $21 million for special event security; and $4 million for acquisition, construction, improvements, and related expenses. This proposed appropriation of $1,293 was $89 million more than Congress appropriated in FY2006 ($1,204 million). Senate-Passed H.R. 5441 For FY2007, the Senate-passed appropriations for DHS proposed a total appropriation of $1,293 million. H.R. 5441 proposed $918 million for protection, administration and training; $304 million for investigations and field operations; and $3.73 million for acquisition, construction, improvements, and related expenses. This proposed appropriation of $1,226 million was nearly $22 million more than Congress appropriated in FY2006 ($1,204 million). P.L. 109-295 For FY2007, Congress appropriated $1,277 million for USS; $962 million was appropriated for protection, administration, and training; $311 million for investigations and field operations; and nearly $4 million for acquisition, construction, improvements, and related expenses. The FY2007 USSS appropriations of $1,277 million is nearly $73 million more than Congress appropriated in FY2006 ($1,204 million). Of the $962 million for protection, administration, and training, not to exceed $ 25,000 shall be for official reception and representation expenses; up to $18 million for protective travel and shall remain available until September 30, 2008; up to $18 million for candidate nominee protection shall remain available until September 30, 2009; and up to $1 million for National Special Security Events (NSSE). Of the $311 million appropriated for investigations and field operations, not to exceed $100,000 shall be to provide technical assistance and equipment to foreign law enforcement organizations in counterfeit investigations; $2 million shall be for forensic and related support of investigations of missing and exploited children; and $6 million shall be for grant activities related to the investigations of missing and exploited children. Title III: Preparedness and Response Title III includes appropriations for the Preparedness Directorate and the Federal Emergency Management Agency (FEMA). The Preparedness Directorate includes (among others) appropriations accounts for the Undersecretary for Preparedness, State and Local Programs, Emergency Management Planning Grants (EMPG), the U.S. Fire Administration and Fire Assistance Grants, and Infrastructure Protection and Information Security (IPIS). Table 10 provides account-level appropriations detail for Title III. Preparedness Directorate130 The preparedness appropriations accounts include the following: Chief Medical Officer—coordinates federal plans to prevent and respond to biological terrorist attacks; U.S. Fire Administration—educates the public, training firefighters, and develops enhanced firefighting technologies; Office for Grants and Training (G&T)—assists states, localities, and regional authorities to prevent, deter, and respond to terrorist and other threats to national security through grant funding, training, and exercises; Infrastructure Protection—identifies and assesses current and future threats to the nation's physical and informational infrastructure, and issues warnings to critical infrastructure sectors; Office of National Capital Region Coordination—administers federal programs and relationships with the National Capital Region (NCR) to ensure planning, information sharing, training, and execution of NCR homeland security activities. Table 10 shows the FY2006 enacted and FY2007 requested appropriations for Title III. The Administration requested an appropriation of $6,364 million in net budget authority for Title III in FY2007. This amount represents a 5% decrease compared with the FY2006 enacted total of $6,709 million. For the FY2007 request, Title III accounts for roughly 20% of requested net appropriated DHS budget authority. Office of Grants and Training G&T is the single point of contact within DHS for facilitating and coordinating departmental state and local programs. G&T provides information to states and localities on best practices and federal homeland security activities. The office administers federal homeland security assistance programs for states and localities. To assist state and local homeland security efforts, G&T administers formula and discretionary grants and training, exercise, and technical assistance programs. Table 11 provides summarizes budget request, House- and Senate-passed appropriations bills, and the FY2007 DHS appropriations ( P.L. 109-295 ) for G&T programs for states and localities. Issues for Congress The Administration's FY2007 budget request and the House-passed H.R. 5441 may raise policy issues that Congress may address as it legislates appropriations. Some of the policy issues include the overall reduction in appropriations, the consolidation of UASI sub-grants into the proposed TIPP, the reduction of FIRE grant appropriations, and the proposed elimination of MMRS and CCP. The Administration proposed to reduce the FY2007 appropriations for the programs to $2.57 billion—a reduction of $395 million. While the reduction in overall funding seems to reflect the Administration's determination of the nation's homeland security needs, some critics see it as not meeting the needs of localities because of what is considered by some as inadequate and unfair distribution of past homeland security assistance funding. On the other hand, H.R. 5441 proposed to increase overall grant funding to states and localities by $68 million. The House proposes to maintain funding to these programs in FY2007. Congress appropriated $41 million more than FY2006 appropriations for these programs. Additionally, the Administration proposed to consolidate six UASI sub-grants into TIPP with an appropriation of $600 million. The budget request stated that TIPP would consolidate disparate programs and focus on securing transportation assets and other critical infrastructure. Some might argue, however, that the consolidation, without identified amounts for specific infrastructure protection activities, might result in states and localities not being able to meet their specific infrastructure security needs. H.R. 5441 , passed by the House and Senate, did not propose consolidating the UASI sub-grants into TIPP. Congress did not consolidate infrastructure security grants into TIPP in the FY2007 DHS appropriation. The Administration's budget proposal requested $293 million for fire grants in FY2007, a cut of 46% from the FY2006 appropriation. The total of $293 million requested for the firefighter assistance account (which includes both fire grants and SAFER grants) is down 55% from the FY2006 level. According to the Administration proposal, priority would be given to grant applications enhancing terrorism capabilities. Fire grants would be available for training, vehicles, firefighting equipment and personal protective equipment. Wellness/fitness activities and fire station modification would not be funded. The Administration requested no funding for SAFER Act grants, which support the hiring of firefighters as well as the recruitment and retention of volunteer firefighters. According to the budget justification, "the Administration has not requested funds for SAFER Grants in FY2007 on the grounds that local public safety agencies should assume responsibility for funding the appropriate number of personnel, and that Federal-funding for hiring local responders puts newly-funded personnel at risk once grant dollars phase out." The House Appropriations Committee directed DHS to administer the grant programs in a manner identical to the current year. The committee did not agree to limit the list of eligible activities, nor to refocus program priorities on terrorism. The Senate Appropriations Committee directed DHS to continue direct funding to fire departments and the peer review process, to continue the present practice of funding applications according to local priorities and those established by the USFA, and to favor applications that take a regional approach in equipment purchases and their future deployment. The conference agreement ( H.Rept. 109-699 ) provided $547 million for fire grants and $115 million for SAFER for FY2007. The Metropolitan Medical Response System (MMRS) is a program of contracts with major cities to coordinate multiple local government agencies in emergency planning. MMRS was funded at $30 million for FY2006. The program was slated for elimination in the FY2007 budget proposal, as it has been in each budget since it was transferred to DHS in 2003. The Administration has proposed that ongoing municipal emergency planning activities be supported at the discretion of states, using funds from the SHSGP and UASI grant programs. For FY2007, House-passed H.R. 5441 provided continued funding for the program at $30 million. Senate-passed H.R. 5441 provided $35 million. H.R. 5441 as enacted provided $33 million for the program, and provided the program's first explicit authorization, through FY2008. (Additionally, House-passed H.R. 5441 proposed to eliminate funding for CCP, the Senate-passed bill provided $20 million, and the enacted law provided $15 million.) The Office of the DHS Chief Medical Officer (CMO) was created by Secretary Chertoff in July 2005. Though the position was within the Preparedness Directorate, the new CMO, Dr. Jeffrey Runge, was given responsibility to coordinate public health and medical programs throughout the department. The Office of the CMO was funded at $2 million for FY2006. For FY2007, the House- and Senate-passed bills and the enacted law provided $5 million, equal to the Administration request. H.R. 5441 as enacted also provided the first explicit authorization for the CMO position, to require Senate confirmation, but the position was not among the functions transferred from the Preparedness Directorate to FEMA. Federal Emergency Management Agency (FEMA)136 Hurricane Katrina Issues Considerable controversy has enveloped FEMA since Hurricane Katrina devastated approximately 90,000 square miles in Gulf Coast states beginning August 29, 2005. Subsequent to investigations conducted in 2005 and 2006, the House Select Bipartisan Committee to Investigate the Preparation for and Response to Hurricane Katrina, the Senate Homeland Security and Governmental Affairs Committee, and the White House issued reports on the response to the 2005 catastrophe. Drawing from these reports and other sources, Congress considered various legislative proposals concerning the organization and functions of FEMA. Title VI of the FY2007 DHS appropriations legislation modifies FEMA's structure and leadership hierarchy, expands the agency's mission, and requires changes in operational procedures effective January 1, 2007, when the provisions take effect. Summary information on Title VI is provided at the end of this section. Funding The President's FY2007 request for FEMA did not propose dramatic changes for the agency. In general, the funding request for FY2007 was comparable to that requested and enacted for FY2006. The House-approved bill would have funded the agency at a level slightly above that currently provided ($2,656 million recommended for FY2007, $2,607 million enacted in FY2006, excluding emergency appropriations) and $309 million below the amount requested. The difference between the House-approved version and the request primarily derived from a reduction of $278 million for disaster relief, as well as a $50 million reduction in mitigation funding. The funding level approved by the Senate, $2,606 million, was $50 million below the amount approved by the House, with the most significant differences between the chambers as follows: the Senate would have provided $30 million for urban search and rescue funding, whereas the House would have provided almost $20 million; the Senate matched the request for pre-disaster mitigation funding, recommending almost $150 million, compared with the $100 million approved by the House; the Senate would have provided almost $37 million less for the Disaster Relief Fund (DRF) than the House; and the Senate would have provided roughly $15 million less than the House for administrative and operating activities. As approved by Congress and signed by the President, the legislation appropriates approximately $450 million less than requested by the Administration and roughly $100 million less than the amounts approved by the House and Senate. The difference primarily rests in the amount appropriated to the DRF. As noted below, this reduction is arguably insignificant in light of the historical practice of the enactment of supplemental appropriations for the DRF when the balance in the fund proves insufficient. Disaster Relief Fund Roughly two-thirds of the FEMA funding is used for the disaster relief and recovery activities authorized by the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act). Funds appropriated to the Disaster Relief Fund are used to meet the immediate needs of victims, and help communities, states, and nonprofit entities repair or rebuild damaged facilities; reduce the risk of future disasters through hazard mitigation measures such as elevating structures in floodplains, retrofitting bridges and buildings in earthquake prone areas; provide loans to local governments that lose tax revenues because of disasters; and help state and local governments develop and maintain preparedness plans. Congress appropriates supplemental funding for the DRF when annual appropriations are not adequate. Such appropriations have been historically designated emergency spending under the appropriate budget authorities. The Administration requested $1,941 million for the DRF for FY2007, an amount roughly equivalent to the historical average of expenditures from the fund, excluding catastrophic events such as Hurricane Katrina and the terrorist attacks of September 11, 2001. The House approved $1,677 million for the DRF in FY2007, the Senate approved a lower amount, $1,640 million. Conferees and the President agreed to an even lower figure, $1, 500 million. National Disaster Medical System141 The National Disaster Medical System (NDMS) is a system of medical, veterinary, and mortuary response teams that deploy in response to disasters, special security events, and certain other situations. The Senate-passed bill transferred NDMS to the Department of Health and Human Services (HHS), and the enacted law adopted this transfer, effective January 1, 2007. The transfer was supported by the Administration. (NDMS was originally transferred from HHS to DHS in P.L. 107-296 , the Homeland Security Act, effective in 2003.) Currently, NDMS administration is the only activity within the "Public Health Programs" account in FEMA. For FY2007, the House- and Senate-passed bills and the enacted law ( P.L. 109-295 ) provided $34 million, equal to the Administration request. NDMS has been funded at this level for several years. Generally, when NDMS teams are deployed pursuant to FEMA mission assignments during disasters, deployment costs are covered by the DRF. In supplemental appropriations for FY2006, a one-time amount of $100 million was provided to NDMS to cover expenses related to the response to Hurricane Katrina. Most of this amount—$70 million—was transferred, through an interagency agreement with FEMA, to the Centers for Medicare and Medicaid Services in HHS, to reimburse hospitals and healthcare providers who cared for uninsured patients in affected areas. The National Emergency Management Title (Title VI) A wide range of policy issues have been addressed by Congress with the inclusion of Title VI, "National Emergency Management," in P.L. 109-295 . The location, composition, and authorities of FEMA, the mission and procedures to be modified, and emergency communications capabilities and requirements were some of the more significant issues debated in the wake of the Hurricane Katrina investigations. After considerable debate over the most appropriate organizational structure, Congress agreed to keep FEMA within DHS and established it as a "distinct entity" with prohibitions on the transfer of resources or mission from the agency. The mission and resources of the Preparedness Directorate of DHS will be merged with FEMA, but certain offices and authorities (Chief Medical Officer, National Cybersecurity, National Communications, and Infrastructure Protection) will not be integrated with FEMA. The legislation also establishes a Office of Emergency Communications in DHS (not within FEMA) to establish policy and practices related to the communications needs of emergency responders. Title VI addresses a number of personnel and leadership concerns. The Administrator of FEMA must meet specified qualification requirements, and an advisory council comprising state, local, and private officials is to be established. In an effort to address concerns that the federal workforce is retiring and personnel in essential areas depleted, the FEMA Administrator has authority to issue incentives to recruit skilled persons or retain those who would otherwise retire. The Homeland Security Act also is amended by the legislation by establishing more specific requirements for preparedness, planning, and operational procedures. In reviewing state emergency preparedness plans, FEMA must now consider whether the state has included a catastrophic incident annex and established evacuation procedures, the latter with federal assistance. In addition, elements of the national preparedness system that have previously been established solely under administrative direction are now based on statute. Infrastructure Protection and Information Security (IPIS)145 As a result of the 2005 reorganization, many of the programs and activities of the former Information Analysis and Infrastructure Protection Directorate are now performed in the new Preparedness Directorate and funded through the Infrastructure Protection and Information Security appropriation. The Infrastructure Protection and Information Security (IPIS) appropriation is further divided into eight program/project activities (see Table 12 below). Each of these are divided further into a number of sub-programs. Specific sub-programs are beyond the scope of this report, except where major changes may have occurred. However, these sub-programs involve activities that include the accumulation and cataloging of critical infrastructure information, the identification and prioritization of nationally critical assets, vulnerability assessments, national-level risk assessments, and assistance to owner/operators. It also includes the development of both sector-level and national infrastructure protection plans, and numerous information sharing and outreach activities. President's FY2007 Request The FY2007 request for IPIS activities was $76 million below FY2006 enacted levels. According to the IPIS Budget Justification, most of the program requests maintained their current levels of activity, after certain "technical adjustments." These technical adjustments were not detailed, and in some cases resulted in a net increase (and in some cases resulted in a net decrease) in funds for the program. For example, the technical adjustments to the baseline Biosurveillance program resulted in a budget request almost $6 million below the amount provided to that program for FY2006 (a 43% reduction). Technical adjustments to the NS/EP Program resulted in a budget request $2 million above the amount provided for that program in FY2006. In the case of the NISAC program, the technical adjustment reducing the budget for that program by nearly $4 million was attributed to the completion of facility construction and resulting redirection of funds to other programs and activities. Table 12 provides activity and program-level detail for IPIS. The budget request, however, did make some relatively significant programmatic changes in two areas—CIOP and PA. Within the CIOP program, the budget requested no funds for the National Center for Critical Information Processing and Storage. No explanation was given for the elimination of funds. For FY2006, Congress appropriated $50 million for the development, operation, and maintenance of that center, and directed the department to report on the progress of the center by February 2006. According to the budget justification, the directorate planned to send the report to Congress by the end of March 2006. In addition, the directorate requested an increase of $35 million for National Infrastructure Protection Plan (NIPP) activities within the CIOP program. The net effect, including technical adjustments and other minor transfers, was a budget request for CIOP that was nearly $10 million below the amount provided in FY2006. The budget request for the PA program eliminated funds for two sub-programs, the Protective Security Analysis Center ($20 million—Congress supported funding the Center in FY2006) and the Protective Measures Demonstration Pilots ($20 million). Additional reductions were made to activities related to Control Systems ($6 million, with the balance of $4 million transferred to the CIIE program), the National Terrorist Prevention Training Program (almost $9 million), the Coordinate National Protection Efforts (almost $3 million, plus another $4 million that was transferred to CIOP for National Infrastructure Protection Plan activities), and General Security Plans (over $3 million). The budget did request new funding for a Chemical Security Office within the PA program ($10 million). The net effect, including technical adjustments, is a budget request for PA that was over $58 million less than what was provided in FY2006. House-Passed H.R. 5441 In its appropriation bill, the House voted to appropriate the full amount of funds requested by the Administration. While the House was generally supportive of IPIS activities, it did add two caveats to that support. First, while appropriating the requested $35 million increase for National Infrastructure Protection Plan activities, the House made $20 million for the Management and Administration account unavailable for obligation until the National Plan was completed. Also, while supporting the $10 million request for a new Chemical Security Office to run a new Chemical Site Security Program, the House required that DHS submit a spending plan and voted to make $10 million of the Management and Administration account unavailable for obligation until DHS submits a national security strategy for the chemical sector. Senate-Passed H.R. 5441 In its appropriation bill, the Senate voted to appropriate $525 million for the IPIS budget activity. See Table 12 for how those funds were allocated between programs. The Senate report did not provide a rationale for the specific increases or decreases made to the budget request. The report called for an enhanced and coordinated national bombing prevention effort and directed the Undersecretary for Preparedness to request the State Homeland Security Directors to work with their State Chief Information Officers to develop state cybersecurity strategies for information technology needed to support state and local services. The report also directed the Secretary to submit the report required by P.L. 109-90 , identifying the resources needed to implement mandatory security requirements for the nation's chemical sector and to audit and ensure compliance with those requirements. On the Senate floor, amendments were added requiring the Secretary to submit a report on efforts to comply with recommendations made in a July 2006 Inspector General (IG) report on issues associated with the National Asset Database. That report noted that the database has "an abundance of assets...whose criticality is not readily apparent." First among the IG's recommendations is that the IP Directorate evaluate the criticality of the assets in the database and eliminate those that are "out-of-place" or "extremely insignificant." Another amendment passed on the Senate floor forbids the use of certain funds for travel by officers of the department, until the Undersecretary for Preparedness has implemented the recommendations or reported to Congress on why the recommendations have not been fully implemented. A third amendment passed on the Senate floor expanded, in statute, the role and responsibility of the National Infrastructure Analysis and Simulation Center. In essence, the amendment requires any federal agency with critical infrastructure responsibilities as established by Homeland Security Presidential Directive Number 7 to enter into a formal relationship with the center, including an agreement on information sharing, the purpose of which is facilitate the use by those agencies of the center's modeling and simulation capabilities. P.L. 109-295 Both houses approved the conference committee's recommendations with the passage of P.L. 109-295 . The committee recommended $547 million for the IPIS budget activity. See Table 12 for how those funds were allocated between programs. It also recommended withholding $10 million (presumably from the Management and Administration program) until the department reports to Congress on the resources needed to implement its authority to issue mandatory security requirements for the nation's chemical sector, including the creation of a system for auditing and ensuring compliance. The mandatory security requirements for the chemical sector were mandated in Section 550 of the bill. The bill reported from the conference committee also restructured FEMA within the department. All of the functions of the Preparedness Directorate, including those of the Undersecretary for Preparedness were transferred to the agency, except those of the Office of Infrastructure Protection, the National Communication System, the National Cybersecurity Division, and the Office of the Chief Medical Officer. The bill did not relocate these offices. The conference committee also included language similar to that of the Senate version of the bill relating to the National Infrastructure Analysis and Simulation Center. The conference committee, however, did not include Senate language that related the restriction of travel funds for department officials to the department's implementation of its IG's recommendations regarding the National Asset Database. Title IV: Research and Development, Training, Assessments, and Services Title IV includes appropriations for U.S. Citizenship and Immigration Services (USCIS), the Federal Law Enforcement Training Center (FLETC), the Science and Technology Directorate (S&T), and the Domestic Nuclear Detection Office (DNDO). Table 13 provides account-level details of Title IV appropriations. U.S. Citizenship and Immigration Services (USCIS)147 Three major activities dominate the work of the U.S. Citizenship and Immigration Services (USCIS): the adjudication of immigration petitions (including nonimmigrant change of status petitions, relative petitions, employment-based petitions, work authorizations, and travel documents); the adjudication of naturalization petitions for legal permanent residents to become citizens; and the consideration of refugee and asylum claims, and related humanitarian and international concerns. USCIS funds the processing and adjudication of immigrant, nonimmigrant, refugee, asylum, and citizenship benefits largely through monies generated by the Examinations Fee Account. In FY2004, the Administration increased the fees charged to U.S. citizens and legal permanent residents petitioning to bring family or employees into the United States and to foreign nationals in the United States seeking immigration benefits. That same year, 86% of USCIS funding came from the Examinations Fee Account. Table 13 shows FY2006 appropriations and congressional actions in response to the FY2007 request. In FY2005, USCIS had budget authority for $1,571 million from the Examinations Fee Account. Congress provided a direct appropriation of $160 million in FY2005. The House report language emphasized that $160 million should be available to reduce the backlog of applications and to strive for a six-month processing standard for all applications by FY2006. Title IV of P.L. 108-447 , the Consolidated Appropriations Act for FY2005, also required the Secretary of Homeland Security to impose a fraud prevention and detection fee of $500 on H-1B (foreign temporary professional workers) and L (intracompany business personnel) petitioners. The statute requires that the H-1B and L fraud prevention and detection fee be divided equally among DHS, the Department of State (DOS), and Department of Labor (DOL) for use in combating fraud in H-1B and L visa applications with DOS and H-1B and L petitions with USCIS and in carrying out DOL labor attestation enforcement activities. DHS also receives 5% of the H-1B education and training fees in the Nonimmigrant Petitioner Account. In FY2006, Congress provided a total of $1,889 million for USCIS, of which 94% came from fees. The remaining 6% was a direct appropriation of $115 million, which included $80 million for backlog reduction initiatives as well as $35 million to support the information technology transformation effort and to convert immigration records into digital format. This figure was revised downward to $114 million. The FY2006 appropriations amount was a decrease of 29% from the $160 million appropriated in FY2005. As a result of a 10% increase in revenue budgeted from fees, the FY2006 total is 6% greater than the FY2005 total. President's FY2007 Request For FY2007, the Administration sought an increase of $68 million for USCIS. The Administration requested a total of $1,986 million for USCIS (an increase of 5% more than the enacted FY2006 level of $1,889 million), the bulk of the funding coming from fees paid by individuals and businesses filing petitions. For FY2007, USCIS expected to receive a total of $1,804 million from the various fee accounts, most of which ($1,760 million) would come from the Examinations Fee Account. According to the USCIS Congressional Budget Justification documents, funds from the Examinations Fee Account alone comprised 91% of the total USCIS FY2007 budget request. The FY2007 Budget also included $13 million from the H-1B Nonimmigrant Petitioner Account and $31 million from the H-1B and L Fraud Prevention and Detection Account. The Administration proposed to use the $31 million generated from the fee on H-1B and L petitions to expand its Fraud Detection and National Security Office. In terms of direct appropriations, the Administration requested $182 million, which was an increase of $67 million from FY2006. House-Passed H.R. 5441 The House-passed bill, H.R. 5441 , would have appropriated $162 million for USCIS in FY2007. Senate-Passed H.R. 5441 The Senate would have provided USCIS $135 million in direct appropriations for FY2007. Among the Senate floor amendments to H.R. 5441 was one that would direct DHS, notably through USCIS, to increase its fees charged to noncitizens to produce an additional $350 million in receipts for FY2007. Most of the funds collected by the fee increases would have gone to CBP and ICE, but $85 million would have remained with USCIS for business transformation ($47 million) and fraud detection and national security ($38 million). P.L. 109-295 The conferees provide USCIS with $182 million in direct appropriations, $47 million of which is contingent on USCIS obtaining approval from the Committees on Appropriations of the USCIS plan for "business system and information technology transformation plan." The act also provides $114 million for expansion of the Employment Eligibility Verification system and $21 million for the Systematic Alien Verification for Entitlements (SAVE) system, both automated database systems to ascertain immigration status. In terms of USCIS income from fees, current estimates are $1,804 million, giving USCIS $1,986 million in total resources. Issues for Congress Many in Congress have expressed concern and frustration about the processing delays and pending caseload. Congress has already enacted statutory requirements for backlog elimination and has earmarked funding for backlog elimination for the past several years. As Congress weighs comprehensive immigration reform legislation that would likely include additional border and interior enforcement, increased levels of permanent immigration, and perhaps include a significant expansion of guest workers, some question whether the DHS in general and USCIS in particular can handle the potential increase of immigration workload. Another matter that may arise in the appropriations debate is the coordination and duplication of efforts between USCIS and ICE in the area of fraud and national security investigations. GAO has reported, "the difficulty between USCIS and ICE investigations regarding benefit fraud is not new ... as a result, some USCIS field officials told us that ICE would not pursue single cases of benefit fraud. ICE field officials who spoke on this issue cited a lack of investigative resources as to why they could not respond in the manner USCIS wanted." USCIS has established the Office of Fraud Detection and National Security to work with the appropriate law enforcement entities to handle national security and criminal "hits" on aliens and to identify systemic fraud in the application process. The House-passed Border Protection, Antiterrorism, and Illegal Immigration Control Act of 2005 ( H.R. 4437 ) would establish an Office of Security and Investigations (OSI) in USCIS that would formalize these duties. Federal Law Enforcement Training Center (FLETC)162 The Federal Law Enforcement Training Center provides training on all phases of law enforcement instruction, from firearms and high speed vehicle pursuit to legal case instruction and defendant interview techniques, for 81 federal entities with law enforcement responsibilities, state and local law enforcement agencies, and international law enforcement agencies. Training policies, programs, and standards are developed by an interagency Board of Directors, and focus on providing training that develops the skills and knowledge needed to perform law enforcement functions safely, effectively, and professionally. FLETC maintains four training sites throughout the United States and has a workforce of over 1,000 employees. In FY2005, FLETC trained 47,560 law enforcement students. President's FY2007 Request The FY2007 request for FLETC was $245 million, a decrease of $37 million, or 13%, from the FY2006 enacted appropriation. Included in the request for FLETC were increases of $5 million for Border Patrol and ICE Agent training, and $2 million for a Practical Application - Counterterrorism Operational Training Facility. House-Passed H.R. 5441 House-passed H.R. 5441 would have provided $253 million for FLETC, $8 million more than the Administration's request, and $27 million less than the FY2006 enacted amount. The additional funding above the request was intended for the increased training needs of the Border Patrol and ICE. Senate-Passed H.R. 5441 Senate-passed H.R. 5441 would have provided $271 million for FLETC, $26 million more than the President's request, and $11 million less than the FY2006 enacted amount. The additional funding was intended to accommodate the increased training of border personnel. P.L. 109-295 The act provides $275 million for FLETC. Included in this amount are increases of $9 million over the President's request for training resources that were proposed to be funded out of the CBP and ICE appropriations and $22 million for renovation and construction at the Artesia, New Mexico, facility. The conferees also extended FLETC's authority to rehire annuitants through December 31, 2007, and included $2 million for salaries and construction expenses related to the Counter-terrorism Operations Training Facility. Science and Technology (S&T)163 The FY2007 request for Science and Technology (S&T) was $1,002 million, a reduction of 33% from FY2006. (See Table 14 for details.) Most of the reduction resulted from the move of funding for the Domestic Nuclear Detection Office (DNDO) from S&T to a separate account. If FY2006 funding for DNDO was excluded, the reduction for S&T in FY2007 was only 13%. The House provided $956 million, or $46 million less than the request. The Senate provided $818 million, or $184 million less than the request. The Senate also rescinded $200 million in unobligated balances from prior years. The final bill ( P.L. 109-295 ) provided $973 million and rescinded $125 million from prior years. For individual portfolios within the S&T Directorate, comparing the FY2007 request with previous years was difficult because of several accounting factors. Certain expenses previously funded by each R&D portfolio were requested in the Management and Administration account in FY2007. Funds for DNDO were requested separately rather than as part of S&T. The former Transportation Security Administration R&D program, which was merged into S&T and funded in the R&D Consolidation line in FY2006, constituted part of the requested Explosives Countermeasures and Support of Components portfolios in FY2007. The request stated that some activities, most notably the Counter-Man-Portable Air Defense Systems (Counter-MANPADS) Program to protect commercial aircraft against portable ground-to-air missiles, would continue at the same level of effort in FY2007 but would require little additional budget authority because prior-year funds remained unspent. After accounting for these factors, the FY2007 request would have reduced net funding for the Standards, Rapid Prototyping, Support Anti-terrorism by Fostering Effective Technologies (SAFETY) Act, and Critical Infrastructure Protection portfolios and increased net funding for Cyber Security and the Office for Interoperability and Compatibility. Several of the requested net changes would have offset changes that Congress made in FY2006 relative to the FY2006 request. The House increased funding for the Critical Infrastructure Protection portfolio relative to the request while decreasing Management and Administration, Chemical Countermeasures, Explosives Countermeasures, and Support of Components. The Senate increased funding for Counter-MANPADS relative to the request while cutting the request for Management and Administration almost in half and eliminating most funding for Explosives Countermeasures. (The Senate funded most explosives-related R&D in the Transportation Security Administration rather in S&T.) The final bill reduced Management and Administration and Chemical Countermeasures and increased Biological Countermeasures, Counter-MANPADS, and Critical Infrastructure Protection. The House and Senate committee reports were both highly critical of the S&T Directorate. The House committee reduced the Management and Administration account by $5 million "for lack of responsiveness" to its information requests. It made $98 million of that account unavailable for obligation until S&T provides budgetary information "with sufficient detail." The Senate committee reduced the same account by almost half and made $60 million of the remainder unavailable for obligation pending an expenditure plan approved by the committee. In the Research, Development, Acquisition, and Operations account, the House committee made $400 million unavailable for obligation until the Under Secretary reports on progress in addressing financial management deficiencies. The House committee objected that the budget justification contains "no details of how risk assessment was used in its formulation or even which DHS agency was tasked with prioritizing risks and assigning them resources," while the Senate committee expressed "extreme disappointment" and judged it "simply unacceptable" that DHS was unable "to clearly articulate and justify the funding request." The conference report was not as explicitly critical as the House and Senate reports, but the final bill did restrict $60 million of the Management and Administration account with language similar to the Senate's and $50 million of the Research, Development, Acquisition, and Operations Account with language similar to the House's. (According to the President's signing statement, the executive branch will construe these restrictions as "calling solely for notification" rather than "requir[ing] congressional committee approval." ) The department's FY2007 budget request marked the end of a period of consolidation for its R&D programs. In the FY2004 appropriations conference report ( H.Rept. 108-280 ), Congress directed the department to consolidate its R&D activities into the S&T Directorate. This process began with several small programs in FY2005, but a proposed move of the Coast Guard RDT&E program was rejected by the Senate. In FY2006, the much larger R&D program of the Transportation Security Administration was moved into S&T, but again the Senate rejected moving the Coast Guard program. The FY2007 request proposed no further consolidations; conversely, it proposed dividing out DNDO funding into a separate account comprising more than one-third of the department's R&D budget. The House and Senate approved this transfer, with some reservations. (See below under DNDO for more details.) The Senate also acted to reverse the move of the TSA program by appropriating $92 million for R&D in TSA and transferring $99 million in previously appropriated funding from S&T to TSA; the conference report kept these activities within S&T. Domestic Nuclear Detection Office165 The FY2007 request for the Domestic Nuclear Detection Office (DNDO) was $535 million. Compared with FY2006, when DNDO was funded as part of S&T, this was a 70% increase. (See Table 14 for details.) The increased funding would support new R&D initiatives, procurement of additional radiation portal monitors and other detection equipment, and salaries for all detailee staff (including 66 full-time equivalents formerly paid by their home agencies). The House provided $500 million, a reduction of $35 million from the request. The House committee report expressed puzzlement and dissatisfaction with the transfer of DNDO out of S&T, but approved it anyway because of the "critical importance of the DNDO mission" and "the liability [DNDO] would face" if left in S&T. The House committee directed S&T to work with DNDO and support its R&D-related needs. The Senate provided $442 million, a reduction of $93 million from the request. The bulk of the Senate reduction was in proposed funding for university research. The Senate committee report noted that S&T has an established university research program and directed DNDO to work with S&T rather than "start a duplicative grant program." The final bill provided $481 million. Conference report language limited the new university research program to $9 million. FY2007 Related Legislation Budget Resolution—S.Con.Res. 83/H.Con.Res166 The annual concurrent resolution on the budget sets forth the congressional budget. The Senate budget resolution, S.Con.Res. 83 was introduced on March 10, 2006, and passed the Senate on March 16, 2006. S.Con.Res. 83 , would provide $873 billion in discretionary budget authority for FY2007. H.Con.Res. 376 was introduced and reported on March 31, 2006, and passed the House on May 18, 2006. H.Con.Res. 376 would provide $873 billion in discretionary budget authority for FY2007. The anticipated difficulties in resolving the substantial differences between the House- and Senate-passed versions of the budget resolution led to both the House and the Senate adopting deeming resolutions. These deeming resolutions set the discretionary spending levels for FY2007 at $873 billion. There is currently no separate functional category for Homeland Security in the budget resolution. However, homeland security budget authority amounts are identified within each major functional category, though these amounts are typically not available until the publication of the committee reports that will be attached to the budget resolution. Appendix A. FY2006 Supplemental Appropriations and Rescissions Senate-Passed H.R. 5441 Title VII of Senate-passed H.R. 5441 included an FY2006 supplemental appropriation for port security enhancements which would have totaled $648 million. This funding was not included in P.L. 109-295. The funding would have been allocated as follows: $251 million for the CBP Salaries and Expenses account, $23 million for the U.S. Coast Guard for the Operating Expenses account to accelerate foreign port security assessments, conduct domestic port vulnerability assessments, and perform unscheduled security audits of certain facilities. $184 million for the U.S. Coast Guard Acquisition, Construction, and Improvements account for the Integrated Deepwater Systems program in order to acquire maritime patrol aircraft and parent aircraft patrol boats, to provide armed helicopters, and to sustain the medium endurance cutter fleet, $190 million for the Preparedness Directorate, for the State and Local Programs account, to provide port security grants. P.L. 109-234 (H.R. 4939) — Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006 16 On June 15, 2006, P.L. 109-234 was signed into law by the President. P.L. 109-234 contains several provisions affecting DHS agencies and reflects the President's request for an additional $1.9 billion in border security funding which focused on personnel, rather than the Senate's $1.9 billion proposal that concentrated on capital improvements. P.L. 109-234 does not include the $648 million in port security grant funding included in the Senate-passed version of H.R. 4939. Title I, Global War on Terror, would provide identical amounts to the House and Senate-passed versions of H.R. 4939, $75 million in transfers, and $27 million for the Coast Guard's Operating Expenses account. Title II, Hurricane Relief and Recovery, would provide the following amounts: OIG - $2 million; CBP Salaries and Expenses - $13 million; CBP Construction - $5 million; Coast Guard Operating Expenses - $89 million; Coast Guard Acquisition, Construction, and Maintenance - $192 million; FEMA Administrative and Regional Operations - $72 million; FEMA Preparedness, Mitigation, Response and Recovery - $10 million; FEMA Disaster Relief - $6,000 million 16 ; FEMA Disaster Assistance Direct Loan Program Account - $280 million. Title V, Border Security includes the following: CBP Salaries and Expenses - $410 million; CBP Air and Marine Interdiction, Operations, Maintenance, and Procurement - $95 million; CBP Construction - $300 million; ICE Salaries and Expenses - $327 million; ODP State and Local Programs - $15 million; FLETC Acquisition, Construction and Improvements - $25 million. Though not included in DHS accounts, the border security provisions adopted by the P.L. 109-234 also includes $708 million to deploy National Guard troops to the border; and $20 million in funding for related legal services to the Department of Justice. Title VII, General Provisions, Sec. 7004 would rescind $20 million in unobligated balances made available by P.L. 108-334, The FY2005 DHS Appropriations Act, and provide them to the Secret Service. Section 7005 would rescind $4 million from Screening Coordination and Operations, and provide them to the office of the Secretary and Executive Management. P.L. 109-148 — Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act of 2006 17 P.L. 109-148 contains a number of provisions that impact DHS budget accounts. Division A of P.L. 109-148 contains the Department of Defense (DoD) Appropriations Act for FY2006. Division B of P.L. 109-148 contains Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico and the Pandemic Influenza in 2006. Division B also contains a number of rescissions that affect DHS accounts, including an across-the-board rescission of 1%. Transfer of Funds to the Coast Guard Division A, Title IX of the DoD Appropriations Act (P.L. 109-148) contains a provision that transfers up to $100 million to the Coast Guard's Operating Expenses account from the Iraq Freedom Fund. These funds are available for transfer until September 30, 2007, and are to be used only to support operations in Iraq or Afghanistan and classified activities. Across-the-Board Rescission (ATB) Division B, Title III, Chapter 8, of P.L. 109-148 contains a 1% across-the-board (ATB) rescission that is to be applied to all discretionary FY2006 appropriations. Specifically, Sec. 3801 rescinds 1% of the following: the budget authority provided (or obligation limit imposed) for FY2006 for any discretionary account in any prior and in any other FY2006 appropriations act; the budget authority provided in any advance appropriation for FY2006 for any discretionary account in any prior fiscal year appropriation; and the contract authority provided in FY2006 for any program subject to limitation contained in any FY2006 appropriation act. 17 The ATB rescission does not apply to emergency appropriations (as defined by Sec. 402 of H.Con.Res. 95, the FY2006 Budget Resolution), nor does it apply to the discretionary budget authority made available to the Department of Veterans Affairs. Hurricane Katrina Reallocations and Rescissions Division B, Title I, Chapter 4, of P.L. 109-148 provides emergency supplemental appropriations to various DHS accounts to address the impacts of Hurricane Katrina. On October 28, 2005, the President submitted a request to Congress to reallocate $17.1 billion of the $60 billion previously appropriated by Congress to FEMA's Disaster Relief Fund (DRF) to respond to Hurricanes Katrina, Rita, Wilma, and other disasters. The Congressional response to this request was included in Title I of Division B of P.L. 109-148; the rescissions (from DHS accounts) funding this request were included in Title III of Division B of P.L. 109-148. Most of the additional funding provided to DHS accounts is to be used to repair and/or replace DHS equipment and facilities lost or damaged by the Hurricanes. These include the following: $24.1 million for CBP's Salaries and Expenses account; $10.4 million for CBP's Construction account; $13 million for ICE's Salaries and Expenses account; $132 million for the Coast Guard's Operating Expenses account; $74.5 million for the Coast Guard's Acquisition, Construction, and Improvements account; $3.6 million for the Secret Service's Salaries and Expenses account; $10.3 million for ODP's State and Local Programs account; and $17.2 million for FEMA's Administrative and Regional Operations account. This section of P.L. 109-148 also transfers $1.5 million (of the funds previously appropriated to this account by P.L. 109-62, see Supplemental funds for Hurricane Katrina below) from FEMA's Disaster Relief Account to the "Disaster Assistance Direct Loan Program Account" to carry out the direct loan program. All of the funds provided to DHS accounts under this section of P.L. 109-148 are designated as emergency funds. Title III, Chapter 4, of Division B of P.L. 109-148 contains rescissions affecting DHS accounts. These include the following: $23.4 billion in funds previously appropriated by P.L. 109-62, from FEMA's Disaster Relief account; and $260.5 million in funds previously appropriated by P.L. 109-90, from the Coast Guard's Operating Expenses account. Emergency Supplemental Appropriations for Pandemic Influenza Division B, Title II, Chapter 4 of P.L. 109-148 provides an additional $47.3 million for the DHS Office of the Secretary and Executive Management account. These funds are for "necessary expenses to train, plan, and prepare for a potential outbreak of highly pathogenic influenza." These funds are designated as emergency funds. Additional Border Security Funding During the conference consideration of H.R. 2863, two other Divisions, C and D, were inserted into the conference report (H.Rept. 109-359) attached to the bill. Division C, the American Energy Independence and Security Act of 2005, would have allowed oil well drilling in Alaska's National Wildlife Refuge (ANWR). Division D contained provisions that would have distributed the revenues from the ANWR drilling. Among the items that would have been funded with these revenues was more than $1 billion in additional border security funding for DHS. 17 After a contentious floor debate concerning the attachment of the ANWR provisions to the Defense Appropriations Bill, both Divisions C and D were removed from the bill by S.Con.Res. 74, the enrollment correction measure, and are not included in P.L. 109-148. Appendix B. DHS Appropriations in Context Federal-Wide Homeland Security Funding Since the terrorist attacks of September 11, 2001, there has been an increasing interest in the levels of funding available for homeland security efforts. The Office of Management and Budget, as originally directed by the FY1998 National Defense Authorization Act, has published an annual report to Congress on combating terrorism. Beginning with the June 24, 2002 edition of this report, homeland security was included as a part of the analysis. In subsequent years, this homeland security funding analysis has become more refined, as distinctions (and account lines) between homeland and non-homeland security activities have become more precise. This means that while Table B -1 is presented in such a way as to allow year to year comparisons, they may in fact not be strictly comparable due to the increasing specificity of the analysis, as outlined above. With regard to DHS funding, it is important to note that DHS funding does not comprise all federal spending on homeland security efforts. In fact, while the largest component of federal spending on homeland security is contained within DHS, the DHS homeland security request for FY2007 accounts for approximately 48% of total federal funding for homeland security. The Department of Defense comprises the next highest proportion at 29% of all federal spending on homeland security. The Department of Health and Human Services at 7.8%, the Department of Justice at 5.6% and the Department of Energy at 2.9% round out the top five agencies in spending on homeland security. These five agencies collectively account for nearly 93% of all federal spending on homeland security. It is also important to note that not all DHS funding is classified as pertaining to homeland security activities. The legacy agencies that became a part of DHS also conduct activities that are not homeland security related. Therefore, while the FY2007 requests included a total homeland security budget authority of $27.7 billion for DHS, the requested total gross budget authority was $39.8 billion. The same is true of the other agencies listed in the table.

The annual consideration of appropriations bills (regular, continuing, and supplemental) by Congress is part of a complex set of budget processes that also encompasses the consideration of budget resolutions, revenue and debt-limit legislation, other spending measures, and reconciliation bills. In addition, the operation of programs and the spending of appropriated funds are subject to constraints established in authorizing statutes. Congressional action on the budget for a fiscal year usually begins following the submission of the President's budget at the beginning of each annual session of Congress. Congressional practices governing the consideration of appropriations and other budgetary measures are rooted in the Constitution, the standing rules of the House and Senate, and statutes, such as the Congressional Budget and Impoundment Control Act of 1974. This report is a guide to one of the regular appropriations bills that Congress considers each year. It is designed to supplement the information provided by the House and Senate Appropriations Subcommittees on Homeland Security. It summarizes the status of the bill, its scope, major issues, funding levels, and related congressional activity, and is updated as events warrant. The report lists the key CRS staff relevant to the issues covered and related CRS products. This report describes the FY2007 appropriations for the Department of Homeland Security (DHS). On October 4, 2006, P.L. 109-295 was signed into law. P.L. 109-295 provides gross total budget authority of $41.4 billion for DHS for FY2007. This amounts includes $1.8 billion in emergency funding that was added to the bill during conference. P.L. 109-295 provides net budget authority of $34.8 billion, including the emergency funding. Excluding the emergency funding, P.L. 109-295 provides nearly $33.0 billion in net budget authority for DHS for FY2007. Senate-passed H.R. 5441 would have provided $32.8 billion in net budget authority for DHS for FY2007. House-passed H.R. 5441 would have provided $33.2 billion in net budget authority for DHS in FY2007. The Administration requested a net appropriation of $31.9 billion in net budget authority for FY2007. P.L. 109-295 provides the following net appropriation for major components of DHS: $8,035 million for Customs and Border Protection (CBP); $3,958 million for Immigration and Customs Enforcement (ICE); $3,628 million for the Transportation Security Administration (TSA); $8,316 million for the U.S. Coast Guard; $1,277 million for the Secret Service; $4,018 million for the Preparedness Directorate; $2,511 million for the Federal Emergency Management Agency (FEMA); $182 million for U.S. Citizenship and Immigration Services (USCIS); and $973 million for the Science and Technology Directorate (S&T). The requested net appropriation for major components of the department included the following: $6,574 million for CBP; $3,928 million for ICE; $2,323 million for TSA; $8,181 million for the U.S. Coast Guard; $1,265 million for the Secret Service; $3,420 million for the Preparedness Directorate; $2,964 million for FEMA; $182 million for USCIS; and $1,002 million for the S&T. House-passed H.R. 5441, contained the following amounts for major components of the department: $6,434 million for CBP; $3,876 million for ICE; $3,618 million for TSA; $8,129 million for the U.S. Coast Guard; $1,293 million for the Secret Service; $4,069 million for the Preparedness Directorate; $2,656 million for the FEMA; $162 million for USCIS; $956 million for S&T; and $500 million for the Domestic Nuclear Detection Office (DNDO). Senate-passed H.R. 5441 contained the following amounts for major components of the department: $6,683 million for CBP; $3,919 million for ICE; $3,816 million for TSA; $8,188 million for the U.S. Coast Guard; $1,226 million for the Secret Service; $3,901 million for the Preparedness Directorate; $2,606 million for FEMA; $135 million for USCIS; $818 million for S&T; and $442 million for the DNDO. This report will not be updated.

Introduction A biologic or biological product is a preparation, such as a therapeutic drug or a vaccine, made from living organisms, either human, animal, yeast, or microorganisms. Biologics are composed of proteins (and/or their constituent amino acids), carbohydrates (such as sugars), nucleic acids (such as DNA), or combinations of these substances. Biologics may also be cells or tissues used in transplantation. A biosimilar, sometimes referred to as a follow-on biologic, is a therapeutic drug that is similar but not structurally identical to the brand-name biologic made by a pharmaceutical or biotechnology company. The brand-name product is sometimes referred to as the innovator or reference product. In contrast to biologics, most commonly used drugs—over-the-counter drugs and most prescription drugs—are synthesized via a chemical process. A generic drug is chemically identical to its reference brand-name drug. The molecular structure of a commonly used chemical drug is much smaller than a biologic and therefore less complicated and more easily defined. For example, Table 1 shows that the chemical drug aspirin contains nine carbon atoms, eight hydrogen atoms, and four oxygen atoms while the biologic drug Remicade contains over 6,000 carbon atoms, almost 10,000 hydrogen atoms, and about 2,000 oxygen atoms. Inflectra, which is biosimilar to Remicade, was approved by the Food and Drug Administration (FDA) in April 2016. The FDA regulates both biologics and chemical drugs. The Center for Biologics Evaluation and Research (CBER) within FDA regulates what are often referred to as traditional biologics, such as vaccines, blood and blood products, allergenic extracts, and certain devices and test kits. CBER also regulates gene therapy products, cellular therapy products, human tissue used in transplantation, and the tissue used in xenotransplantation—the transplantation of nonhuman cells, tissues, or organs into a human. The FDA Center for Drug Evaluation and Research (CDER) regulates prescription brand-name and generic drugs, over-the-counter drugs, and most therapeutic biologics; this last responsibility was transferred from CBER to CDER in 2003. See Appendix A for further details. Examples of types of therapeutic biologics regulated by CDER are briefly described in the list below. Monoclonal antibodies—proteins that bind to a specific substance in the body or a specific cell. A monoclonal antibody may carry a drug or toxin. An example of a monoclonal antibody product is infliximab, used to treat Crohn's disease, ulcerative colitis, rheumatoid arthritis, and psoriasis. Cytokines—proteins that control (stimulate or slow down) the immune system and are used to fight cancer, infections, and other diseases. Examples include interleukins, interferons, and colony-stimulating factors, such as filgrastim. Growth factors—substances, such as hormones, made by the body that regulate cell division and cell survival, such as the human growth hormone somatropin. Enzymes—proteins that speed up chemical reactions in the body. Enzymes take part in many cell functions, including cell signaling, growth, and division. In cancer treatment, enzyme inhibitors may be used to block certain enzymes that cancer cells need to grow. Immunomodulators—substances, such as a vaccine, that stimulate or suppress the immune system and may help the body fight cancer, infection, or other diseases. Biologics and biosimilars frequently require special handling (such as refrigeration) and processing to avoid contamination by microbes or other unwanted substances. Also, they are usually administered to patients via injection or infused directly into the bloodstream. For these reasons, biologics often are referred to as specialty drugs. In the past, biologics were often dispensed by pharmacies with specialized facilities and personnel. The term specialty drugs is now used to describe drugs that are expensive for any of several reasons, including the requirement for special handling. The cost of specialty drugs, including biologics, may be extremely high. For example, the annual cost of some biologic medications, such as Soliris (eculizumab) and Vimizim (elosulfase alfa), exceeds $250,000 per patient. The use of biologics and spending on these products has been increasing; see for example Appendix C . Spending on biologics in the United States totaled $105.5 billion in 2016, a 13% increase over 2015. The amount spent on biologics subject to biosimilar competition in 2016 was $3.2 billion (3% of $105.5 billion), of which $2.9 billion was spent on "original" biologics and $0.3 billion was spent on biosimilars. Biologics spending has increased by 10% each year since 2011. According to a December 2016 report to Congress by the Department of Health and Human Services (HHS), "[i]ncreases in spending in the Medicare Part B program have been driven by increases in biologics. Spending on biologics between 2006 and 2014 grew by 13.3 percent annually, whereas spending on small molecule drugs grew by 0.7 percent annually during the same period. In 2014, biologics accounted for 63 percent of prescription drug spending in Part B." Biologic drugs are often more expensive in the United States than in Europe and Canada; see Appendix B . In Europe, the introduction of biosimilars has reduced prices for biologics, in some cases by 33% compared with the original price of the reference product; for one drug in Portugal, the price reduction was 61%. The next section of this report describes efforts by Congress to lower the price of commonly used chemical drugs via passage of the 1984 Hatch-Waxman Act and its use of a similar approach in 2010 to provide lower-cost alternatives for biologics. Events Leading Up to Biosimilars Legislation Congress passed the Drug Price Competition and Patent Term Restoration Act of 1984 ( P.L. 98-417 )—often called the Hatch-Waxman Act—to allow for the FDA approval of generic chemical drugs. By offering an alternative to brand-name drug products, the Hatch-Waxman Act has been credited with lowering the cost of drugs to consumers, as well as allowing the U.S. generic drug industry to expand. For chemical drugs, "generic medications decrease prices 60% to 90% on branded oral-solid medications," according to some experts. The generic drug industry achieves cost savings by avoiding the expense of clinical trials, as well as the initial drug research and development costs incurred by the brand-name manufacturer. Before a generic drug is approved for marketing, the generic drug company must demonstrate to the FDA that the drug product is identical to the original product. This "sameness" allows the generic company to rely on, or "reference," the FDA's previous finding of safety and effectiveness for the already approved drug. A generic drug is considered to be interchangeable with its reference (brand-name) drug and with other generic products that use the same reference drug. The sponsor of the generic drug must also meet manufacturing process standards and reporting requirements. During the time that Hatch-Waxman was debated by Congress and later implemented by the FDA, the biotechnology industry was developing its first biologics for use as human therapeutic agents. In 1982, FDA allowed on the market the first human drug developed by the biotechnology industry, human insulin (Humulin-R). This was followed by human growth hormone (Protropin) in 1985, alpha interferon (Intron-A) in 1986, tissue plasminogen activator (Activase) in 1987, and erythropoietin (Epogen) in 1989. Most biological products are regulated— licensed for marketing by FDA via a biologics license application (BLA)—under the Public Health Service Act (PHSA). Biological products were originally regulated by the National Institutes of Health (NIH) and its precursors. In 1972, this regulatory responsibility was transferred to FDA; see Appendix A of this report for further details. All chemical prescription drugs are regulated— approved for marketing by FDA via a new drug application (NDA) or abbreviated new drug application (ANDA)—under the Federal Food, Drug, and Cosmetic Act (FFDCA). The Hatch-Waxman Act provided a mechanism for the approval of generic drugs under the FFDCA, but it did not provide a mechanism for follow-on biologics/biosimilars under the PHSA. As a result, after Hatch-Waxman, companies could submit follow-on biologics applications for FDA review only for the very small number of so-called "natural source" biologics that had been approved under the FFDCA. Companies were effectively blocked from submitting follow-on applications for the much larger group of therapeutic biologics that had been licensed under the PHSA. Historically, certain biological products were regulated as drugs under the FFDCA rather than as biologics under the PHSA. In 1941, Congress gave the FDA authority over the marketing of insulin. The hormone insulin is a small protein—a short chain of 51 amino acids—that regulates carbohydrate (sugar) metabolism. In the 1940s, insulin was obtained in the same way as many biologics—extraction from animals—hence the term "natural source." Despite this similarity with other biologics, insulin was regulated as a drug by FDA rather than as a biologic by NIH. Besides insulin, a small set of other natural source biological products were regulated as drugs under the FFDCA rather than as biologics under the PHSA: the hormone glucagon, human growth hormone, hormones to treat infertility, hormones used to manage menopause and osteoporosis, and certain medical enzymes (hyaluronidase and urokinase). Even when patent protection for specialty biologic drug products was approaching expiration, the market competition that occurred with chemical drugs via generics could not happen with therapeutic biologics because FDA lacked clear regulatory authority to approve biosimilars. Although some entities, such as the Generic Pharmaceutical Association (GPhA, now called the Association for Accessible Medicines), advocated that the FDA establish a regulatory system for the approval of biosimilars under its existing statutory authority, the Biotechnology Industry Organization (BIO) filed a citizen petition with the FDA requesting a number of actions that would have inhibited the approval of biosimilars. In contrast, the pathway to marketing biosimilars in Europe seemingly had fewer barriers. In April 2006, the European Medicines Agency (EMA) authorized for marketing in Europe the first biosimilar product, Omnitrope, a human growth hormone. This was followed by the authorization of five other biosimilar products in 2007, two more in 2008, and many more thereafter (as shown in Table 2 ). In the United States, FDA approval of Omnitrope was announced in June 2006 following an April 10, 2006, ruling by the U.S. District Court for the District of Columbia in favor of Omnitrope's sponsor, Sandoz. The court ruled that the FDA must move forward with consideration of the application, submitted by Sandoz in 2003, which presented Omnitrope as "indistinguishable" from the FDA-approved Genotropin, marketed by Pfizer. Sandoz "alleged that the FDA had violated its statutory obligation to act on the Omnitrope application within 180 days, a time frame that the FDA characterized as merely a congressional aspiration." The 505(b)(2) pathway, created by the Hatch-Waxman Act, was used to approve Omnitrope. At the time of the Omnitrope approval in 2006, the FDA indicated in a document on the agency's website that this action "does not establish a pathway" for approval of other follow-on biologic drugs. "The agency has said that Congress must change the law before it can approve copies of nearly all other biotech products, and lawmakers haven't moved on the issue." New Regulatory Pathway for Biosimilars In March 2010, Congress established a new regulatory authority for FDA by creating an abbreviated licensure pathway in Section 351(k) of the PHSA for biological products that are demonstrated to be "highly similar" (biosimilar) to or "interchangeable" with an FDA-licensed biological product. This authority was accomplished via the Biologics Price Competition and Innovation Act (BPCIA) of 2009, enacted as Title VII of the Affordable Care Act (ACA, P.L. 111-148 ). In addition, Congress authorized FDA to collect the associated user fees from industry. FDA describes the terms biosimilar and interchangeable in the following paragraphs. Under the BPCI Act, a sponsor may seek approval of a "biosimilar" product under new section 351(k) of the PHS Act. A biological product may be demonstrated to be "biosimilar" if data show that the product is "highly similar" to the reference product notwithstanding minor differences in clinically inactive components and there are no clinically meaningful differences between the biological product and the reference product in terms of safety, purity and potency. In order to meet the higher standard of interchangeability, a sponsor must demonstrate that the biosimilar product can be expected to produce the same clinical result as the reference product in any given patient and, for a biological product that is administered more than once, that the risk of alternating or switching between use of the biosimilar product and the reference product is not greater than the risk of maintaining the patient on the reference product. Interchangeable products may be substituted for the reference product by a pharmacist without the intervention of the prescribing health care provider. FDA held a two-day public meeting on November 2 and 3, 2010, to obtain perspectives from industry and the general public prior to developing and releasing agency guidance on the new biosimilars pathway. Based on public input at this first meeting, FDA released three draft guidance documents in February 2012 and held another public meeting on May 11, 2012, to obtain feedback on the draft guidance. The FDA released final guidance on the first three draft guidance documents on April 28, 2015. The agency has also released additional guidance on a variety of other topics related to biosimilars. A list of FDA guidance documents on biosimilars is available on the agency's website. Under Section 351(k) of the PHSA, a company interested in marketing a biosimilar product in the United States must first submit to FDA an application that provides information demonstrating biosimilarity based on data from analytical studies (structural and functional tests), animal studies (toxicity tests), and a clinical study or studies (tests in human patients). The agency may decide, at its discretion, that a certain study or studies are unnecessary in a biosimilar application. As is the case with other FDA-approved products, any subsequent change to the approved manufacturing process—such as a change in the supplier of a raw material or the replacement of a piece of equipment—requires a demonstration to FDA of the comparability of the product's quality attributes before and after the change to ensure that the safety and effectiveness of the product is maintained. For example, the brand-name biologic Remicade (infliximab) underwent 37 manufacturing changes between 1998 and October 2014; each change required a demonstration of comparability, most likely through chemical, physical, and biological assays. For many years, the drug industry and FDA have coped with the inherent variability in biological products from natural sources. FDA maintains that the batch-to-batch and lot-to-lot variability that occurs for brand-name biologics and biosimilars can be assessed and managed effectively. FDA Approval of Biosimilars Although FDA has approved seven biosimilars for marketing in the United States, sales of five biosimilars have been delayed, or alleged to be adversely impacted, by actions of the brand-name manufacturers. The marketing launch of three U.S. biosimilars (see " Erelzi ," " Amjevita ," and " Cyltezo ") is being delayed by patent infringement lawsuits filed by brand-name manufacturers. In addition, Pfizer, which has FDA approval to market biosimilar Inflectra, has sued Johnson & Johnson (J&J), maker of brand-name biologic Remicade, for allegedly using "exclusionary contracts" and other anticompetitive tactics to prevent insurers from covering Inflectra (see " Inflectra "). Such anticompetitive practices would be expected to have a negative impact on the sales of another recently approved biosimilar (see " Renflexis "). The sections below provide a brief description of the seven biosimilars approved by FDA between March 2015 and October 2017. The high costs of pharmaceuticals in general—and biologics in particular—have led to an increased interest in understanding the federal government's role in the development of costly new therapeutics. Note that for six of the seven biosimilars described below, the brand-name drug was originally discovered by scientists at public-sector research institutions (see Table 6 and " Federal Research and New Drug Development "). Several of these brand-name biologics (Remicade, Enbrel, Humira, Avastin) are among the top-selling drugs—both worldwide and in the United States (see Appendix C ). Zarxio In March 2015, FDA announced the approval of Zarxio (filgrastim-sndz), the first biosimilar product approved for marketing in the United States (see Table 3 ). Zarxio, marketed by Sandoz Inc., is biosimilar to Neupogen (filgrastim), marketed by Amgen Inc. Neupogen (filgrastim) was originally discovered by scientists at Sloan Kettering (see Table 6 ). Amgen subsequently received a license from FDA in 1991 to market Neupogen (filgrastim) (see Appendix D ). Zarxio is approved for the same indications as Neupogen. Inflectra In April 2016, FDA approved a second biosimilar, Inflectra (infliximab-dyyb). Inflectra is biosimilar to the brand-name drug Remicade (infliximab), made by Janssen Biotech, Inc., which is part of J&J. Remicade (infliximab) was originally discovered by scientists at New York University (see Table 6 ). In 1998, FDA issued a license to market infliximab (as shown in Appendix D ) to Centocor Inc., which later became Janssen Biotech Inc. The biosimilar Inflectra is made by Celltrion, Inc., in the Republic of Korea, for Pfizer. In late November 2016, Pfizer began marketing Inflectra in the United States at a price that was 15% below the price of the brand-name drug, Remicade. In the United States and globally, Remicade is one of the top-selling drugs (see Appendix C ). In September 2017, Pfizer filed a lawsuit against J&J alleging anticompetitive practices due to J&J's "exclusionary contracts" with health insurers. Specifically, Pfizer charged that J&J "threatened to withhold significant rebates [from insurers] unless the insurers agreed to 'biosimilar-exclusion' contracts that effectively block coverage for Inflectra and other infliximab biosimilars." Another infliximab biosimilar was approved by FDA in April 2017 (see " Renflexis " below). Because of the large base of patients who are already taking J&J's brand-name drug, Remicade, and are unlikely to switch to Pfizer's new biosimilar, the rebate is a powerful financial incentive for an insurer to prefer the higher-priced brand-name biologic over the biosimilar. The alleged mechanism used by the brand-name manufacturer against the biosimilar manufacturer is explained in a June 2017 JAMA article: If a biosimilar manufacturer intends to upend the preferred position of the brand by offering a substantial price discount to the [insurer], the branded manufacturer can respond by withdrawing the rebate on the [branded] biologic, creating a "rebate trap." For any patient continuing the [branded] biologic, a payer's cost for that patient will double once the rebate is withdrawn . . . . Even in [an] optimistic scenario, in which the price of the biosimilar is 60% less than the price of the brand after rebates and discounts, if the payer is only able to convert 50% of its patient users to the biosimilar [because existing patients will tend to stay on the original branded product], the rebate trap ensures that payer total costs actually increase relative to costs prior to biosimilar availability. To avoid the rebate trap, any strategy to reduce spending on biologics through adoption of biosimilars requires a near-complete switch of patient users from the branded biologic to the biosimilar. However, for many chronic diseases, the proportion of patients new to a given biological therapy is less than 20% of the total patients taking that drug in a given year. The remainder represents a stable base of patients whose disease is well-maintained while they are using current therapy and thus are unlikely to switch [to the biosimilar]. According to Pfizer's lawsuit, "providers have declined to purchase Inflectra across the board, even for patients covered by insurance plans that do cover the product." The lawsuit states that as of September 1, 2017, about 90% of health care providers using infliximab had purchased no Inflectra at all, almost no national commercial health insurer provided coverage for Inflectra, and Inflectra had secured less than 4% of total infliximab unit sales in the United States. Since FDA approved Inflectra in April 2016, "J&J has raised the list price of Remicade by close to 9% and increased the amount the U.S. government reimburses for Remicade by more than $190 per infused dose." Pfizer states in the lawsuit that if J&J's anticompetitive practices are allowed to continue, these tactics "will become the playbook for biologic originator firms seeking to preserve their dominance in the face of biosimilar competition—thus subverting the competition-enhancing objectives of the BPCIA." The president of J&J's Janssen Biotech, Scott White, said the following in a statement regarding the Pfizer lawsuit: "We are effectively competing on value and price, and to date Pfizer has failed to demonstrate sufficient value to patients, providers, payers and employers. Competition is bringing down the overall cost of Remicade and will continue to bring down costs in the future. There is no merit to this lawsuit." Erelzi In August 2016, FDA approved a third biosimilar, Erelzi (etanercept-szzs), manufactured by Sandoz. Erelzi is biosimilar to the brand-name drug Enbrel (etanercept) which is manufactured by Amgen. Enbrel (etanercept) was originally discovered by scientists at Massachusetts General Hospital (see Table 6 ). In 1998, as shown in Appendix D , Immunex received a license from FDA to market Enbrel (etanercept). Immunex was acquired by Amgen in July 2002. Enbrel (etanercept) is one of the top-selling drugs in the world and in the United States (see Appendix C ). Erelzi is approved for all indications included on the label for Enbrel. According to a Sandoz press release, "the approval is based on a comprehensive package of analytical, nonclinical, and clinical data confirming that Erelzi is highly similar to the US-licensed reference product. Clinical studies included four comparative pharmacokinetic (PK) studies in 216 healthy volunteers and a confirmatory effectiveness and safety similarity study in 531 patients with chronic plaque psoriasis. Extrapolation to all indications approved for use on the reference product label is on the basis that the Sandoz biosimilar etanercept and the reference product are essentially the same." A release date for marketing of Erelzi has not yet been set due to a lawsuit filed by Amgen against Sandoz and its parent company Novartis; a trial is scheduled for April 2018. Amjevita In September 2016, FDA approved a fourth biosimilar, Amjevita (adalimumab-atto), manufactured by Amgen. Amjevita is biosimilar to Humira (adalimumab), which is currently manufactured by AbbVie (formerly a part of Abbott Laboratories). Humira (adalimumab) was originally discovered by scientists at Rockefeller University and Scripps (see Table 6 ). In 2002, Abbott Laboratories was licensed by FDA to market Humira (as shown in Appendix D ). Amjevita was approved for 7 indications (see Table 3 ); in contrast, Humira is approved for 10 indications. Humira (adalimumab) is one of the top-selling drugs, both worldwide and in the United States (see Appendix C ). Due to patent infringement litigation between Amgen and AbbVie, it is unlikely that Amjevita will be commercially available until at least 2018. Renflexis In April 2017, FDA approved a fifth biosimilar, Renflexis, (infliximab-abda), made by Samsung Bioepsis in the Republic of Korea. Renflexis is biosimilar to the brand-name drug Remicade (infliximab) made by Janssen Biotech, Inc., which is part of J&J. Remicade (infliximab) was originally discovered by scientists at New York University (see Table 6 ). In 1998 FDA issued a license to market infliximab (as shown in Appendix D ) to Centocor Inc., which later became Janssen Biotech Inc. In the United States and globally, Remicade is one of the top-selling drugs (see Appendix C ). Samsung has partnered with Merck to launch Renflexis in the United States; sales of the drug began at the end of July 2017 at a price that is 35% below the price of Remicade. (See also the discussion of another biosimilar to Remicade [infliximab], " Inflectra " above.) Cyltezo In August 2017, FDA approved a sixth biosimilar, Cyltezo (adalimumab-adbm), manufactured by Boehringer Ingelheim (BI). Cyltezo is biosimilar to Humira (adalimumab), which is currently manufactured by AbbVie. Humira (adalimumab) was originally discovered by scientists at Rockefeller University and Scripps (see Table 6 ). In 2002, Abbott Laboratories was licensed by FDA to market Humira (as shown in Appendix D ). Humira (adalimumab) is one of the top-selling drugs, both globally and in the United States (see Appendix C ). AbbVie filed a lawsuit against BI on August 2, 2017, alleging infringement of eight Humira patents, and therefore a launch date for Cyltezo remains unclear. Mvasi In September 2017, FDA approved Mvasi (bevacizumab-awwb), manufactured by Amgen. Mvasi is biosimilar to Avastin (bevacizumab), which is made by Genentech. In 2004, as shown in Appendix D , Genentech received a license from FDA to market Avastin (bevacizumab). Avastin (bevacizumab) is one of the top-selling drugs in the United States (see Appendix C ). FDA Issues Related to Biosimilars Naming The proprietary name of a drug product is the trademarked name, or brand name, for the product. It is the name a company uses to market its drug product, and it is usually capitalized, followed by a superscript R in a circle (®). For example, Neupogen® is the proprietary name for filgrastim, the nonproprietary name for the active substance. The Purple Book lists biological products, including any biosimilar and interchangeable biological products, licensed by FDA under the PHS Act, as well as the date the product was licensed. Appendix D provides CDER and CBER licensed biological products, listed by year of licensure, and has further examples of proprietary names and nonproprietary names. The nonproprietary name of a drug product is used in drug labeling, drug regulation, and scientific literature to identify a pharmaceutical substance or active pharmaceutical ingredient. For chemical drugs, the nonproprietary name is also known as the generic name. FDA released draft guidance on the nonproprietary naming of biological products in August 2015; this guidance was finalized on January 12, 2017. The guidance provides the FDA's rationale regarding its naming convention for biosimilars. Throughout the guidance, FDA uses the term "proper name" instead of "nonproprietary name" due to the nomenclature used in the PHSA. "Under this naming convention, the nonproprietary name designated for each originator biological product , related biological product , and biosimilar product will be a proper name that is a combination of the core name and a distinguishing suffix that is devoid of meaning and composed of four lowercase letters." An example of a core name is filgrastim. The suffix is attached to the core name with a hyphen as a unique identifier, for example, filgrastim-xzwy. "FDA is continuing to consider the appropriate suffix format for interchangeable products." For originator biological products —the reference product—FDA intends to use a core name that is the name adopted by the United States Adopted Name (USAN) Council. Nonproprietary names are selected by the USAN Council according to principles developed to ensure safety, consistency, and logic in the choice of names. In Europe, reference drugs and biosimilars use the identical International Nonproprietary Name (INN), a World Health Organization (WHO) drug-naming system that has been in place since 1953. The WHO selects INNs based on the advice of experts on a WHO advisory panel. In January 2016, the WHO released its voluntary Biological Qualifier (BQ) proposal for biosimilar naming. "The BQ is an additional and independent element used in conjunction with the INN to uniquely identify a biological substance to aid in the prescription and dispensing of medicines, pharmacovigilance, and the global transfer of prescriptions. The BQ is a code formed of four random consonants in two 2-letter blocks separated by a 2-digit checksum." In general, biosimilar industry groups support the shared use of a nonproprietary name, whereas those advocating for the innovator companies prefer a naming scheme that distinguishes between the reference biologic product and the biosimilar. In its October 2015 public comments to FDA, the Federal Trade Commission expressed concern that the FDA's naming proposal "could result in physicians incorrectly believing that biosimilars' drug substances differ in clinically meaningful ways from their reference biologics' drug substances." This "misperception" could "deter physicians from prescribing biosimilars" thereby "impeding the development of biosimilar markets and competition." The FTC comment provides further explanation: Historically, all originator biologics that met the same identification tests and other aspects of identity ... received the same nonproprietary name." [For example, there] are eight different manufacturers of human growth hormone (recombinant) and all of their products carry the same nonproprietary name— somatropin . ... [A]ny differences in nonproprietary names generally signal pharmacological and chemical relationship differences between the products. Although the FDA's proposal will use the same USAN as the core name for each biosimilar and its reference biologic, based on historical practice, the addition of unique differentiating suffixes may lead physicians to believe mistakenly that the products necessarily have clinically meaningful differences. ... Differences in the nonproprietary names of biosimilars could contribute to misperceptions that the drug substance of a biosimilar should be identical, not "highly similar" to that of its reference biologic. [Participants at an FTC workshop on biosimilars contend that] the term identical is abused to instill fear and foster misunderstanding. Because biosimilars are new in the U.S., many physicians do not yet fully understand that a lack of identicality is inherent in biologics. Every biologic displays a certain degree of variability, even between different batches of the same product . Labeling The labeling for a prescription drug product conveys information about the product's safety and effectiveness to a health care provider, allowing the provider to decide if the product is appropriate for a particular patient. In 2006, FDA issued a final rule on the content and format of labeling for prescription drug products, including biological products, and provided the following description: A prescription drug product's FDA approved labeling (also known as "professional labeling," "package insert," "direction circular," or "package circular") is a compilation of information about the product, approved by FDA, based on the agency's thorough analysis of the new drug application (NDA) or biologics license application (BLA) submitted by the applicant. This labeling contains information necessary for safe and effective use. It is written for the health care practitioner audience, because prescription drugs require "professional supervision of a practitioner licensed by law to administer such drug" (section 503(b) of the act (21 U.S.C. 353(b))). FDA requires that labeling begin with a highlights section that includes any warnings about the drug. Other FDA-required elements of labeling include indications and usage, dosage and administration, dosage forms and strengths, contraindications, warnings and precautions, adverse reactions, drug interactions, use in specific populations, drug abuse and dependence, overdosage, clinical pharmacology, nonclinical toxicology, clinical studies, references, how supplied/storage and handling, and patient counseling information. FDA released draft guidance on biosimilar labeling in March 2016. FDA recommends that the highlights section of the labeling contain a "Biosimilarity Statement" describing the biosimilar product's relationship to its reference product. The biosimilar product is not required by FDA to have the same labeling as the reference product; for example, the number of approved indications for use may differ. FDA recommends that comparative data demonstrating biosimilarity not be included in biosimilar product labeling "to avoid potential confusion or misinterpretation of the comparative data." However, such comparative data are available to prescribers and the public on the FDA website. Comments on the FDA labeling guidance reflected differing views: while the generic industry wants less information in biosimilar labeling, the brand-name industry would like FDA to require more information. For example, the Generic Pharmaceutical Association (GPhA, now called the Association for Accessible Medicines) said that the Biosimilarity Statement "not only is unnecessary but also may be confusing to patients and healthcare providers." In contrast, BIO, which represents makers of brand-name pharmaceuticals among other companies, stated that more information is preferable to less with regard to labeling. "The prescribing physician needs to have access to all relevant information, including the relevant nonclinical and clinical data supporting the finding of biosimilarity, and the resulting labeling should be transparent to allow the prescriber to identify whether the described studies were conducted with the biosimilar or reference product." Transition Under the BPCIA, biologics that were approved as drugs under the FFDCA will transition to biological licenses under the PHSA in March 2020. This BPCIA provision affects the relatively small set of biological products mentioned above: hormone insulin, hormone glucagon, human growth hormone, hormones to treat infertility, hormones used to manage menopause and osteoporosis, and certain medical enzymes (hyaluronidase and urokinase). FDA released draft guidance regarding the agency's interpretation of this BPCIA provision in March 2016. The FDA describes the BPCIA provision as follows: Section 7002(e) of the BPCI Act provides that a marketing application for a "biological product" must be submitted under section 351 of the PHS Act, subject to the following exception during a transition period ending on March 23, 2020: • An application for a biological product may be submitted under section 505 of the FD&C Act not later than March 23, 2020, if the biological product is in a product class for which a biological product in such product class was approved under section 505 of the FD&C Act not later than March 23, 2010. —However, an application for a biological product may not be submitted under section 505 of the FD&C Act if there is another biological product approved under section 351(a) of the PHS Act that could be a "reference product" if such application were submitted under section 351(k) of the PHS Act. An approved application for a biological product under section 505 of the FD&C Act shall be deemed to be a license for a biological product under section 351 of the PHS Act on March 23, 2020. In FDA's interpretation, as of March 23, 2020, applications for biological products that were approved under the FFDCA will no longer exist (as NDAs or ANDAs) and will be replaced by approved BLAs under the PHSA. In addition, FDA will not approve any application under the FFDCA for a biological product subject to the transition provisions that is still pending as of March 23, 2020. The FDA suggests that such applications be withdrawn and resubmitted under the PHSA, either Section 351(a) or 351(k). Some industry representatives, such as the Generic Pharmaceutical Association's Biosimilars Council, have commented that the FDA's proposed policy will significantly delay "the review, approval and availability of biological products that compete with expensive brand name biologics." Perhaps most importantly, under the FDA's interpretation any unexpired period of exclusivity associated with an approved NDA for a biological product subject to section 7002(e) of the BPCI Act (e.g., 5-year exclusivity, 3-year exclusivity, or pediatric exclusivity) would cease to have any effect.... However, any unexpired period of orphan drug exclusivity would continue to apply to the drug for the protected use after March 23, 2020, because orphan drug exclusivity can be granted to and can block the approval of a drug approved under section 505 of the FD&C Act or a biological product licensed under section 351 of the PHS Act. Industry groups, such as the Pharmaceutical Research and Manufacturers of America, have commented that the FDA policy on exclusivity raises significant legal and trade issues. Lastly, the transitional biological products will not be eligible for the 12-year biologics exclusivity period because they were not first licensed under the PHSA, as specified by the BPCIA. FDA states, "[n]othing in the BPCI Act suggests that Congress intended to grant biological products approved under section 505 of the FD&C Act—some of which were approved decades ago—a period of exclusivity upon being deemed to have a license under the PHS Act that would impede biosimilar or interchangeable product competition in several product classes until the year 2032." Interchangeability and Substitution An interchangeable product "can be expected to produce the same clinical result as the reference product in any given patient and, for a biological product that is administered more than once, that the risk of alternating or switching between use of the biosimilar product and the reference product is not greater than the risk of maintaining the patient on the reference product. Interchangeable products may be substituted for the reference product by a pharmacist without the intervention of the prescribing health care provider." As mentioned previously, a generic drug is considered to be interchangeable with its reference (brand-name) drug and with other generic products that use the same reference drug. Following passage of the Hatch-Waxman Act, one major source of cost saving was the ability of a pharmacist to substitute a generic drug for a brand-name drug without the intervention of a health care provider. However, because a biosimilar is not structurally identical to its brand-name biologic, assessing interchangeability is a separate process. In January 2017, FDA released draft guidance on interchangeability. The comment period on the interchangeability guidance was extended to May 19, 2017. FDA has not yet approved an interchangeable product. In Europe, the EMA does not make a determination on interchangeability. "The EMA evaluates biosimilar medicines for authorization purposes. The Agency's evaluations do not include recommendations on whether a biosimilar should be used interchangeably with its reference medicine. For questions related to switching from one biological medicine to another, patients should speak to their doctor and pharmacist." Individual member states decide their own policy on interchangeability. Some countries, such as Denmark, "have concluded that all originators [reference products] and biosimilars are interchangeable unless proven not to be"; in contrast, Ireland allows a single switch but multiple switches are not allowed. In the United States, FDA regulates the drug product but the states regulate pharmacies and the practice of pharmacy. According to the National Conference of State Legislatures (NCSL), as of March 31, 2017 "at least 37 states have considered legislation establishing state standards for substitution of a biosimilar prescription product to replace an original biologic product." NCSL indicates that a total of 27 states and Puerto Rico have enacted legislation; the provisions of state legislation vary. Reauthorization of the Biosimilar User Fee Act (BsUFA) FDA first gained the authority to collect user fees from the manufacturers of brand-name prescription drugs and biological products in 1992, when Congress passed the Prescription Drug User Fee Act (PDUFA). With PDUFA, FDA, industry, and Congress reached an agreement on two concepts: (1) performance goals —FDA would negotiate with industry on target completion times for various review processes, and (2) use of fees —the revenue from prescription drug user fees would be used only for activities to support the review of new product applications and would supplement—rather than supplant—congressional appropriations to FDA. The added resources from user fees allowed FDA to increase staff available to review applications and to reduce the median review time for standard applications. Over the years, Congress has added similar authority regarding medical devices, animal drugs, and generic human drugs. User fees made up 43% of the FY2016 FDA budget. The FFDCA was amended by the Biosimilar User Fee Act of 2012 (BsUFA I), which authorizes FDA to collect fees for agency activities associated with the review of biosimilars from October 2012 through September 2017. Under BsUFA I, FDA collected six different types of fees from industry; fee amounts were based on inflation-adjusted PDUFA human drug application fee amounts for each fiscal year. Because no marketed biosimilar biological products existed when the BsUFA I program started, it included fees for products in the development phase—what FDA calls the Biosimilar Product Development (BPD) program—to generate fee revenue for the new program and to enable companies to meet with FDA in the early development of biosimilar biological products. The BPD program provides assistance to industry sponsors in the early stages of developing a new biosimilar product. As of February 2017, there were 64 BPD programs (each developing a separate biosimilar product) to 23 different reference products. A company can choose to discontinue participation in the biosimilar biological product development program but would have to pay a reactivation fee to resume further product development with FDA. The biosimilar biological product application fee could be waived for the first such application from a small business. FY2017 fee rates under BsUFA I are shown in Table 4 . The FDA provides information on the amount of BsUFA fees collected each fiscal year and how the fees are spent in an annual financial report. The five-year biosimilars user fee authority was scheduled to sunset on October 1, 2017. FDA held a public meeting on the reauthorization of the program—BsUFA II—on December 18, 2015. From March 2016 through May 2016, the agency held negotiation sessions with industry on the reauthorization agreement. In September 2016, the agency posted on its website the draft BsUFA II agreement on FDA performance goals and procedures for FY2018 through FY2022. A second BsUFA II public meeting was held on October 20, 2016. Following a 30-day comment period on the draft, a final BsUFA recommendation was submitted to Congress. Congress reauthorized the biosimilar user fee program via the Food and Drug Administration Reauthorization Act of 2017 (FDARA, P.L. 115-52 ), which was signed into law by President Donald J. Trump on August 18, 2017. According to March 2017 congressional testimony, FDA faced challenges in achieving the BsUFA I goals for advisory meetings with industry. The situation was due to the lack of additional staff "to handle the increased workload for biosimilar review." FDA anticipates that the new hiring authorities in the recently enacted 21 st Century Cures Act ( P.L. 114-255 ) will be used to "strengthen staff capacity; modernize the hiring system and infrastructure; augment human resources capacity through the use of dedicated expert contractors; establish a dedicated function for the recruitment and retention of scientific staffing; set clear goals for hiring; and conduct a comprehensive and continuous assessment of hiring and retention practices." These enhancements are designed to allow FDA to meet performance goals and help save "the applicant time and resources and ultimately encourage price competition and lower healthcare costs." Under BsUFA II, the supplement fee and the establishment fee have been dropped and the initial, annual, and reactivation BPD fees have been retained. The product fee is renamed the BsUFA Program fee, "with a new provision that sponsors shall not be assessed more than five BsUFA Program fees for a fiscal year per application." The application fee will no longer be reduced by the cumulative amount of BPD fees paid by the sponsor for that product. FDA and industry estimate that the agency will need approximately $45 million in FY2018 to cover the BsUFA program costs. This amount may be adjusted to reflect workload and costs estimates for FY2018, but the adjustment may not exceed an increase of $9 million. Federal Research and New Drug Development In general, the federal government—such as the work conducted or supported by NIH—tends to focus more on basic or preclinical research and the pharmaceutical industry concentrates more of its research funding on clinical trials rather than on discovery activity. When trying to assign credit for specific therapeutic advancements, drawing a line between basic and applied research can be challenging. For example, without a major underlying advance, like recombinant DNA, the development of whole new classes of drugs would not have occurred. Concern over the high costs of pharmaceuticals in general and biologics in particular has led some to look more carefully at the federal role in the development of costly new therapeutics. Various studies have attempted to quantify the contribution of publicly funded research to the discovery of new drugs. A study published in 2003 found that of the 284 new drugs approved by FDA from 1990 through 1999, 6.7% originated from sources other than private industry. A 1993 study found that 7.6% of new drugs approved from 1981 through 1990 originated from nonindustry sources. However, rather than focusing on all drug approvals—including many "me too" drugs—another way to answer this question is to look at the origin of truly innovative new drugs, what FDA calls new molecular entities (NMEs). NMEs are drugs that have not been approved by FDA previously and frequently provide important new therapies for patients. A 2010 study found that of the NMEs and new biologics that received FDA approval between 1998 and 2007, 24.1% originated from work that was publicly funded. A study by Stevens et al. published in 2011 claims to be more comprehensive than these earlier investigations. The Stevens study found that of the 1,541 drugs approved by FDA from 1990 through 2007, 143, or 9.3%, resulted from work conducted in publicly funded labs. Of the total 1,541 drug applications, FDA granted priority review to 348 applications, and 66 of these (19%) resulted from publicly funded research. The authors state that "viewed from another perspective, 46.2% of the new-drug applications from PSRIs [public-sector research institutions] received priority reviews, as compared with 20.0% of applications that were based purely on private-sector research, an increase by a factor of 2.3." An FDA designation of priority review is for "the evaluation of applications for drugs that, if approved, would be significant improvements in the safety or effectiveness of the treatment, diagnosis, or prevention of serious conditions when compared to standard applications." According to the authors, their data "suggest that PSRIs tend to discover drugs that are expected to have a disproportionately important clinical effect." The 2011 Stevens study considered a PSRI "to have participated in the applied phase of research that led to discovery of a drug if it, solely or jointly, created intellectual property specific to the drug that was subsequently transferred to a company through a commercial license." It is important to understand that the methodology used by the Stevens study "excluded the role of PSRIs in the development of platform technologies that have contributed to the development of whole new classes of drugs." For example, the following platform technologies were all developed with public funds and were excluded from the study: recombinant DNA technology (Cohen-Boyer patents); bacterial production methods for recombinant DNA (Riggs-Itakura patents); production and chimerization methods for antibodies (Cabilly patents); methods to produce glycosylated recombinant proteins in mammalian cells (Axel patents); and methods of gene silencing with the use of small interfering RNAs (Mello-Fire patents). Although these platform technologies enabled the development of many of the products approved by FDA during the period evaluated in the study, they were excluded "because the PSRI scientists who developed the platforms generally did not use them to develop specific drug candidates." However, without these platform technologies, many new drugs would not have been developed, resulting perhaps in a vastly different economic outlook for the pharmaceutical industry. According to the Stevens et al., 2011 publication, the 36 biologic drugs listed in Table 6 were "discovered at least in part by PSRIs during the past 40 years." Appendix A. Major Laws on Biologics Regulation In general, biological products are regulated ( licensed for marketing) under the Public Health Service Act—originally by the National Institutes of Health (NIH) and its precursors and later, starting in 1972, by the FDA—and chemical drugs are regulated ( approved for marketing) under the Federal Food, Drug, and Cosmetic Act—by the FDA. This section provides a brief history of these two acts and other relevant laws as they relate to biologics, as well as some of the important amendments that have occurred during the past 100 years. Relevant Laws Biologics Control Act of 1902 The regulation of biologics by the federal government began with the Biologics Control Act of 1902, "the first enduring scheme of national regulation for any pharmaceutical product." The act was groundbreaking, "the very first premarket approval statute in history." It set new precedents, "shifting from retrospective post-market to prospective pre-market government review." The Biologics Control Act was passed in response to deaths (many of children) from tetanus contamination of smallpox vaccine and diphtheria antitoxin. The act focused on the manufacturing process of such biological products; it required that facilities manufacturing such biological products be inspected before a federal license was issued to market them. Pure Food and Drugs Act and the Federal Food, Drug, and Cosmetic Act The Biologics Control Act predates the regulation of drugs under the Pure Food and Drugs Act, which was enacted in 1906. The 1906 act "did not include any form of premarket control over new drugs to ensure their safety ... [and] did not include any controls over manufacturing establishments, unlike the pre-existing Biologics Act and the later-enacted Federal Food, Drug, and Cosmetic Act (FFDCA)." The Pure Food and Drugs Act was replaced by the FFDCA in 1938. The FFDCA required that drug manufacturers submit, prior to marketing, a new drug application (NDA) demonstrating, among other things, that the product was safe. The Public Health Service Act The Biologics Control Act was revised and recodified (42 U.S.C. 262) when the Public Health Service Act (PHSA) was passed in 1944. The 1944 act specified that a biological product that has been licensed for marketing under the PHSA is also subject to regulation (though not approval) under the FFDCA. A biological product is defined under Section 351(i) of the PHSA, as a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, or analogous product ... applicable to the prevention, treatment or cure of a disease or condition of human beings. Section 351(j) of the PHSA states that the FFDCA "applies to a biological product subject to regulation under this section, except that a product for which a license has been approved under subsection (a) shall not be required to have an approved application under section 505 of such Act." Most biological products regulated under the PHSA also meet the definition of a drug under Section 201(g) of the FFDCA: articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or animals; and articles (other than food) intended to affect the structure or any function of the body of man or other animals. The PHSA was amended by the FDA Modernization Act of 1997 (FDAMA, P.L. 105-115 ) to require a single biological license application (BLA) for a biological product, rather than the two licenses—Establishment License Application (ELA) and Product License Application (PLA)—that had been required between 1944 and 1997. The PHSA provides authority to suspend a license immediately if there is a danger to public health. The PHSA was amended by the Biologics Price Competition and Innovation Act (BPCIA) of 2009, enacted as Title VII of the Affordable Care Act (ACA, P.L. 111-148 ). The BPCIA created a licensure pathway for biological products demonstrated to be "highly similar" (biosimilar) to or "interchangeable" with an FDA-approved biological product, and it authorized the agency to collect associated fees. The BPCIA also created FDA-administered periods of regulatory exclusivity for certain brand-name biologics and biosimilar products, as well as procedures for brand-name and biosimilar manufacturers to resolve patent disputes. Regulation of Biologics by Federal Agencies Following enactment of the 1902 Biologics Act, regulatory responsibility for biologics was first delegated to the Hygienic Laboratory, a precursor of NIH. In 1972, regulatory authority for biologics was transferred from the NIH Division of Biological Standards to the Bureau of Biologics at the FDA. In 1982, the FDA's Bureau of Drugs and Bureau of Biologics merged to form the National Center for Drugs and Biologics. In 1988, the Center for Drugs and Biologics was split into the Center for Drug Evaluation and Research (CDER) and the Center for Biologics Evaluation and Research (CBER). CBER continued to use NIH facilities and buildings until it moved in October 2014 to the new FDA headquarters in White Oak, MD. Because biotechnology products frequently cross the conventional boundaries between biologics, drugs, and devices, determining the jurisdictional status of these products has been difficult for both the FDA and industry. Some products have had characteristics that met multiple statutory and scientific definitions. In 1991, FDA published an Intercenter Agreement between CBER and CDER. In general, the agreement stated that traditional biologics (vaccines, blood, blood products, antitoxins, allergenic products), as well as most biotechnology products, would be regulated by CBER. The small set of biologics regulated as drugs under the FFDCA (mentioned above) would continue to be regulated by CDER, regardless of the method of manufacture. In 2002, however, the FDA announced its intention to reorganize review responsibilities, consolidating review of new pharmaceutical products under CDER, thereby letting CBER to concentrate on vaccines, blood safety, gene therapy, and tissue transplantation. On June 30, 2003, responsibility for most therapeutic biologics was transferred from CBER to CDER. Under this structure, biological products transferred to CDER are regulated as licensed biologics under Section 351 of the PHSA. Examples of products transferred to CDER include monoclonal antibodies, immunomodulators (other than vaccines and allergenic products), growth factors, and cytokines. Remaining at CBER are traditional biologics such as vaccines, allergenic products, antitoxins, antivenins, venoms, and blood and blood products, including recombinant versions of plasma derivatives (clotting factors produced via biotechnology). Appendix B. Comparison of Biologic Drug Prices Appendix C. Top-Selling Drugs Appendix D. The Purple Book

A biological product, or biologic, is a preparation, such as a drug or a vaccine, that is made from living organisms. Compared with conventional chemical drugs, biologics are relatively large and complex molecules. They may be composed of proteins (and/or their constituent amino acids), carbohydrates (such as sugars), nucleic acids (such as DNA), or combinations of these substances. Biologics may also be cells or tissues used in transplantation. A biosimilar, sometimes referred to as a follow-on biologic, is a therapeutic drug that is similar but not structurally identical to the brand-name biologic made by a pharmaceutical or biotechnology company. In contrast, a generic chemical drug is an exact copy of a brand-name chemical drug. Because biologics are more complex than chemical drugs, both in composition and method of manufacture, biosimilars will not be exact replicas of the brand-name product, but may instead be shown to be highly similar. The Food and Drug Administration (FDA) regulates both biologics and chemical drugs. Biologics and biosimilars frequently require special handling (such as refrigeration) and processing to avoid contamination by microbes or other unwanted substances. Also, they are usually administered to patients via injection or infused directly into the bloodstream. For these reasons, biologics often are referred to as specialty drugs. The cost of specialty drugs, including biologics, can be extremely high. In April 2006, the European Medicines Agency (EMA) authorized for marketing in Europe the first biosimilar product, Omnitrope, a human growth hormone. The EMA lists a total of 40 biosimilars on its website; 2 products were refused authorization and 3 were withdrawn, leaving a total of 35 biosimilars authorized for the European market. The introduction of biosimilars in Europe has reduced prices for biologics overall, in some cases by 33% compared with the original price of the brand-name product. For one drug in Portugal, the price reduction was 61%. In contrast, the pathway to marketing biosimilars in the United States has had several barriers. FDA approved Omnitrope in June 2006, following an April 2006 court ruling requiring the FDA to move forward with consideration of the application. At the time Omnitrope was approved, FDA indicated that this action "does not establish a pathway" for approval of other follow-on biologic drugs and stated that Congress must change the law before the agency can approve copies of nearly all other such products. Four years later, in March 2010, Congress established a new regulatory authority for FDA by creating an abbreviated licensure pathway for biological products demonstrated to be "highly similar" (biosimilar) to or "interchangeable" with an FDA-licensed biological product. The new authority was accomplished via the Biologics Price Competition and Innovation Act (BPCIA) of 2009, enacted as Title VII of the Affordable Care Act (ACA, P.L. 111-148). Congress authorized FDA to collect associated fees via the Biosimilar User Fee Act of 2012 (BsUFA, P.L. 112-144). The five-year biosimilars user fee authority was set to expire on September 30, 2017. Congress reauthorized the biosimilar user fee program via the Food and Drug Administration Reauthorization Act of 2017 (FDARA, P.L. 115-52). As more biosimilars enter the U.S. market, analysts expect to see U.S. price reductions similar to those that have occurred in Europe. However, of the seven biosimilars approved by FDA, sales of five biosimilars have been delayed, or (allegedly) adversely impacted, by actions of the brand-name manufacturers. Three biosimilars (Erelzi, Amjevita, and Cyltezo) have had their marketing launch delayed by patent infringement lawsuits filed by brand-name manufacturers. In addition, Pfizer has sued Johnson & Johnson (J&J) alleging that J&J has entered into anticompetitive contracts with insurers that prevent coverage of Pfizer's biosimilar (Inflectra), a less expensive substitute for J&J's best-selling biologic (Remicade). The alleged anticompetitive practices would be expected to have a negative impact on another recently approved biosimilar (Renflexis). The high costs of pharmaceuticals in general—and biologics in particular—has led to an increased interest in understanding the federal government's role in the development of costly new therapeutics. In the case of six of the seven biosimilars approved by FDA, the associated brand-name drug was originally discovered by scientists at public-sector research institutions. Several of these brand-name biologics (Remicade, Enbrel, Humira, Avastin) are among the top-selling drugs in the United States and worldwide.

Introduction The Constitution's Speech or Debate Clause (Clause) represents a key pillar in the American separation of powers. The Clause, which derives its form from the language of the English Bill of Rights and has deep roots in the historic struggles between King and Parliament, serves chiefly to protect the independenc e, integrity, and effectiveness of the legislative branch by barring executive or judicial intrusions into the protected sphere of the legislative process. These prohibited intrusions may take various forms, and, judicial interpretation of the Clause's relatively ambiguous language has developed along several related lines of cases. First and foremost, the Clause has been interpreted as providing Members of Congress (Members) with general immunity from liability for all "legislative acts" taken in the course of their official responsibilities. This "cloak of protection" shields Members from "intimidation by the executive" or a "hostile judiciary" by protecting against either the executive or judicial powers from being used to improperly influence or harass legislators through retaliatory litigation. This overarching immunity principle has traditionally been viewed as advancing the primary purpose of the Clause: that of preserving the independence of the legislative branch. The Clause has also been said to serve a good governance role, barring judicial or executive processes that may constitute a "distraction" or "disruption" to a Member's representative or legislative role. The Court has cited this "distraction" principle, and the Clause's broad proscription that Members not be "questioned in any other place," as justification for extending the Clause's immunity protection beyond criminal actions initiated by the executive branch—which clearly implicate the separation of powers—to private civil suits initiated by members of the public—which generally implicate the separation of powers only to a lesser degree. Even when absolute immunity is not appropriate—for example, when a charge or claim does not arise directly out of a legislative act but is rather entangled with protected and unprotected acts—the Clause appears to provide Members with complementary evidentiary and testimonial privileges which may be invoked by a Member to protect against the introduction of specific "legislative act" evidence. Although not explicitly articulated by the Supreme Court, lower federal courts have generally viewed these component privileges as a means of effectuating the protections afforded by the Clause by barring the introduction of specific documentary evidence of protected legislative acts for use against a Member and protecting a Member from being questioned regarding those same acts. Some appellate opinions have recognized that the Clause must also include a broad documentary nondisclosure privilege to protect Members from the perils and burdens of revealing written legislative materials, even when the documents are not used as evidence against the Member. Although this nondisclosure privilege has not been adopted by the Supreme Court, it has been utilized to extend the protections of the Clause to prohibit the compelled disclosure of documents in various circumstances, including during searches conducted as a part of a criminal investigation. Some courts, however, have rejected this reasoning, considering it an undue expansion of the Clause. These courts have instead held that, at least in criminal cases, the Clause prohibits only the evidentiary use of privileged documents, not their mere disclosure to the government for review as part of an investigation. The Clause has also been interpreted to protect Congress's ability to obtain and use information without interference from the judiciary. These cases tend to emphasize the structural aspects of the Clause's role in the separation of powers and, more specifically, the proper relationship between Congress and the courts. For example, courts have generally read the Clause as prohibiting the judicial branch from invalidating or blocking a congressional subpoena, or from interfering with how Congress, and its Members, choose to use information within the legislative sphere. The Core of the Clause: Member Immunity and Component Privileges In fashioning an evolving interpretation, the Supreme Court has described the Clause as a provision in which the text simply cannot be interpreted literally. "Deceptively simple" phrases such as "shall not be questioned," "Speech or Debate," and even "Senators and Representatives" have been the subject of significant debate. While there appears to be much about the Clause that is unclear, it is well established that the Clause seeks to secure the independence of legislators by providing Members with immunity from criminal prosecutions or civil suits that stem from acts taken within the legislative sphere. This general immunity principle forms the core of the protections afforded by the Clause. The Supreme Court has consistently and repeatedly suggested the Clause's immunity principle should be interpreted "broadly" to effectuate the purpose of maintaining an independent legislature. Once it is determined that the Clause applies to a given action, the resulting protections from liability are "absolute," and the action "may not be made the basis for a civil or criminal judgment against a Member." Unlike some constitutional provisions, the Clause does not require a court to engage in a balancing of interests. The Clause's general immunity principle is perhaps best understood as complemented—and effectuated—by two component privileges that courts have viewed as emanating from the Clause. The evidentiary component of the Clause prohibits evidence of legislative acts from being introduced for use against a Member. Similarly, the testimonial component of the Clause generally may be invoked when a Member is questioned about his legislative acts, either in a trial, before the grand jury, or in a deposition, and, in some courts, to block the compelled disclosure of documents pursuant to a subpoena or a warrant. The Supreme Court has not explicitly framed the protections of the Clause by reference to these two independent component privileges, but has instead used language that implies only their existence. As such, these privileges are neither clearly established nor described, and, especially in regard to the testimonial privilege, relatively unsettled. Nevertheless, in understanding the Speech or Debate Clause, it would seem prudent to describe the Clause as composed of a general immunity principle, complemented by component evidentiary and testimonial privileges. Although there appears to be some agreement on the existence of the immunity principle and the evidentiary and testimonial privileges, the Supreme Court's relatively ambiguous treatment of the interactions between the different aspects of the Clause has led to significant disagreement among the lower courts. For example, the Court's silence on the scope of the testimonial component of the Clause, combined with the inherent confusion surrounding what constitutes a "testimonial" disclosure in other areas of federal law, has led to a deep split among the federal appellate courts as to whether the Clause protects against nonevidentiary disclosures of written legislative materials—for example, disclosures made in response to discovery subpoenas or search warrants —or, to the contrary, whether such disclosures are covered only by the evidentiary component of the Clause, and therefore disclosure of such documents is protected only when used for evidentiary purposes. Despite the doctrinal uncertainty, it would appear that the different aspects of the Clause may be best summarized in the following way. First, the immunity principle of the Clause acts as a jurisdictional bar to legal actions seeking to hold a Member liable, either civilly or criminally, for protected legislative acts. When the claim itself does not require proof of a legislative act, but rather arises from nonlegislative or unprotected activity, the Member is not immune, and the criminal or civil action may go forward. Second, during the course of the litigation, the Member may nonetheless assert the evidentiary privilege to block the introduction of specific evidence reflecting protected legislative acts. Third, the testimonial privilege may be invoked in a variety of circumstances in order to protect the Member from compelled testimony, or in some courts from disclosing documents, about those acts. Viewing the Clause holistically, it becomes apparent that whether a court chooses to address a Speech or Debate case by reference to the general immunity principle, or the evidentiary and testimonial privileges, in some cases the ultimate result may be the same. For example, a Member may avoid liability that may have otherwise attached to his actions either because the court relies on the Clause's immunity principle, or because the party initiating the legal action is unable to prove his case without resort to evidence and testimony that is protected by the evidentiary and testimonial privilege components of the Clause. As a result of the breadth of these protections, the Clause seemingly makes it more difficult for the executive branch to prosecute Members for unlawful acts committed in the context of legislative activity, including those offenses directly related to corruption. This impact on executive enforcement of the law was fully understood at the time the Clause was adopted, and considered a necessary consequence of protecting legislators from undue influence or intimidation. The Clause does not, however, turn Members into "supercitizens" by providing them with a blanket exemption from legal liability for any and all illegal acts. Rather, the Clause immunizes or protects only a certain class of actions, known as "legislative acts," that are undertaken as part of the legislative process. Not all actions taken by a Member in the course of his congressional duties are considered legislative acts. In fact, many acts that may otherwise be considered "official," in that they relate to governmental duties, are not covered by the protections of the Clause. The Clause protects only those acts that are an "integral part of the deliberative and communicative processes" through which Members engage either in "the consideration and passage or rejection of proposed legislation" or "other matters which the Constitution places within the jurisdiction of either House." The legislative act limitation and other aspects of the Clause are discussed in greater detail below. Supreme Court Interpretations A series of decisions from the Supreme Court address the general scope of the Clause and elucidate the distinction between legislative acts, such as voting or debating, which are accorded protection under the Clause and are not subject to "inquiry," and political or other nonlegislative acts, which are not protected by the Clause and therefore may serve as the basis for a legal action. These cases suggest at least three noteworthy themes. First, despite the text, the protections afforded by the Clause extend well beyond "speeches" or "debates" undertaken by "Senators and Representatives." Second, otherwise legitimate political interactions external to the legislative sphere—for example, disseminating information outside of Congress—are generally not considered protected legislative acts. Third, the Clause does not immunize criminal conduct that is clearly no part of the "due functioning" of the legislative process. The Supreme Court adopted a broad interpretation of "Speech or Debate" from its first assessment of the Clause in the 1881 case Kilbourn v. Thompson . In Kilbourn , the Court considered whether a civil action could be maintained against Members who were responsible for initiating and approving a contempt resolution ordering an unlawful arrest. The Members defended themselves on the ground that their acts were protected by the Clause. The Court agreed, determining that the Members were not subject to suit for their actions. The Court adopted an interpretation of the Clause that extended protections beyond mere legislative deliberation and argument, holding that "it would be a narrow view of the constitutional provision to limit it to words spoken in debate." Instead, the Court determined that the Clause applied to "things generally done in a session of the House by one of its members in relation to the business before it," including the presentation of reports, the offering of resolutions, and the act of voting. Accordingly, the Court concluded that although the arrest itself may have been unlawful, the Members were immune from suit and could not be "brought in question" for their role in approving the resolution "in a court of justice or in any other place," as that act was protected by the Clause. The Court only rarely addressed the Clause after Kilbourn . It was not until the 1966 case United States v. Johnson that the Court embarked on an early attempt to define the protections afforded by the Clause in the context of a criminal prosecution of a Member. In Johnson , a former Member challenged his conviction for conspiracy to defraud the United States that arose from allegations he had agreed to give a speech defending certain banking interests in exchange for payment. In prosecuting the case, the government relied heavily on the former Member's motive for giving the speech, introducing evidence that the speech had been made solely to serve private, rather than public, interests. Focusing on the admission of this protected evidence, the Court overturned the conviction. "However reprehensible such conduct may be," the Court concluded that a criminal prosecution, the "essence" of which requires proof that "the Congressman's conduct was improperly motivated," was "precisely what the Speech or Debate Clause generally forecloses from executive and judicial inquiry." The opinion noted that the Clause must be "read broadly to effectuate its purposes," ultimately concluding that the Clause prohibits a prosecution that is "dependent" upon the introduction of evidence of "the legislative acts" of a Member or "his motives for performing them." Although overturning the conviction, the Court remanded the case to the district court for further proceedings, holding that the government should not be precluded from bringing a prosecution "purged of elements offensive to the Speech or Debate clause" through the elimination of all references to the making of the speech. The Johnson case therefore stands for at least two important propositions. First, the opinion demonstrated that the government is not prohibited from prosecuting conduct that merely relates to legislative duties, but is not itself a legislative act. When a legislative act is not an element of the offense, the government may proceed with its case by effectively "purg[ing]" the introduction of evidence offensive to the Clause. Second, though not explicitly articulating such a privilege, the opinion impliedly introduced the evidentiary component of the Clause by holding that even though a case may go forward, the Clause may be invoked by Members to bar admission of specific protected evidence. Less than a decade after Johnson , the Supreme Court issued two decisions on the same day in 1972 that established important limitations on the types of actions that are protected by the Clause. In United States v . Brewster , which involved a Member's challenge to his indictment on a bribery charge, the Court reaffirmed Johnson and clarified that "a Member of Congress may be prosecuted under a criminal statute provided that the Government's case does not rely on legislative acts or the motivation for legislative acts." The Court made clear that the Clause does not prohibit inquiry into illegal conduct simply because it is "related " to the legislative process or has a "nexus to legislative functions," but rather, the Clause protects only the legislative acts themselves. By adhering to such a limitation, the Court reasoned that the result would be a Clause that was "broad enough to insure the historic independence of the Legislative Branch, essential to our separation of powers, but narrow enough to guard against the excesses of those who would corrupt the process by corrupting its Members." Brewster also drew an important distinction between legislative and political acts. The opinion labeled a wide array of constituent services, though "entirely legitimate," as "political in nature" rather than legislative. As a result, the Court suggested that "it has never been seriously contended that these political matters ... have the protection afforded by the Speech or Debate Clause." Turning to the terms of the bribery indictment, the Court framed the fundamental threshold question for any prosecution of a Member of Congress as: "whether it is necessary to inquire into how [the Member] spoke, how he debated, how he voted, or anything he did in the chamber or in committee in order to make out a violation of this statute." With regard to bribery, the Court reasoned that because acceptance of the bribe is enough to prove a violation of the statute, there was no need for the government to present evidence that the Member had later voted in accordance with the illegal promise, "[f]or it is taking the bribe, not performance of the illicit compact, that is a criminal act." Because "taking the bribe is, obviously, no part of the legislative function" and was therefore "not a legislative act," the government would not be required to present any protected legislative evidence in order to "make out a prima facie case." In that sense, the Court distinguished the case before it from Johnson . Whereas the prosecution in Johnson relied heavily on showing the motive for Johnson's floor speech, the prosecution in Brewster need not prove any legislative act, but only that money was accepted in return for a promise. Finally, Gravel v. United States exemplifies that communications outside of the legislative process are generally not protected by the Clause. Gravel involved a Speech or Debate challenge to a grand jury investigation into the disclosure of classified documents by a Senator and his aides. After coming into possession of the "Pentagon Papers"—a classified Defense Department study addressing U.S. involvement in the Vietnam War—Senator Mike Gravel disclosed portions of the document at a subcommittee hearing and submitted the entire study into the record. The Senator and his staff had also allegedly arranged for the study to be published by a private publisher. A grand jury subsequently issued a subpoena for testimony from one of Senator Gravel's aides and the private publisher. Senator Gravel intervened to quash the subpoenas. The Gravel opinion began by reasoning that "[b]ecause the claim is that a Member's aide shares the Member's constitutional privilege, we consider first whether and to what extent Senator Gravel himself is exempt from process or inquiry by a grand jury investigating the commission of a crime." In addressing the scope of the Senator's protections, the Court implied the existence of the testimonial component of the Clause, noting that the protections of the Clause protect a Member from compelled questioning. The Court did so by stating, without further discussion, that it had "no doubt" that "Senator Gravel may not be made to answer—either in terms of questions or in terms of defending himself from prosecution—for the events that occurred at the subcommittee meeting." The Gravel opinion also drew a clear line of demarcation between protected legislative acts and other unprotected acts not "essential to the deliberations" of Congress. Although the Senator was protected for his actions at the hearing, the Senator's alleged arrangement for private publication of the Pentagon Papers was not "part and parcel of the legislative process" and was therefore not protected by the Clause. In reaching this determination, the Court established a working definition of "legislative act" that remains applicable today, holding that a legislative act is an: integral part of the deliberative and communicative processes by which Members participate in committee and House proceedings with respect to the consideration and passage or rejection of proposed legislation or with respect to other matters which the Constitution places within the jurisdiction of either House. Private publication, as opposed to publication in the record, was "in no way essential to the deliberations of the Senate." Thus, the Clause provided no immunity from testifying before the grand jury relating to that arrangement. Who Is Protected? Although the text of the Speech or Debate Clause refers only to "Senators and Representatives," and therefore clearly applies to actions by any Member of Congress, it is well established that protections of the Clause generally apply equally to congressional staff. In Gravel , the Court held that the Clause protects an aide's action when the Clause would have protected the same action if it were done by a Member. An aide, the Court reasoned, should be viewed as the "alter ego" of the Member he serves. The Gravel Court recognized that the Member and his aide must be "treated as one," noting: [I]t is literally impossible, in view of the complexities of the modern legislative process, with Congress almost constantly in session and matters of legislative concern constantly proliferating, for Members of Congress to perform their legislative tasks without the help of aides and assistants; that the day-to-day work of such aides is so critical to the Members' performance that they must be treated as the latter's alter egos; and that if they are not so recognized, the central role of the Speech or Debate Clause—to prevent intimidation of legislators by the Executive and accountability before a possibly hostile judiciary—will inevitably be diminished and frustrated. At issue in Gravel were the actions of a Member's personal staff. Other decisions of the Court have extended the protections of the Clause to committee staff, including those in the position of chief counsel, clerk, staff director, and investigator. However, it should be noted that any protections under the Clause that are enjoyed by congressional staff flow from the Member. They do not inhere personally to the individual. As a result, an "aide's claim of privilege can be repudiated and thus waived by the [Member]." What Constitutes a Legislative Act? It is apparent that the key determination in Speech or Debate Clause cases is whether the conduct directly in question, or on which evidence or testimony is sought, constitutes a legislative act. If legislative, the Member is exempt from criminal or civil liability that may otherwise have attached to that act, and evidence of the act may not be introduced or testimony by the Member compelled. As the Court has repeatedly stated, Members are "immune from liability for their actions within the 'legislative sphere,' even though their conduct, if performed in other than legislative contexts, would in itself be unconstitutional or otherwise contrary to criminal or civil statutes." If the underlying conduct is not legislative, however, the prosecution or civil claim is not barred by the Clause, and evidence of the act is not privileged. Examining judicial precedent regarding acts that are "legislative," it would appear that Members enjoy protection under the Clause when: speaking or acting on the House or Senate floor; introducing and voting on bills and resolutions; preparing and submitting committee reports; speaking or acting at committee meetings and hearings; conducting official investigations and issuing subpoenas; and engaging in fact-finding and information-gathering for legislative purposes. Conversely, actions that have not been viewed as "integral" to the legislative process and, therefore, have not been interpreted to be protected legislative acts include: speaking outside of Congress; writing newsletters and issuing press releases; privately publishing a book; distributing official committee reports outside the legislative sphere; engaging in political activities; engaging in constituent services, including acting as a conduit between a constituent and the executive branch; promising to perform a future legislative act; and accepting a bribe. The general legal guidance provided by the Court in Gravel and other cases does not clearly categorize every type of action in which Members may regularly engage. As a result, determining whether novel conduct, not analogous to past precedent, should be viewed as a legislative act may sometimes be difficult. One federal appellate court, however, has adopted a two-step analysis for identifying whether certain conduct is protected by the Clause. In United States v. Menendez , Senator Robert Menendez challenged, on Speech or Debate grounds, an indictment alleging that he solicited and accepted gifts in exchange for his efforts to influence executive branch action for the benefit of a friend. In rejecting the Senator's claim, the U.S. Court of Appeals for the Third Circuit (Third Circuit) laid out its analytical framework, noting that first "we look to the form of the act to determine whether it is inherently legislative or non-legislative." Some acts, the court reasoned, are "so clearly legislative" that "no further examination has to be made." These "manifestly legislative acts" are entitled to absolute protection under the Clause, even if undertaken for an "unworthy purpose." Other acts, the court suggested, are just as clearly nonlegislative, and receive no protection under the Clause. If an act is either clearly legislative or clearly nonlegislative, the Third Circuit has suggested that a court should, at step one, give effect to that clear categorization. If, however, an act does not fall neatly into either category, the court may proceed to the second step of the inquiry where it may consider "the content, purpose, and motive of the act to assess its legislative or non-legislative character." These so-called "ambiguously legislative" acts, the court reasoned, "will be protected or unprotected based on their particular circumstances." In this instance, the court determined that the alleged acts were "outside the constitutional safe harbor" because the Senator was "essentially lobbying on behalf of a particular party...." This approach may be subject to criticism in light of the Supreme Court's repeated warning that inquiries into the motive or purpose underlying actions of Members are generally not permitted by the Clause. The Court has expressly held that "in determining the legitimacy of a congressional act we do not look to the motives alleged to have prompted it." Other courts have rejected an analytical approach that would empower a court to look beneath an act that appears legislative. For example, the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) has held that the Clause not only protects "acts which are manifestly legislative," but "also forbids inquiry into acts which are purportedly or apparently legislative, even to determine if they are legislative in fact." While the Menendez opinion acknowledged Supreme Court precedent, it nonetheless determined that "only after we conclude that that an act is in fact legislative must we refrain from inquiring into a legislator's purpose or motive." Prior to such a determination, the Third Circuit suggested, a court should—and at times must—make such an inquiry to prevent nonlegislative acts from being "misrepresented" as legislative acts. Member Interactions with the Executive Branch A closer look at judicial treatment of Member interactions with the executive branch reveals some of the difficulty in determining whether certain conduct qualifies as a legislative act. While interactions with the executive branch may be viewed as "official" and "legitimate," they are not always "legislative." It seems from Brewster and Johnson , for example, that communicating with an executive branch agency on behalf of a constituent is not a protected legislative act. Interactions with the executive branch intended to "influence" executive policy for nonlegislative reasons are similarly not legislative acts. The Gravel opinion further narrowed the class of interactions with the executive branch that could be deemed legislative, holding that: Members of Congress are constantly in touch with the Executive Branch of the Government and with administrative agencies—they may cajole, and exhort with respect to the administration of a federal statute—but such conduct, though generally done, is not protected legislative activity. This passage suggests that even communications and interactions with the executive branch pertaining to an agency's administration and execution of a federal statute, though wholly unrelated to constituent services, are similarly unprotected. Yet, when the interaction is connected to the conduct of "oversight," the action may be more likely to be viewed as legislative and subject to the protections of the Clause. For example, in Eastland v. United States Serviceman's Fund , the Supreme Court held that "the power to investigate ... plainly falls" within the definition of legislative. Thus, interactions with the executive branch taken pursuant to an authorized congressional investigation, including those actions taken at hearings, in issuing subpoenas, or pursuing contempt, have all been interpreted to be protected legislative acts. Less formal oversight contacts with the executive branch (for example, actions taken by individual Members not pursuant to an official committee investigation) have not always received protections under the Clause. In Menendez , the Third Circuit held that a claim of conducting "'oversight' does not automatically result in Speech or Debate protections." Instead, the court reasoned that "oversight activities exist along a spectrum" in which some informal actions are unprotected, but other "informal attempts to influence the Executive Branch on policy, for actual legislative purposes, may qualify as 'true legislative oversight' and merit Speech or Debate immunity." Lobbying on behalf of a particular party, the court held, was an action "outside the constitutional safe harbor" created by the Clause. To the contrary, other courts have held that "the applicability of the Speech or Debate Clause's protections does not hinge on the formality of the investigation." "The controlling principle," one court has asserted, is "whether information is acquired in connection with or in aid of an activity that qualifies as 'legislative' in nature." Consistent with this reasoning, federal courts have found "fact finding," "field investigations," and "information gathering" by individual Members to be protected legislative acts. One way to harmonize these "informal contacts" cases is perhaps that when a Member is seeking to obtain information from the executive branch, the act is "legislative," but when the Member is attempting to "influence" executive branch policy, the act is not legislative, at least generally. It would appear difficult, however, to draw a distinction between "cajoling" executive branch officials on the "administration of a federal statute," which is unprotected, and "true legislative oversight." Oversight often serves many purposes, including a desire to influence executive branch operations. For example, a committee may solely be seeking information, or it may be conducting an investigation for the purposes of pushing the agency to implement the law in the manner that Congress desires. Nevertheless, there remains significant uncertainty concerning what types of Member communications with the executive branch are protected by the Clause. Application of the Clause to Employment and Personnel Actions The Speech or Debate Clause plays a key role in civil actions challenging Members' employment and personnel actions. These cases generally arise under the Congressional Accountability Act (CAA), which made several civil rights, labor and employment, and workplace safety laws applicable to congressional offices. After seeking confidential counseling and mediation, the CAA expressly authorizes "covered employees" to bring a civil action for violations of the incorporated laws, not against an individual Member, but against the "employing office." The CAA also prohibits any employing office from retaliating against an employee for alleging a CAA violation. Settlements and judgments reached under a CAA authorized action are paid out of funds appropriated to the legislative branch. The law, it appears, was "intended to subject the legislative branch to liability for violation of federal employment laws, not to subject its [M]embers personally to such liability." Moreover, the law expressly provides that the authorization to bring a civil suit under the CAA "shall not constitute a waiver ... of the privileges of any Senator or Member of the House of Representatives under [the Clause]." The Supreme Court has held that "[t]his provision demonstrates that Congress did not intend the Act to be interpreted to permit suits that would otherwise be prohibited under the Speech or Debate Clause." The judicial framework for analyzing the Clause's application to Member employment and personnel decisions has evolved over time. Prior to enactment of the CAA, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) had determined that the Clause immunized Members from claims challenging personnel decisions concerning most of their staff. In Browning v. Clerk of the United States House of Representatives , the D.C. Circuit broadly held that "personnel decisions are an integral part of the legislative process to the same extent that the affected employee's duties are an integral part of the legislative process." The court, therefore, held that the Clause protected personnel actions taken by Members that impacted any employee whose "duties were directly related to the due functioning of the legislative process." Thus, the Clause's application depended on the functions and duties of the impacted employee. The Browning holding, however, was subsequently called into question by two later decisions outside the Speech or Debate Clause context that addressed the "administrative" nature of personnel decisions. First, in Forrester v . White , the Supreme Court held that judicial immunity for "judicial acts" did not extend to an employment decision, which the court categorized as an administrative act rather than a judicial act. Second, in Gross v . Winter , the D.C. Circuit extended that reasoning to the legislative sphere. In an opinion addressing common law legislative immunity enjoyed by members of the D.C. City Council, rather than Speech or Debate Clause protections enjoyed by Members, the court relied on Forrester to hold that the "functions ... legislators exercise in making personnel decisions ... are administrative, not [] legislative." These cases arguably implied that a Member's personnel decision should be viewed as nonlegislative, and, therefore, not protected by the Clause. Forrester and Gross suggest that the initial shift away from Browning 's reasoning predated the enactment of the CAA in 1995. Moreover, the courts have explained that the CAA "does nothing to a Member's Speech or Debate Clause immunity." Therefore, it does not appear that the CAA compelled the courts to alter their approach to these types of claims. Yet, after enactment of the CAA, the courts continued to diverge from the course charted by Browning , ultimately leading to a rejection of that decision's determination that the Clause generally acts as a bar to employment-related claims. In the 2004 decision of Bastien v. Office of Campbell , the first case addressing how the Clause applies to the CAA, the U.S. Court of Appeals for the Tenth Circuit (Tenth Circuit) "hesitate[d] to embrace" the D.C. Circuit's reasoning in Browning , finding instead that "a personnel decision is not a 'legislative act,' ... and is therefore not entitled to immunity." The Clause provided protections in CAA-related claims, according to the court, only to the extent that other "legislative acts must be proved to establish the claim ..." Two years later, the D.C. Circuit reconsidered Browning in Fields v. Office of Johnson . That consolidated case involved CAA claims for racial, gender, and disability discrimination and retaliation brought by a pair of House and Senate staffers. There was no clear majority opinion in Fields , but the en banc court was unanimous in deciding both that the Clause does not require automatic dismissal of CAA claims and that the Browning framework was no longer consistent with Supreme Court precedent and should be abandoned. The plurality opinion explicitly rejected Browning 's test for determining when the Clause protects a Member's personnel decisions, holding that regardless of the role of the given employee, "many personnel decisions" lack any "nexus" to legislative acts and are, therefore, not protected by the Clause. The Fields plurality, which has been relied upon in subsequent opinions, articulated a new framework for evaluating CAA claims that highlights the distinction between the Clause's general immunity principle and the component evidentiary and testimonial privileges. The plurality determined that the general immunity principle did not "bar" the suit because the personnel actions in question were not themselves legislative acts. However, the plurality reasoned that "when the Clause does not preclude suit altogether, it still 'protect[s] Members from inquiry into legislative acts or the motivation for actual performance of legislative acts'" through the component evidentiary and testimonial privileges. Thus, although generally not barring a CAA suit altogether, the Clause may "hinder" the suit by "preclud[ing] some relevant evidence." This was especially so in a claim for discrimination that "rests not on the fact that action was taken ... but on the reason that action was taken," which would likely require the plaintiff to disprove the Member's proffered motivation for taking the challenged personnel action. The Fields plurality opinion was relied upon in Howard v. Office of the Chief Admin istrative Officer of the United States House of Representatives . That case involved a CAA claim for racial discrimination and retaliation brought by a former House employee. As in the Fields plurality, the court determined that the claim itself was not barred, as the personnel action in question was not a "legislative act." But the court highlighted that "in many employment discrimination cases, proof of 'pretext' will be crucial to the success of the claimant's case," and those allegations of pretext, the court reasoned, must be proven "using evidence that does not implicate protected legislative matters." In some cases, the court warned, a plaintiff may not be able to meet the required burden of proof because the Clause bars him "from inquiring into legislative motives ... or conduct part of or integral to the legislative process...." In the instant case, the court remanded to the district court with directions that the plaintiff's claims be allowed to proceed, under the caveat that "it remain[ed] to be seen" whether, due to the "strictures" of the Clause, the plaintiff would be able to produce sufficient evidence to prove her claim. Indeed, it was ultimately determined that the employee failed to produce sufficient evidence showing the asserted reason for her termination was pretextual. The CAA also authorizes congressional employees to bring sexual harassment claims for violations of Title VII of the Civil Rights Act of 1964, although such claims appear to have only rarely been evaluated by federal courts. In Scott v. Office of Alexander , the former scheduler for a Member brought a CAA claim that included counts alleging sexual harassment and retaliation for reporting that harassment in the form of a demotion. The majority of the district court decision focused on the plaintiff's retaliation claim. Applying F ields , the court determined first that the demotion itself was not a legislative act, and thus the claim was not barred by the Clause's general immunity principle. However, the court also held that a retaliation claim "operates in the same way" as the discrimination claims brought in Fields and Howard . Thus, the plaintiff would be required to rebut the Member's assertion of nonretaliatory reasons for her demotion in order to show that it was pretextual. Through an affidavit, the Member had asserted that Scott was demoted because of scheduling errors that caused him to miss votes and committee hearings. The court concluded that: Although Plaintiff argues that her "case would not require impermissibly questioning anything that Defendant may have done during the course of an actual vote or hearing," whether the Congressman missed or attended an actual vote or hearing, and the reasons why he may have attended or missed an actual vote or hearing, are inquiries that impermissibly relate to the legislative process. Accordingly, the Court finds that Defendant has asserted, through the Congressman's affidavit, legitimate, non-retaliatory reasons for Plaintiff's demotion that are protected from inquiry by the Speech or Debate Clause. As a result, the court held that "the evidentiary privilege of the Clause prevents Plaintiff from refuting the Member's stated reasons for her demotion." Because the plaintiff had not presented any evidence "unrelated to the Congressman's stated reasons for Plaintiff's demotion that would not require an inquiry into [] legislative acts," the court dismissed the retaliation claim. With respect to the sexual harassment claim, the court held that the defendant's argument that the claim was barred by the Clause was not properly before the court. Nevertheless, the court provided some insight into how the Clause may apply to evidence supporting alleged sexual harassment, as opposed to alleged retaliation. Whereas the plaintiff was "precluded from seeking discovery or otherwise inquiring about the Congressman's reasons for removing Plaintiff as Scheduler," the court suggested that "[t]he proper focus of the remaining discovery ... appears to be the conduct that other individuals may have observed at times relevant to the Complaint, and what Plaintiff may have told others about such conduct." That evidence, it would appear, would not be protected by the Clause's component privileges. In sum, the Clause's general immunity principle does not typically act as an absolute bar to employment-related claims brought under the CAA. However, it would appear that there may be cases in which a CAA claim fails as a result of the application of the Clause's evidentiary and testimonial privileges, which may effectively block a plaintiff from presenting evidence of related legislative acts necessary to support the claim. Nondisclosure Privilege: A Continued Circuit Split Although the precise scope of the protections afforded by the Clause have not been clearly articulated by the Supreme Court, there appears to be some agreement among the lower courts that the Clause provides immunity from direct liability for legislative acts; prohibits the use of legislative-act evidence in the course of litigation; and protects a Member from being compelled to respond to questioning regarding his legislative acts. There is stark disagreement, however, as to whether the Clause encompasses a general documentary "non-disclosure privilege" that applies unrelated to whether such documents are introduced into evidence. When accepted, this privilege appears to be included within the testimonial component of the Clause, and may apply in a variety of situations, including protecting Members from compelled compliance with an administrative or civil discovery subpoena for legislative-act documents, or from disclosures reflecting legislative acts that occur during a search executed as part of a criminal investigation. The D.C. Circuit has established the documentary nondisclosure privilege. In a series of opinions, the circuit court determined that the Clause bars any compelled disclosure—not just the evidentiary use—of written materials that fall "within the sphere of legitimate legislative activity." According to the D.C. Circuit, this privilege is broad and "absolute," and applies with equal "vigor" as the other aspects of the Clause. The U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) and the Third Circuit have rejected this documentary nondisclosure privilege, considering it an undue expansion of the Clause. Instead, these courts have held, at least in criminal cases, that the Clause prohibits only the evidentiary use of privileged documents, not their mere disclosure to the government for review as part of an investigation. The disagreement has not been addressed by the Supreme Court. The D.C. Circuit position is perhaps best exemplified by two cases: Brown & Williamson Tobacco Corporation v . Williams and United States v. Rayburn House Office Building . Brown & Williamson arose when a former employee of a law firm disclosed to a congressional committee stolen documents that were obtained while the firm was representing Brown & Williamson. The law firm brought an action against the former employee in state court, and during that proceeding, the court issued subpoenas to two Members of the committee requiring the return of the stolen documents. The case was removed to federal court, where the Members sought to quash the subpoenas on Speech or Debate grounds. The court agreed with the Members, blocking the subpoenas and extending the Clause to include a general nondisclosure privilege. In doing so, the court rejected three conclusions that had been reached by the Third Circuit in an earlier case. First, the court rebuffed the idea that a Member must be named as a party to the suit in order for litigation to "distract them from their legislative work." "Discovery procedures" in any civil case, the court reasoned, "can prove just as intrusive" as being a party to a case. The court similarly disagreed with the assertion that the testimonial component of the Clause applies only when Members or their aides are "personally questioned," suggesting instead that "documentary evidence can certainly be as revealing as oral communications." Finally, the court dismissed the assertion that when applied to documents, the Clause's protection "is one of nonevidentiary use, not of nondisclosure." Instead, noting the antidistraction purpose of the Clause, the court held that "the nature of the use to which documents will be put ... is immaterial if the touchstone is interference with legislative activities." The court concluded that "a party is no more entitled to compel congressional testimony—or production of documents—than it is to sue a congressman." The D.C. Circuit later extended the nondisclosure privilege to scenarios in which the government executes a search warrant as part of a criminal investigation of a Member. In United States v. Rayburn House Office Building , a Member sought the return of documents seized by the Federal Bureau of Investigation (FBI) during a search of the Member's office, arguing the search—which was pursuant to a warrant for nonlegislative, unprotected documents—was executed in a way that violated the Clause. In order to distinguish between protected and unprotected documents, the warrant permitted FBI agents to review "all of the papers in the Congressman's office." The D.C. Circuit held that the search violated the Clause because the Executive's procedures "denied the Congressman any opportunity to identify and assert the privilege with respect to legislative materials before their compelled disclosure to Executive agents." The court noted that despite the limited scope of the warrant, the FBI's review of the Member's papers to determine which were responsive "must have resulted in the disclosure of legislative materials to agents of the executive." That compelled disclosure was inconsistent with the protections of the Clause. In reaching this conclusion, the court reaffirmed the nondisclosure privilege articulated in Brown & Williamson , and then extended it to the criminal context, concluding that "there is no reason to believe that the bar does not apply in the criminal as well as the civil context." The court also reaffirmed its view of the absolute nature of the nondisclosure privilege, noting that the "non-disclosure privilege of written materials ... is [] absolute, and thus admits of no balancing." The court carefully distinguished between the lawfulness of searching a congressional office pursuant to a search warrant—which the court held was clearly permissible—and the lawfulness of the way the search was executed. The court declined, however, to expressly delineate acceptable procedures that could avoid future violations, noting only that there appears to be "no reason why the Congressman's privilege under the Speech or Debate Clause cannot be asserted at the outset of a search in a manner that also protects the interests of the Executive in law enforcement." The D.C. Circuit's legal reasoning in Rayburn has been rejected by both the Ninth and Third Circuits. In United States v. Renzi , the Ninth Circuit held that the Clause does not prohibit the compelled disclosure of legislative documents to the government in the course of executing a warrant in a criminal investigation, at least when the underlying criminal action is not itself barred by the immunity prong of the Clause. Renzi involved a Speech or Debate Clause challenge brought by a former Member to portions of a 48-count indictment that included charges that he agreed to provide certain legislative favors in exchange for personal benefits. Specifically, the Member relied on the nondisclosure privilege articulated in Rayburn to argue, in part, that the government's unlawful review of privileged documents allowed it to obtain evidence that was used against him. The Ninth Circuit rebuffed Renzi's argument, as well as the reasoning in Rayburn , instead finding that the Clause does not encompass a documentary nondisclosure privilege. After noting that the Supreme Court has not recognized the existence of a general nondisclosure privilege, the Renzi court laid out the three principal reasons that led it to disagree with the D.C. Circuit's reasoning. First, the court objected to the D.C. Circuit's reliance on the notion that "distraction" from a Member's legislative duty, on its own, can serve "as a touchstone for application of the Clause's testimonial privilege." Instead, the court reasoned that because "legislative distraction is not the primary ill the Clause seeks to cure," that rationale must be "anchored" to a barred action—for example, an investigation into a protected act—before it can preclude inquiry. In cases where the underlying action is not precluded, the court stated that "other legitimate interests exist" and must be taken into account, most notably "the ability of the executive to adequately investigate and prosecute corrupt legislators for non-protected activity." Second, the circuit court indicated that previous decisions by the Supreme Court have suggested that the executive branch may review legislative materials as part of an investigation. For example, in United States v. Helstoski , the Supreme Court reasoned that the executive branch could redact "legislative" aspects of certain documents so that the "remainder of the evidence would be admissible." From this language, the circuit court noted that: Because the Executive would be hard pressed to redact a document it was constitutionally precluded from obtaining or reviewing, we see no tenable explanation for this caveat except that the Clause does not blindly preclude disclosure and review by the Executive of documentary "legislative act" evidence. Third, the court determined that any interpretation of the Clause that permitted the courts, but not the executive branch, to review protected legislative documents would be inconsistent with the separation-of-powers rationale that undergirds the Clause. The Clause, the court noted, is a "creature born of separation of powers" and thus must apply "in equal scope and with equal strength to both the Executive and the Judiciary." The court specifically criticized the D.C. Circuit's opinion in Rayburn on the grounds that it prohibited "'any executive branch exposure to records of legislative acts' ... while noting that the Judiciary could review evidence claimed to be privileged." "Such a distinction," the court stated, "cannot exist." The precise holding of Renzi appears to be that the Clause does not prohibit the government from reviewing protected legislative documents as part of the execution of a warrant connected to an investigation into nonlegislative acts. However, the opinion suggests that there may be times when the testimonial component of the Clause would create a nondisclosure privilege in response to a subpoena for documents. Citing to the concurrence in Rayburn , the Ninth Circuit indicated that execution of a warrant has no testimonial aspects since the Member is not required to "respond" in any way. However, the court reasoned that "it is entirely true that sometimes the very disclosure of documentary evidence in response to a subpoena duces tecum may have some testimonial import." This language would appear to suggest that the Ninth Circuit has not foreclosed the idea of the existence of some form of documentary nondisclosure privilege—for instance, one more intimately connected to the testimonial privilege component—that may apply in situations where a subpoena is issued for legislative documents. The central focus for the court appears to have been whether the disclosure is "testimonial," and therefore more directly implicating the "question[ing]" prohibited by the Clause. The Third Circuit similarly rejected the existence of a documentary nondisclosure privilege during criminal investigations in In re Fattah . There, a Member challenged a warrant, served on Google, authorizing the government to search his email on the grounds that such a search was barred by the Clause. Specifically, the Member asserted that the privilege created by the Clause was "one of non-disclosure." The court rejected this argument, holding that "it cannot be ... that the privilege prohibits disclosure of evidentiary records to the Government during the course of an investigation." The court rested its decision primarily on the effect such a broad privilege would have on criminal prosecutions, noting that a nondisclosure privilege during criminal investigations would "shelter" Members from criminal responsibility and "eradicate the integrity of the legislative process" by "unduly amplify[ing] the protections" of the Clause. The court ultimately refused to extend the testimonial component of the Clause to documentary disclosures, concluding that: ... while the Speech or Debate Clause prohibits hostile questioning regarding legislative acts in the form of testimony to a jury, it does not prohibit disclosure of Speech or Debate Clause privileged documents to the Government. Instead, as we have held before, it merely prohibits the evidentiary submission and use of those documents. How, and whether, the Supreme Court resolves this ongoing disagreement over the existence of a documentary nondisclosure privilege could have a significant impact on the protections afforded to Members by the Clause. For example, if the Court were to adopt the position of the Third and Ninth Circuits, that ruling would directly limit a Member's ability to invoke the Clause as a shield against the disclosure of documents to the executive branch during a criminal investigation. More generally, however, the disagreement between the D.C. Circuit and the Third and Ninth Circuits is one relating to the fundamental purpose of the Clause. The opinions in Renzi and Fattah appear to have adopted a legal reasoning that minimizes the role of the "distraction" rationale in defining the scope of the Clause. Were the Supreme Court to embrace that reasoning, it could potentially lead to a narrowing of the Clause's protections, especially in scenarios in which information is sought from a Member in a proceeding to which he is not a party. The Acquisition and Use of Information by Congress A final line of cases relates to Speech or Debate Clause protections for the acquisition and use of information by Congress. These cases typically arise from lawsuits in which a party asks a court to invalidate or block a congressional subpoena, or to direct Congress or its Members in how they may use information that is within their possession. Generally, a court will not interfere with lawful efforts by Congress to exercise its subpoena power, nor will a court act to limit the ability of Members to use or distribute information within the legislative sphere. In some sense, these cases tend to emphasize the structural and institutional aspects of the Clause's role in the separation of powers. In Eastland v. United States Serviceman's Fund , the Supreme Court concluded that the Clause acts as a significant barrier to judicial interference in Congress's exercise of its subpoena power. In this case, a private nonprofit organization filed suit against the Chairman of a Senate subcommittee asking the Court to enjoin a congressional subpoena issued to a bank for the nonprofit's account information. The subpoena was issued as part of an investigation into alleged "subversive" activities harmful to the U.S. military conducted by the organization. The Court held that because the "power to investigate and to do so through compulsory process plainly" constitutes an "indispensable ingredient of lawmaking," the Clause made the subpoena "immune from judicial interference." Eastland is generally cited for the proposition that the Clause prohibits courts from entertaining preenforcement challenges to congressional subpoenas. As a result, the lawfulness of a subpoena usually may not be challenged until Congress seeks to enforce the subpoena through either a civil action or contempt of Congress. While it is generally true that courts will not interfere in valid congressional attempts to obtain information, especially through the exercise of the subpoena power, the concurrence in Eastland and a subsequent appellate court decision suggests that the restraint exercised by the courts in deference to the separation of powers is not absolute. Justice Marshall's concurrence in Eastland clarified that the Clause "does not entirely immunize a congressional subpoena from challenge." Rather, according to Justice Marshall, the Clause requires only that a Member "may not be called upon to defend a subpoena against constitutional objection." Thus, Justice Marshall implied that if a challenge to the legitimacy of a subpoena is directed not at Congress or its Members, it may be permitted to proceed. Such a claim arose, however, in the case of United States v. AT&T . In that case, a congressional subcommittee subpoena was issued to AT&T for all letters sent to the company by the Department of Justice (DOJ) that had identified certain phone lines the DOJ wished to monitor. DOJ filed suit, seeking to enjoin AT&T from complying with the subpoena, citing national security concerns. The subcommittee Chairman intervened in the case, asserting that judicial interference in the subcommittee's investigation was barred by the Clause. After the court's attempts to initiate a settlement between the parties failed, the D.C. Circuit ultimately rejected the Chairman's argument, noting generally that the Clause "was not intended to immunize congressional investigatory actions from judicial review." Instead, the court concluded, the Clause "is personal to members of Congress" such that when Members or their aides are not "harassed by personal suit against them, the Clause cannot be invoked to immunize the congressional subpoena from judicial scrutiny." The court went on to establish an exception to the general prohibition on preenforcement interference with congressional subpoenas. When a party is "not in a position to assert its claim of constitutional right by refusing to comply with a subpoena," because the subpoena was issued to a neutral third party, the Clause "does not bar the challenge so long as members of the Subcommittee are not, themselves, made defendants in a suit to enjoin implementation of the subpoena." Once information is in the possession of Congress, courts generally will not curtail the ability of Members to use or distribute that information within the legislative sphere. For example, in Doe v. McMillan , a case dealing with the inclusion of specific students' names in a committee report on the D.C. public schools, the Supreme Court noted that "[a]lthough we might disagree with the Committee as to whether it was necessary, or even remotely useful, to include the names of individual children in the ... Committee Report, we have no authority to oversee the judgment of the Committee in this respect ..." The D.C. Circuit has also issued a series of opinions protecting Congress's authority to freely and independently assess and use information within its possession, no matter how it was obtained. In Hearst v. Black , the court concluded that it was not within its authority to tell a Senate committee that it was barred from "keeping" or "making any use of" certain unlawfully obtained documents. Similarly, in McSurely v. McClellan , a case involving the receipt of documents by a committee that were obtained pursuant to an unlawful search by a congressional investigator, the court noted that "the law is clear that even though material comes to a legislative committee by means that are unlawful or otherwise subject to judicial inquiry the subsequent use of the documents by the committee staff in the course of official business is privileged legislative activity." Finally, in Brown & Williamson , the court suggested that the Clause supplied Congress with the "privilege to use materials in its possession without judicial interference." These principles were applied recently in the case of Senate Permanent Subcommittee on Investigations v. Ferrer , in which a Senate subcommittee initiated a civil action to enforce a subpoena issued to the Chief Executive Officer (CEO) of an online advertising website for documents relating to sex trafficking. As part of that proceeding, the CEO asked the D.C. Circuit to order that the subcommittee destroy or return certain documents he had produced in response to the subpoena. The court refused to comply with that request, citing to the aforementioned cases, and reasoning that "[t]o circumscribe the committee's use of material in its physical possession would ... 'destroy[]' the independence of the Legislature and 'invade[]' the constitutional separation of powers." The court ultimately held that "the separation of powers, including the Speech or Debate Clause, bars this court from ordering a congressional committee to return, destroy, or refrain from publishing the subpoenaed documents." Conclusions The Speech or Debate Clause is perhaps the greatest constitutional bulwark against inappropriate executive or judicial intrusions into both the functioning of Congress as an institution and the representative role of individual Members. The Clause seeks to ensure an independent legislature by providing Members with immunity from liability for legislative acts in both criminal and civil cases. That immunity appears to be complemented by both an evidentiary and a testimonial privilege that protects against the compelled disclosure of information reflecting those acts. However, the scope of those privileges, especially with regard to the disclosure of documents for nonevidentiary purposes, is subject to debate among the federal courts. The issue would appear to be ripe for Supreme Court review.

The Speech or Debate Clause (Clause) of the U.S. Constitution states that "[F]or any Speech or Debate in either House," Members of Congress (Members) "shall not be questioned in any other Place." The Clause serves various purposes: principally to protect the independence and integrity of the legislative branch by protecting against executive or judicial intrusions into the protected legislative sphere, but also to bar judicial or executive processes that may constitute a "distraction" or "disruption" to a Member's representative or legislative role. Despite the literal text, protected acts under the Clause extend beyond "speeches" or "debates" undertaken by Members of Congress, and have also been interpreted to include all "legislative acts" undertaken by Members or their aides. Judicial interpretations of the Clause have developed along several strains. First and foremost, the Clause has been interpreted as providing Members with general criminal and civil immunity for all "legislative acts" taken in the course of their official responsibilities. This immunity principle protects Members from "intimidation by the executive" or a "hostile judiciary" by prohibiting both the executive and judicial powers from being used to improperly influence or harass legislators. Second, the Clause appears to provide complementary evidentiary and testimonial privileges. Although not explicitly articulated by the Supreme Court, lower federal courts have generally viewed these component privileges as a means of effectuating the purposes of the Clause by barring evidence of protected legislative acts from being used against a Member, and protecting a Member from compelled questioning about such acts. The testimonial privilege component of the Clause has given rise to significant disagreement in the lower courts. The U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) has held that the Clause's testimonial privilege encompasses a general documentary nondisclosure privilege that applies regardless of the purposes for which disclosure is sought. To the contrary, the U.S. Court of Appeals for the Third Circuit and the U.S. Court of Appeals for the Ninth Circuit have rejected that position, holding instead that, at least in criminal cases, the Clause prohibits only the evidentiary use of privileged documents, not their mere disclosure to the government for review as part of an investigation.

Introduction The U.S. cosmetic, beauty supply, and perfume retail industry consists of approximately 13,000 establishments, with annual revenue of about $10 billion. Worldwide, the cosmetics and personal care products industry has more than $250 billion in annual retail sales. According to economic census data released in 2009, the U.S. cosmetic industry employs over 86,000 people. The cosmetic market includes numerous personal care products that have many uses beyond the facial makeup that one typically thinks of when the term "cosmetics" is used. Industry sales are concentrated in the following areas (percentage of sales by product category): (1) cosmetics, face cream, and perfume—75%; (2) hygienic products including deodorant, shampoo, conditioner, hair color, and shaving products—20%; and (3) small appliances—4%. The typical industry consumer is a woman between the ages of 25 to 55, although there appears to be increasing growth in marketing to men and tweens (9- to 12-year-olds). Sales of cosmetic and personal care products may be affected by a consumer's personal income, although the "sales of basic personal items such as soap, shampoo, and shaving products are likely to be less impacted by a soft economy than other product areas viewed by consumers as more discretionary." Prices for cosmetics vary widely, and depend on whether the product is a "prestige," mass market, or a professional or salon use brand. The Food and Drug Administration (FDA) reportedly regulates $62 billion worth of cosmetics. FDA's primary responsibilities for regulating cosmetics include ensuring that cosmetics are not adulterated or misbranded. This report describes the differences between cosmetics, drugs, and combination products; provides an overview of the statutory provisions and rules under which FDA regulates cosmetics; and provides an overview of industry self-regulation programs. The report also includes an appendix on keratin hair treatment products, also known as "Brazilian Blowouts." This report focuses on FDA regulation of cosmetics and does not discuss Federal Trade Commission regulation of advertising of cosmetics nor the regulation of potentially dangerous chemicals or pesticides by other agencies, with the exception of formaldehyde and other agents that may produce or lead to the production of formaldehyde. Cosmetics, Drugs, and Combination Products This section discusses the Federal Food, Drug, and Cosmetic Act (FFDCA) definitions of cosmetics and drugs, and how the FFDCA differentiates between cosmetics and a cosmetic that also meets the statutory definition of a drug. Classification of products is a concern for manufacturers, as cosmetics are not subject to the same approval, regulatory, or registration requirements as drugs. In addition to saving considerable time and expense, this distinction allows manufacturers of products that are only cosmetics and not drugs or combination products, discussed later, to market their products with less regulatory oversight. Cosmetics The term "cosmetics" covers a broad range of FDA-regulated products that may be used externally, orificially, and internally. For regulatory purposes, the term "cosmetics" includes products for the eyes, face, nails, hair, skin, and mouth, which may be in the form of products such as makeup, polish, hair dyes and coloring, sunscreens, fragrances, shave gel, oral care and bath products, and products for infants and children. In some settings, cosmetics are known as "personal care products" because of the wide range of products now regulated as cosmetics that are not strictly facial cosmetics. For purposes of this report, "cosmetics" will be used to refer to the entire category of products being discussed. The FFDCA defines "cosmetics" as "(1) articles intended to be rubbed, poured, sprinkled or sprayed on, introduced into, or otherwise applied to the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance, and (2) articles intended for use as a component of any such articles; except that the term shall not include soap." While soap was explicitly exempted from the definition of a cosmetic, and is not defined in the FFDCA, it is defined in FDA regulations. Additionally, coal tar hair dye was provided a limited exemption from the FFDCA's adulteration provisions. Drugs The FFDCA defines a "drug" as including articles "intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease," articles that are "intended to affect the structure or any function of the body," and "articles intended for use as a component" of such drugs. Unlike cosmetics and their ingredients (with the exception of color additives), drugs are subject to FDA approval before they can enter interstate commerce. Drugs must either receive the agency's premarket approval of a new drug application or conform to a set of FDA regulations known as a monograph. Monographs govern the manufacture and marketing of over-the-counter (OTC) drugs and specify the conditions under which OTC drugs in a particular category (such as antidandruff shampoos or antiperspirants) will be considered to be generally recognized as safe and effective. Monographs also indicate how OTC drugs must be labeled so they are not deemed to be misbranded. Such labeling includes a Drug Facts panel, which provides a listing of the active ingredients in the product as well as the drug's purposes, uses, and applicable warnings, directions, inactive ingredients, other information, and a telephone number for questions about the product. Drug manufacturers must comply with good manufacturing practices (GMP) rules for drugs; failure to follow GMP may cause a drug to be considered adulterated. Drug manufacturers also are required to register their facilities, list their drug products with the agency, and report adverse events to FDA. Cosmetics Containing Drug Ingredients While reference to "cosmetic drugs" or "cosmeceuticals" has been used by some proponents in referring to combination cosmetic-drug products, there is not an FDA statutory or regulatory definition for this terminology. Cosmetic-drug combination products are subject to FDA's regulations for both cosmetics and drugs. Combination drug and cosmetic products must meet both OTC drug and cosmetic labeling requirements, that is, the drug ingredients must be listed alphabetically as "Active Ingredients," followed by cosmetic ingredients either listed in a descending order of predominance as "Inactive Ingredients" or listed as "Inactive Ingredients" in particular groups, such as concentrations of greater than one percent of color additives. The determination of whether a cosmetic is also a drug, and therefore subject to the additional statutory requirements that apply to drugs, is based on the distributor's intent or the intended use. The intended use of a product may be established in several ways, such as claims on the labeling or in advertising or promotional materials, or through the inclusion of ingredients that will cause the product to be considered a drug because of a known therapeutic use. For example, if a lipstick (a cosmetic) contains sunscreen (a drug), the mere inclusion of the term "sunscreen" in the product's labeling will cause the product to also be regulated as a drug. The text box below provides examples of other combination products and compares cosmetic versus drug classifications. Overview of FDA's Authority to Regulate Cosmetics The FFDCA prohibits the adulteration and misbranding of cosmetics and the introduction, receipt, and delivery of adulterated or misbranded cosmetics into interstate commerce. A cosmetic is considered to be adulterated if, among other reasons, it contains a substance which may cause injury to users under the conditions of use prescribed on the product's labeling or if it contains a filthy, putrid, or decomposed substance. A cosmetic is considered to be misbranded if its labeling is false or misleading, if it does not bear the required labeling information, or if the container is made or filled in a deceptive manner. Prior to the enactment of the FFDCA in 1938, cosmetics were not regulated by the federal government, but were regulated under a collection of state laws that had been enacted to regulate food and drugs. At that time, several "cosmetics and drugs were made from the same natural materials" and the "laws did not include explicit definitions of the products regulated." Following several incidents in which cosmetics were allegedly the cause of serious health problems, as well as industry concerns about states enacting their own laws, provisions were included in FFDCA that prohibited the sale of adulterated or misbranded cosmetics in interstate commerce. The FFDCA also established uniform regulation of FDA-regulated cosmetic products throughout the country. In addition to the FFDCA, cosmetics are regulated under the Fair Packaging and Labeling Act (FPLA) and related regulations. The FPLA applies to the packaging and labeling of "consumer commodities," which include cosmetics "customarily produced or distributed for sale through retail sales agencies or instrumentalities for consumption by individuals, or use by individuals for purposes of personal care ... and which [are] usually consumed or expended in the course of such consumption or use." For the purposes of "for professional use only" labeling, discussed later, the FPLA does not apply to "wholesale or retail distributors of consumer commodities, except to the extent that such persons (1) are engaged in the packaging or labeling of such commodities, or (2) prescribe or specify ... the manner in which such commodities are packaged or labeled." The FFDCA statutory provisions that address cosmetics, with the exception of those regarding color additives, have remained basically unchanged since 1938, although the cosmetic industry today encompasses a greater number of products with different uses than those on the market more than seventy years ago. However, concerns of consumer and industry groups today are similar to those expressed prior to the enactment of the FFDCA. Consumer groups have raised concerns about particular ingredients, and states have considered legislating in areas not covered by the FFDCA or federal regulations. If a cosmetic that is introduced into, in, or held for sale after shipment in interstate commerce is found to be adulterated or misbranded, FDA may take enforcement actions, such as seeking an injunction (which could prevent a company from making or distributing the violative product), seizing the violative product, or seeking criminal penalties. Additionally, FDA has authority to prevent imports of violative cosmetic products from entering the United States. FDA's authority to regulate cosmetics also includes the authority to conduct inspections of cosmetic establishments, without notifying the establishments in advance, as long as the inspections occur "at reasonable times and within reasonable limits and in a reasonable manner." FDA conducts inspections to assure product safety and to evaluate cosmetic products for potential adulteration or misbranding violations. The agency may decide to inspect a facility based on consumer or industry complaints, the establishment's compliance history, or FDA surveillance initiatives. The agency may collect samples for examination and analysis during plant and import inspections, and follow up on complaints of adverse events alleged to be caused by a given cosmetic product. The agency does not have a required schedule for inspecting cosmetic facilities. FDA has certain regulations and procedures for cosmetics with which manufacturers voluntarily may choose to comply, even though similar regulations and procedures are mandatory for other FDA-regulated products. For example, FDA has regulations on voluntary facility registration and voluntarily reporting for ingredients used in cosmetic products and adverse reactions to cosmetics. In contrast, registration requirements exist for other FDA product manufacturers. Additionally, cosmetic manufacturers are not required, as drug manufacturers are, to "file data on ingredients, or report cosmetic-related injuries to FDA." Instead, under a voluntary FDA program, cosmetic manufacturers and packagers may report the ingredients used in their product formulations. Furthermore, consumers and cosmetic manufacturers may voluntarily report adverse reactions to cosmetics to FDA. Finally, FDA does not have mandatory recall authority to require a cosmetic manufacturer to recall a product from the marketplace. However, the agency may request a voluntary recall, and FDA has issued general regulations on the conduct of voluntary recalls that outline the agency's expectations of manufacturers during a recall. While FDA does not have the authority to require compliance with these regulations, FDA may take action against adulterated or misbranded cosmetics. FDA's authority over cosmetics is less comprehensive than its authority over other FDA-regulated products with regard to GMP; premarket notification, clearance, or approval; testing; and mandatory risk labeling. As an example, cosmetic producers are not required to use GMP unless their cosmetics are also drugs. FDA has released GMP guidelines for cosmetic manufacturers, and has stated that "[f]ailure to adhere to GMP may result in an adulterated or misbranded product." With the exception of color additives, FDA does not require premarket notification, safety testing, or premarket review or approval of the chemicals used in cosmetic products. Also, unlike drugs, cosmetic products are not required to meet FDA requirements for safety and effectiveness. Adulterated and Misbranded Cosmetics As previously noted, the FFDCA prohibits the adulteration or misbranding of cosmetics, and the introduction, receipt, and delivery of adulterated or misbranded cosmetics into interstate commerce. If a cosmetic that is introduced into, in, or held for sale after shipment in interstate commerce is found to be adulterated or misbranded, FDA may take enforcement actions. The following sections describe the parameters of the adulteration and misbranding of cosmetics. Adulteration A cosmetic is deemed adulterated—and potentially may be subject to FDA enforcement actions—if it "bears or contains any poisonous or deleterious substance which may render it injurious to users under the conditions of use prescribed in the labeling"; consists of "any filthy, putrid, or decomposed substance"; was "prepared, packed, or held under insanitary conditions whereby it may have become contaminated" or "rendered injurious to health"; is in a container composed of "any poisonous or deleterious substance which may render the contents injurious to health"; or contains an unsafe color additive, except for hair dyes. FDA has issued rules restricting the use of some ingredients in cosmetic products, such as those that it has determined are poisonous or deleterious, which would cause the cosmetic to be adulterated. One example of an adulterated cosmetic is the use of henna for a temporary skin decoration known as mehndi. While the color additive used in these products is approved for hair dye, it is not permitted for skin contact. Therefore, under FDA regulations, the use of the dye product in mehndi makes the product "adulterated." Misbranding and Mislabeling Claims Cosmetic products that do not comply with FPLA requirements are considered misbranded under FFDCA, if they meet the FPLA's definition of "consumer commodities," discussed below. Additionally, under FFDCA, cosmetics will be deemed to be misbranded, if the "labeling is false or misleading in any particular"; the label lacks required information; required labeling information is not prominently placed with conspicuousness and "in such terms as to render it likely to be read and understood by the ordinary individual under customary conditions of purchase and use"; the "container is so made, formed, or filled as to be misleading"; use of a color additive does not conform to packaging and labeling requirements; or the packaging or labeling violates the regulations issued under the Poison Prevention Packaging Act of 1970. Consumer commodity (retail) cosmetic products subject to the FPLA are required to bear a label with the identity of the product and the name and place of business of the manufacturer, packer, or distributor, as well as the net quantity of contents on the label's principal display panel. The net quantity of contents information on a package's label must be declared in a legible type size that is uniform for packages of about the same size. FDA's ingredient labeling rules, issued under the authority of the FPLA, require ingredients to be listed on cosmetic products in descending order of predominance. Enforcement Consumer organizations and interested persons may submit citizen petitions to FDA asking the agency to determine that a cosmetic is adulterated if it contains a particular deleterious substance. For example, in 1996, FDA denied such a petition after conducting a review of the cosmetic ingredient urocanic acid and "conclud[ing] that the scientific evidence did not establish urocanic acid to be a deleterious substance." If a cosmetic is deemed adulterated or misbranded, FDA may take enforcement actions. Enforcement actions may include seeking an injunction (which could prevent a company from making or distributing the violative product), seizing the violative product, or seeking criminal penalties. Additionally, a cosmetic company may be subject to a product liability lawsuit for a product that could be deemed to be adulterated, misbranded, or that lacks adequate warning statements. Voluntary Recalls FDA does not have authority to order a mandatory recall of a cosmetic product. In contrast, the agency has the authority to order recalls of food, infant formula, medical devices, human tissue products, and tobacco products. Even though FDA may not order a mandatory recall, FDA may request that a company voluntarily recall cosmetic products. Manufacturers or distributors may undertake voluntary recalls to remove violative products from the market that are hazardous to health, defective, or grossly deceptive, and "against which the agency would initiate legal action." If a manufacturer or distributor is unwilling to remove dangerous products from the market without FDA's written request to do so, the agency may issue a request for a product recall. The agency monitors a firm that conducts a product recall, and the agency may take an active role in monitoring a recall by reviewing the firm's status reports and conducting its own audit checks to verify the recall's effectiveness. FDA evaluates the health hazard presented by the product and assigns a classification to indicate the degree of hazard posed by the product under recall, whether it is a cosmetic or another FDA-regulated product (see text box). Either FDA or the cosmetic company will issue public notification of the recall. The firm is responsible for the disposition of the recalled product, whether it is destroyed or brought into compliance. Premarket Approval In contrast to FDA's authority over drugs and some devices, FDA does not have the authority to require premarket approval of cosmetics or their ingredients, except for color additives. Because there are no statutory requirements for premarket approval of cosmetic ingredients, manufacturers are responsible for substantiating the safety of their products and ingredients before the products are marketed. Failure to adequately substantiate the safety prior to marketing causes the product to be considered misbranded, unless it bears a warning label that states: "The safety of this product has not been determined." However, because that warning label seems to be rarely used, consumers may be under the impression that cosmetics have been demonstrated to be safe. The Government Accountability Office (GAO) has noted that FDA's regulation requiring warning labels "cannot be effectively enforced because FDA does not have the authority to require cosmetic manufacturers to test their products for safety or make their test results available to FDA." FDA, however, has restricted the use of certain ingredients in cosmetics or required warning statements on the labels of certain types of cosmetics (see textbox below). For example, FDA issued a rule banning the use of methylene chloride in cosmetics after concluding "that methylene chloride is a poisonous or deleterious substance that may render cosmetic products injurious to users," due to the potential cancer risks of exposure to the substance. If a cosmetic were to contain methylene chloride, it would be considered adulterated, and FDA could take an enforcement action. Except for color additives and those cosmetic ingredients that are prohibited or restricted for use by a specific regulation, any ingredient used in the formulations of cosmetics is allowed, provided that the safety of the ingredient has been adequately substantiated, it is properly labeled, and its use does not cause the product to be adulterated or misbranded under the law. FDA's guidance document on inspections of cosmetic product manufacturers discusses several other ingredients that investigators should document if they are used in cosmetic products. Testing and Safety of Cosmetic Ingredients FDA has advised cosmetic firms to employ appropriate and effective testing to substantiate the safety of their products. However, the FFDCA does not specify how cosmetic products and their ingredients are to be tested. As mentioned earlier, manufacturers are responsible for substantiating the safety of both the ingredients and finished cosmetic products prior to marketing. Traditional testing of cosmetic ingredients has used animal models to evaluate the safety of the ingredients on the human body. The tests used historically include measures of skin irritancy, eye irritation, allergic reactions, and toxicity caused by various ingredients used in the manufacture of cosmetics on several different animals, including rabbits, mice, rats, and guinea pigs. Animal testing is allowed to be used to establish product safety. While concerns about the safety of cosmetics have been raised over the years, animal rights advocates have sought an end to animal testing. FDA has said that it follows applicable laws on animal testing, such as the Animal Welfare Act. Additionally, the agency has outlined its support for alternatives to whole-animal testing: FDA supports and adheres to the provisions of applicable laws, regulations, and policies governing animal testing, including the Animal Welfare Act and the Public Health Service Policy of Humane Care and Use of Laboratory Animals. Moreover, in all cases where animal testing is used, FDA advocates that research and testing derive the maximum amount of useful scientific information from the minimum number of animals and employ the most humane methods available within the limits of scientific capability ... We also believe that prior to use of animals, consideration should be given to the use of scientifically valid alternative methods to whole-animal testing. ... FDA supports the development and use of alternatives to whole-animal testing as well as adherence to the most humane methods available within the limits of scientific capability when animals are used for testing the safety of cosmetic products. We will continue to be a strong advocate of methodologies for the refinement, reduction, and replacement of animal tests with alternative methodologies that do not employ the use of animals. Cosmetic Ingredient Review Program Although the FFDCA does not specify how ingredients in cosmetic products are to be tested, the cosmetic industry's trade association—the Personal Care Products Council (PCPC)—has established a Cosmetic Ingredient Review (CIR) program to review the safety of cosmetic product ingredients, based on published and unpublished data on individual ingredients. The purpose of the CIR program "is to determine those cosmetic ingredients for which there is a reasonable certainty in the judgment of competent scientists that the ingredient is safe under its conditions of use." Under the CIR program, an expert panel reviews cosmetic ingredients based on an annual priority list of ingredients currently used in commercially available cosmetics, which is based upon "the number of different products in which an ingredient is used" as obtained from the Voluntary Cosmetic Registration Program as well as "toxicological considerations." Panelists analyze data and determine whether an ingredient is (1) safe for the uses and concentrations in the safety assessment; (2) unsafe and therefore unsuitable for use in cosmetics; (3) safe, with qualifications, as in it can be used under certain conditions; or (4) an ingredient for which data are insufficient. Although CIR's ingredient findings are published, the cosmetic industry is not required to follow CIR findings. As of February 2012, CIR has determined 1,398 ingredients "safe as used"; 987 ingredients safe with qualifications; 43 ingredients with insufficient data to support safety; and 11 ingredients "unsafe for use in cosmetic products." In addition, the Research Institute for Fragrance Materials (RIFM) "conducts a companion program to review the safety of fragrance ingredients" that includes a "systematic evaluation of fragrance ingredients used in cosmetic products." Consumer Concerns About the Safety of Ingredients In 2004, concerns raised about the safety of some cosmetics led to the creation of a national coalition of environmental, health, labor, consumer, and women's groups called the Campaign for Safe Cosmetics. The Campaign is concerned about what it believes to be a growing body of evidence that suggests a connection between certain chemicals and long-term health effects such as cancer and reproductive problems. Of particular concern are the health effects of nitrosamines, lead and other heavy metals, parabens, phthalates, hydroquinone, and 1,4-dioxane. Beginning in 2004, the Campaign asked cosmetic companies to sign the Compact for Safe Cosmetics, which was a voluntary pledge by companies to take steps including disclosure of all ingredients, publication of product information in an ingredient database, and substantiation of "the safety of all products and ingredients with publicly available data." More than 1,500 companies have signed the pledge to remove hazardous chemicals and replace them with safe alternatives within three years. The Campaign for Safe Cosmetics has also issued reports, which cover subjects such as contaminants in children's bath and personal care products. The Environmental Working Group—a member of the Campaign for Safe Cosmetics—maintains a database of cosmetic product ingredients and related safety information. Concerns About Specific Ingredients Some ingredients used in cosmetic products have received particular attention as a result of concerns about their potential health risk. For example, questions have been raised about the accuracy of ingredient statements and the adequacy of safety warnings on product labels for keratin hair treatment products containing formaldehyde. Concerns have also arisen regarding the use of coal tar hair dyes as color additives and nanomaterial ingredients, which are discussed more below. Color Additives As previously discussed, FDA does not require premarket approval of cosmetic ingredients, except for color additives. FDA regulates color additives—such as FD&C Blue No. 1—differently than other cosmetic ingredients and differently for use in cosmetics than for use in food, drugs, or medical devices. Color additives include any dye, pigment, or substance that may impart a color when added to a food, drug, cosmetic, or the human body, and must be listed in a regulation before they are allowed to be used. A cosmetic that contains a color additive that does not comply with the applicable FDA regulation will cause the cosmetic product to be considered to be adulterated. Additionally, some color additives must be certified by FDA before they may be used. Failure to certify a color additive may cause the entire cosmetic product in which it is used to be deemed to be adulterated. Batches of color additives are either subject to, or exempt from, certification by FDA. The color additives that are subject to certification "are derived primarily from petroleum," while color additives exempt from certification "are obtained primarily from mineral, plant, or animal sources." Regardless of whether a color additive is subject to certification, all color additives must be approved as "safe-for-use" prior to being listed and therefore able to be used in cosmetics. In addition to being subject to certification by FDA, color additives must be used according to FDA regulations that prescribe "the conditions under which such additive may be safely used." For example, the color additive FD&C Red No. 4 must meet the requirements of 21 C.F.R. §74.1304(a)(1) and (b), which discuss identity (the composition and specifications the color additive must meet, such as the maximum amounts of particular impurities that the color additive can contain) and restrict its use to "externally applied drugs and cosmetics." Under FDA regulations, the external application of cosmetics does not include "the lips or any body surface covered by mucous membrane," and therefore FDA regulations prohibit the use of certain colors in cosmetics such as lipsticks. As additional examples, FDA has specific regulations for an approved glow-in-the-dark color additive and for fluorescent color additives (some of which are approved for use in cosmetics) and for liquid crystal color additives (which are unapproved color additives and, therefore, are not approved for use in cosmetics). FDA regulations also contain restrictions on color additives for use in the eye area, in injections (such as for tattoos or permanent makeup), and in surgical sutures, including that the listing or certification of the color additive must allow that specific use. Coal Tar Hair Dyes Coal tar dyes have been a particularly controversial group of color additives, due to their potential health risk. Coal tar dyes are "synthetic-organic" colors, most of which are "made from petroleum." These dyes, "which deposit and adhere to the hair shaft," "are either listed and certified color additives or dyes for which approval has not been sought." They were specifically exempted from the FFDCA adulteration and other color additive provisions for products that are intended to dye hair. FDA, GAO, policymakers, and consumer groups have questioned whether the FFDCA exemption for coal tar hair dyes should be repealed because of potential health hazards. On several occasions, the FDA unsuccessfully has argued for the repeal of the coal tar hair dye exemption. The GAO also "recommended that FDA evaluate safety data on coal tar hair dye ingredients and require, where applicable, a cancer or other appropriate warning statement on product labels." FDA has stated that "several coal-tar hair dye ingredients have been found to cause cancer in laboratory animals." FDA unsuccessfully attempted to require the following warning on hair dyes that contained the coal tar ingredient 4-methoxy-m-phenylenediamine (4-MMPD, 2, 4-diaminoanisole): "Warning—Contains an ingredient that can penetrate your skin and has been determined to cause cancer in laboratory animals." Coal tar dyes are explicitly excluded from use in products intended to be dyes for eyelashes or eyebrows. To avoid an adulteration determination, coal tar hair dyes must contain the FFDCA-mandated warning statement that informs consumers of the potential risks associated with their use: "Caution –This product contains ingredients which may cause skin irritation on certain individuals and a preliminary test according to accompanying directions should first be made. This product must not be used for dyeing the eyelashes or the eyebrows; to do so may cause blindness." Nanomaterial Ingredients The inclusion of nanomaterial ingredients in cosmetics has generated debate over the safety of nanomaterials and how and whether FDA should regulate such ingredients. Nanotechnology involves the application and manipulation of small matter "at the nanoscale, which is about 1 to 100 nanometers." The cosmetic industry has used nanotechnology in cosmetic products for more than two decades. Cosmetics are reportedly "the most prominent nanotechnology products on the U.S. market," and the "global market for cosmetics using nanotechnology [was] projected to reach an estimated $155.8 [million] in 2010." Nanomaterials are reportedly used in two main ways in cosmetic products—as UV filters and as delivery systems. The Project on Emerging Nanotechnologies—created in 2005 as a partnership between the Pew Charitable Trusts and the Woodrow Wilson International Center for Scholars—maintains a searchable database of consumer products, including cosmetics, that reportedly contain nanomaterials. Cosmetic products with nanomaterials include facial cosmetic products, from creams and moisturizers to bronzers and blushers to mascara. There is debate among the scientific community as to the potential health effects of these particles. In general, the concerns about the use of nanomaterials in FDA-regulated products surround whether the small size of these particles leads to any new toxicological properties or harmful health effects, such as potentially damaging the skin or "crossing into the bloodstream, cells, and organs." The unique size and chemical properties of these materials has led to concerns that they may have an increased ability to permeate the human skin and may release toxins into the bloodstream. Damaged skin may be "especially at risk for nanoparticle penetration." Other issues may include access to the body by inhalation, ingestion, or skin penetration; the length of time that they remain in the body; the dose likely to cause harm; the effects of long-term exposure; and the impact on the environment. Consumer groups such as Friends of the Earth, the International Center for Technology Assessment, and Consumers Union have raised concerns about nanomaterials in cosmetic products and have petitioned FDA regarding the regulation of products containing nanomaterials. Nanotechnology Task Force In 2006, then-acting FDA Commissioner Andrew von Eschenbach created an internal FDA Nanotechnology Task Force to "determin[e] regulatory approaches that encourage the continued development of innovative, safe and effective FDA-regulated products that use nanotechnology materials." Neither FDA nor the task force adopted a definition of "nanotechnology." The agency has stated that it "believes that the existing battery of pharmacotoxicity tests is probably adequate for most nanotechnology products that [it] will regulate." In 2007, FDA declined to adopt labeling requirements for products containing nanomaterials, stating that: [b]ecause the current science does not support a finding that classes of products with nanoscale materials necessarily present greater safety concerns than classes of products without nanoscale materials, the [FDA] does not believe there is a basis for saying that, as a general matter, a product containing nanoscale materials must be labeled as such. Therefore, [FDA] is not recommending that the agency require such labeling at this time. Instead, [FDA] recommends ... the following action: Address on a case-by-case basis whether labeling must or may contain information on the use of nanoscale materials. Therefore, FDA has not promulgated specific regulations requiring products that contain nanomaterials to be labeled accordingly. The Nanotechnology Task Force indicated that regulatory decisionmaking "depends in part on having staff with expertise" in the appropriate areas and recommended that FDA build in-house expertise. Also in 2007, the Nanotechnology Task Force recommended the agency coordinate with other federal agencies, the private sector, and other countries on research and other activities "to increase scientific understanding and facilitate assessment of data needs for regulated products" and undertake actions such as the development of guidance documents. Draft Guidance Regarding the Use of Nanomaterials in FDA-Regulated Products On June 14, 2011, FDA issued draft guidance with recommendations for industry on "Considering Whether an FDA-Regulated Product Involves the Application of Nanotechnology," including the implications of using nanomaterials on the regulatory status of a product or the product's "safety, effectiveness, or public health impact." The draft guidance is intended to assist industry and others to identify potential consideration for "regulatory status, safety, effectiveness, or public health impact" that may arise with the application of nanotechnology in all FDA-regulated products, including cosmetics. The agency states that it "does not categorically judge all products containing nanomaterials or otherwise involving the application of nanotechnology as intrinsically benign or harmful." However, FDA also notes that "evaluations of safety, effectiveness or public health impact of such products should consider the unique properties and behaviors that nanomaterials exhibit." On April 25, 2012, FDA issued draft guidance on the "Safety of Nanomaterials in Cosmetic Products." This draft guidance provides a general framework for (1) assessing the safety of cosmetic products; (2) points to consider in assessing the safety of nanomaterials in cosmetic products, including a schema for characterizing the properties of nanomaterials and considerations for toxicology testing; and (3) a summary of FDA's recommendations. It notes that the use of nanomaterials "may alter the bioavailability of the cosmetic formulation," and that "traditional safety tests…may not be fully applicable." FDA concludes that the inclusion of nanomaterials in an FDA-regulated product may affect the quality, safety, effectiveness, and/or public health impact of a product, and encourages manufacturers to meet with the FDA to discuss the "test methods and data needed to substantiate the product's safety, including short-term toxicity and long-term toxicity data as appropriate." Voluntary Cosmetic Registration Program As noted above, FDA does not currently have the authority to mandate registration of cosmetic facilities, in contrast with the statutory registration requirements for establishments that produce other products regulated by the agency. However, since 1974, FDA, in cooperation with the cosmetic industry, has had a Voluntary Cosmetic Registration Program (VCRP) to facilitate registration of cosmetic establishments. GAO has noted that "[r]egistration is important because it serves as the basis for determining where FDA will conduct its inspections." FDA has also stated that VCRP information helps the Cosmetic Ingredient Review program (discussed previously) "in determining its priorities for ingredient safety review." Under VCRP, FDA encourages cosmetic establishments that manufacture or package cosmetic products to voluntarily register their facilities within 30 days of the start of their operations, regardless of whether their products enter interstate commerce. FDA regulations request that foreign cosmetic product manufacturers voluntarily register with the agency if their products are exported for sale in the United States. Cosmetic manufacturers and packagers also are encouraged to report the ingredients used in their product formulations. FDA does not assess a fee for the voluntary registration of a cosmetic product establishment. Certain classes of establishments are exempt from FDA's voluntary registration request "because the [FDA] Commissioner has found that such registration is not justified." These include beauty shops; cosmetologists; retailers; pharmacies; physicians; hospitals; clinics; public health agencies; persons who compound cosmetics at a location but do not otherwise manufacture or package cosmetics from that location; and persons who manufacture, prepare, compound, or process cosmetic products for activities such as teaching or research, but not for sale. Consumer safety organizations such as the Environmental Working Group have submitted comments to the FDA supporting the inclusion of "for professional use only" products in the voluntary registration scheme, particularly in light of issues with "Brazilian Blowout" products (see section "' "For Professional Use Only" Labeling " and the Appendix ). In its response to the comments, FDA disagreed with the inclusion of professional use products in the VCRP, as the VCRP does not apply to products not in commercial distribution. FDA also disagreed with the suggested audit of the cosmetics industry, which the consumer group proposed in order "to determine the current participation rate" in the VCRP and "to estimate how many ingredients and products FDA receives into the database compared to the total produced." The agency focused on its lack of "statutory authority to make registration in the VCRP mandatory," as well as "the cost of completing such a project," calling the audit "not a wise use of Agency funds in the current economic environment." Finally, FDA disagreed "at this time" with the Environmental Working Group's suggestion to create a certification program so that cosmetic companies could "indicate to consumers that they have participated in the VCRP," stating that the agency would need to research "how consumers would interpret such a certification claim," as well as how to enforce registration claims. Reporting of Adverse Reactions to Cosmetics FDA lacks the statutory authority to require cosmetic manufacturers to notify FDA of adverse events associated with their products and to require cosmetic companies to report information they receive from consumers and others regarding adverse events. Currently, the agency advises consumers to self-report "negative reaction[s] to a beauty, personal hygiene, [and] makeup products" to the FDA via the agency's safety information and adverse event reporting program—MedWatch —or the consumer's local FDA complaint coordinator. The agency is interested in hearing from consumers who "experience a rash, hair loss, infection, or other problem—even if they didn't follow product directions," as well as when products have bad smells or unusual colors and may be contaminated. The agency may use adverse event reports by consumers to detect repeated problems with a product and potentially to take enforcement or other legal action. For example, adverse events that have been reported to FDA include reactions to henna/mehndi, certain shades of ink used for tattoos and permanent makeup, and keratin hair treatment products. Temporary tattoos have been associated with reports of allergic reactions. These products also have been subject to an import alert due to the lack of a required ingredient declaration on the label or the presence of colors not approved for use in cosmetics for the skin. Certain ink shades used for permanent makeup resulted in "more than 150 reports of adverse reactions in consumers." FDA has also received at least 33 adverse event reports, an additional seven reports of hair loss, and a number of inquiries concerning the safety of "Brazilian Blowouts" and similar "For Professional Use Only" hair treatment products, which may contain or release formaldehyde in the air when used by stylists to smooth hair, despite being labeled as "formaldehyde-free." The Occupational Safety and Health Administration (OSHA), which regulates workers' exposure to formaldehyde and workplace safety, and state agencies that regulate hair salons have issued hazard alerts about these products. This issue is discussed further in the Appendix . In the absence of FDA requirements regarding adverse event reporting, the cosmetic industry has made efforts to self-regulate. In 2007, the industry trade association, the Personal Care Products Council (PCPC), created a Consumer Commitment Code that cosmetic product and ingredient manufacturers and marketers were "encouraged to acknowledge their support of" in writing. One of the Code's principles is that "a company should notify the [FDA] of any known serious and unexpected adverse event as a result of the use of any of its cosmetic products marketed and used in the United States," where the terms "serious" and "unexpected" mean the same as FDA regulations defining serious and unexpected adverse events for drugs. This Code is not a binding legal standard and cannot be enforced by FDA. The PCPC has stated that it "will not terminate the Council's membership for noncompliance," but would instead encourage compliance with the Code. Other Concerns with Labeling Consumers may seek out particular cosmetics based on their labeling, such as cosmetics made with organic ingredients or without being tested on animals. However, FDA does not define certain terms used by manufacturers on their cosmetic products. Sections below on "organic" and "not tested on animals" claims address slight differences in how cosmetic products are marketed using certain claims and what consumers may believe such claims to mean. Additionally, not all cosmetic products are required to be labeled in the same manner, as the section below on products used by professionals discusses. "Organic" Labeling Claims on Cosmetic Products As with many statements made on cosmetic products, the terms "natural" and "organic" have no specific definition in the FFDCA, which may lead to consumer confusion. While FDA has authority for labeling of cosmetics, the agency does not regulate the use of the term "organic"—rather, USDA regulates "organic" claims on cosmetic products. Generally speaking, some cosmetics may be labeled as "natural" and "market[ed] ... as containing plant or mineral ingredients," while other cosmetic labels may include the claims that they are "organic" or made from "agricultural ingredients grown without pesticides." Consumers seeking "natural" or "organic" cosmetics may have different expectations about the materials in a product marketed as natural or organic. Consumers may perceive that products that are labeled as "natural" or "organic" have a health benefit. However, FDA has noted that "many plants, regardless of whether they are organically grown, contain substances that may be toxic or allergenic." Additionally, FDA has stated that "[c]onsumers should not necessarily assume that an 'organic' or 'natural' ingredient or product would possess greater inherent safety than another chemically identical version of the same ingredient." Some natural ingredients may cause consumers to have adverse reactions, and FDA has stated that "[i]n fact, 'natural' ingredients may be harder to preserve against microbial contamination and growth than synthetic raw materials." In 2005, the USDA's National Organic Program (NOP), which oversees voluntary organic labeling of certified foods, determined that cosmetic products that meet the requirements established under the NOP regulations are eligible for certification as "organic." A cosmetic product "may be eligible to be certified under the NOP regulations" if the product "contains or is made up of agricultural ingredients, and can meet the USDA/NOP organic production, handling, processing and labeling standards." The USDA has stated that the "organic" label is not meant to be an indicator of safety: "The National Organic Program is a marketing program, not a safety program." The NOP regulations provide four organic labeling categories: (1) 100% Organic—excluding water and salt, the product must be made of only organically produced ingredients and may use the USDA organic seal; (2) Organic—excluding water and salt, the product must be comprised of at least 95% organically produced ingredients and may use the USDA organic seal; (3) Made with Organic Ingredients—excluding water and salt, the product must contain at least 70% organic ingredients and the label may list three of the organic ingredients or food groups, such as herbs, but the product may not use the USDA organic seal; and (4) specific ingredients may be identified as organic if they are USDA-certified organic, but these products may not use the USDA organic seal or the term "organic." In 2009, the Certification, Accreditation, and Compliance Committee of the USDA's 15-member National Organics Standards Board made recommendations regarding "the problem of mislabeled organic personal care products." The committee stated that the "USDA is responsible for product organic claims but is not currently enforcing this in the area of personal care products." For example, some shampoos and conditioners state that they "use ingredients that are 100% Organic or are directly traceable to a natural source," but do not indicate who performs the organic certification or display the USDA Organic Seal. As a result, the committee noted that "[c]onsumers are not assured that organic claims are consistently reviewed and applied" to personal care products. The committee recommended amending the NOP regulations to include a definition of "personal care products" that is based on the definition of a "cosmetic" under the FFDCA, to clarify the use of the term "organic" in its application to personal care products, and to restrict the use of the USDA Organic Seal. However, the recommendations of the committee have not yet been adopted by the National Organic Standards Board and "are not official USDA policy" at this time. In addition to the USDA's NOP, other entities have created their own standards programs for what constitutes "organic" in personal care products. For example, with input from industry stakeholders, the National Sanitation Foundation (NSF) International and the American National Standards Institute (ANSI) established a new nonfederal, voluntary standard, NSF/ANSI 305-2009e, for personal care products containing organic ingredients. The standard allows a labeling claim of "contains organic ingredients" to be made for products with 70% or higher organic content, if the products comply with the standard's requirements, which include certification based on steps such as an application, on-site inspection, and technical review. The standard requires manufacturers to list the exact percent of organic content. The standard can be used for "rinse-off and leave-on personal care and cosmetic products, as well as oral care and personal hygiene products" if such products comply with "materials, processes, production criteria, and conditions" specified in the standard. The major difference between the USDA NOP regulations and the NSF/ANSI standard is that the standard "allows for limited chemical processes that are typical for personal care products," which are "methods considered synthetic under the NOP." According to NSF International, compliance with this standard may "provide a competitive advantage to those certified products" that contain organic ingredients. "Not Tested on Animals" Labeling Many cosmetic products may contain ingredients or raw materials that have been tested on animals in the past, though no animal testing of the ingredients or product currently may be occurring. While manufacturers may use "no animal testing" claims for their products, they still "may rely on raw material suppliers or contract laboratories to perform any animal testing necessary to substantiate product or ingredient safety." It may be confusing for consumers attempting to distinguish cosmetic products with ingredients that have never been tested on animals from cosmetic products that may use or contract for the use of animal testing at some point in the product's path to commerce. Some companies promote their products as not having been tested on animals, either because they contain all-natural ingredients or by labeling with such terms as "finished product not tested on animals," "no animal ingredients," or "cruelty free." FDA does not define or prescribe the use of these terms. In the absence of federal regulation on the use of such terms, animal rights groups have created programs where companies that self-certify that they are "cruelty free" may license the organization's logo for use on their products. "For Professional Use Only" Labeling Certain information that is not required to appear in cosmetic product labeling may nonetheless be of interest to consumers and professionals who use and apply "for professional use only" cosmetic products. (The Appendix discusses the hazards potentially associated with one type of "for professional use only" product applied in keratin hair treatments, which are also known as Brazilian Blowouts.) This section provides general background on "for professional use only" cosmetic products. Cosmetics that are "consumer commodities" are required to list their ingredients, according to FDA regulations implementing the FPLA. The ingredient listing requirement applies to products produced or distributed for retail sale and does not apply to "for professional use only" products used only by salons, if the salon does not also offer the product for purchase by its customers. As a result, "cosmetologists and other professionals, as well as their clients, may not know what chemicals are in the cosmetics used in nonretail businesses, such as beauty salons." However, if a cosmetic product were labeled "for professional use only" but sold at retail, the ingredients must be listed, or the cosmetic product will be considered to be misbranded. Ingredients used in "for professional use only" cosmetic products are not included in the VCRP. FDA does not define which cosmetic products are "For Professional Use Only." Cosmetic manufacturers and beauty supply companies that produce these products may limit distribution of such products to salons and salon professionals. Despite manufacturer sale restrictions, some distributors have sold "for professional use only" products to retail stores, potentially in contravention of contracts or agreements between distributors and manufacturers regarding the sale of such products, as well as the misbranding prohibition of the FFDCA and related provisions in the FPLA. Conclusion Although FDA's authorities over cosmetic products include some of those applicable to other FDA-regulated products, they are generally less comprehensive and exclude certain requirements imposed on other FDA-regulated products. The manner in which a cosmetic product could or should be regulated, however, is not always clear. FDA has issued regulations and procedures for cosmetics with which manufacturers voluntarily may choose to comply. Additionally, the cosmetic industry's trade association has established a cosmetic ingredient review program for cosmetic manufacturers with the purpose of determining which cosmetic ingredients are safe under certain conditions of use. Nevertheless, some questions remain as to whether the FDA's current oversight of cosmetic products and their ingredients is appropriate. Appendix. Keratin Hair Treatments, Also Known as "Brazilian Blowouts" Background Keratin hair treatment products reportedly smooth frizzy hair, straighten curly hair, and reduce blow drying and straightening times. Such treatments may also be known as "Brazilian Blowouts" after the name of one company's products commonly used for such treatments. The treatments typically cost several hundred dollars, depending on the length and texture of one's hair, and may last from six weeks to several months, depending on the type of treatment. Many brands of keratin hair treatment products have been found to contain free formaldehyde in solution (which tends to combine with water, forming methylene glycol), or other chemicals that convert into formaldehyde gas, whether or not they are labeled as "formaldehyde-free." Formaldehyde and a related chemical, methylene glycol, are "known to induce a fixative action on proteins (e.g., keratin)," and therefore hair straightening solutions reportedly "maintain straightened hair by altering protein structures via amino acid crosslinking reactions, which form crosslinks between hair keratins and with added keratin from the formulation" of the hair product. Questions have been raised about the accuracy of ingredient statements and the adequacy of safety warnings on product labels for keratin hair treatment products containing formaldehyde. Formaldehyde is a respiratory irritant and a known human carcinogen. The concern is that stylists who use such products, and consumers who are treated with them, may be exposed to harmful levels of formaldehyde without their informed consent, because many products are labeled "formaldehyde-free." As discussed below, investigations by the National Institute for Occupational Safety and Health (NIOSH), the Occupational Safety and Health Administration (OSHA), and Health Canada have indicated that even products labeled "formaldehyde-free" may contain levels of the chemical considered potentially unsafe. While OSHA regulates workers' exposure to formaldehyde and worker and workplace safety, as discussed below, FDA regulates cosmetic products containing formaldehyde. Members of Congress have requested that FDA take enforcement actions against such keratin hair treatment products, and FDA has issued a warning letter indicating certain Brazilian Blowout products are in violation of the FFDCA. FDA is evaluating hair straightening and hair smoothing products for safety on an individual basis. The manufacturer of Brazilian Blowout products has argued that testing by OSHA and "alternate reputable institutions" indicated that its products fall below OSHA safety standards. OSHA has responded by asking the CEO of Brazilian Blowout to issue corrective statements to salon owners that "clearly stat[e] that OSHA air quality tests conducted … have yielded results above acceptable OSHA limits." Formaldehyde The Environmental Protection Agency (EPA) attempts to quantify the risk that an individual will suffer adverse health effects due to particular levels of exposure to a chemical. According to EPA, formaldehyde: can cause watery eyes, burning sensations in the eyes and throat, nausea, and difficulty in breathing in some humans exposed at elevated levels (above 0.1 parts per million). High concentrations may trigger attacks in people with asthma. There is evidence that some people can develop a sensitivity to formaldehyde. It has also been shown to cause cancer in animals and may cause cancer in humans. Health effects include eye, nose, and throat irritation; wheezing and coughing; fatigue; skin rash; severe allergic reactions. May cause cancer. The federal Agency for Toxic Substances and Disease Registry (ATSDR) concurs and adds that exposure may lead to: neurological effects, and increased risk of asthma and/or allergy … in humans breathing 0.1 to 0.5 [parts formaldehyde per million parts of air (ppm)]. Eczema and changes in lung function have been observed at 0.6 to 1.9 ppm. Decreased body weight, gastrointestinal ulcers, and liver and kidney damage were observed in animals orally exposed to 50–100 mg/kg/day formaldehyde. The 12 th Report on Carcinogens (ROC), issued by the U.S. Department of Health and Human Services' (HHS) National Toxicology Program (NTP) in June 2011 changed the classification of formaldehyde from "reasonably anticipated to be a human carcinogen" to "known to be a human carcinogen," based on its criterion that there is "sufficient evidence of carcinogenicity from studies in humans, which indicates a causal relationship between exposure to the agent, substance, or mixture, and human cancer." This ROC listing does not necessarily mean that formaldehyde will cause an exposed individual to develop cancer; rather, it means that at some sufficient level of exposure to formaldehyde some humans will develop cancer. The World Health Organization's International Agency for Research on Cancer (IARC) listed formaldehyde as a carcinogen in 2006. OSHA recognizes the IARC list of carcinogens as well as the NTP ROC list for the purposes of its hazard communication standard, discussed below. OSHA Formaldehyde Standards Workers' exposure to formaldehyde in general industries as well as shipyard employment and construction is regulated at the federal level and is addressed in OSHA standards or equivalent regulations in OSHA-approved state plans. OSHA has issued rules on formaldehyde exposure limits, protective equipment, and cancer warning labels for products that contain formaldehyde. The agency also notes that "[s]hort-term exposure to formaldehyde can be fatal," and that "[l]ong-term exposure to low levels of formaldehyde may cause respiratory difficulty, eczema, and sensitization." OSHA's formaldehyde standard "applies to all occupational exposures to formaldehyde, i.e. from formaldehyde gas, its solutions, and materials that release formaldehyde." OSHA's formaldehyde standard states that "[t]he permissible exposure limit (PEL) for formaldehyde in the workplace is 0.75 parts formaldehyde per million parts of air (0.75 ppm) measured as an 8-hour time-weighted average." The standard also has short-term exposure limits of 2 ppm per 15-minute time period and sets a level at which "increased industrial hygiene monitoring and initiation of worker medical surveillance" is triggered. OSHA notes that an "airborne concentration of formaldehyde above 0.1 ppm can cause irritation of the respiratory tract." Employers who have workplaces covered by the OSHA standard are required to monitor their employees' exposure to formaldehyde. OSHA requires communication of formaldehyde's potential health hazards for "[f]ormaldehyde gas, all mixtures or solutions composed of greater than 0.1 percent formaldehyde, and materials capable of releasing formaldehyde into the air, under reasonably foreseeable conditions of use, at concentrations reaching or exceeding 0.1 ppm." Employers are required to ensure that such products have hazard warning labels if they are "capable of releasing formaldehyde at levels of 0.1 ppm to 0.5 ppm," and if the products are "capable of releasing formaldehyde at levels above 0.5 ppm," the labels must contain additional information and the words "Potential Cancer Hazard." Additionally, manufacturers and distributors of formaldehyde-containing products that meet the 0.1 percent level must "assure that material safety data sheets and updated information are provided to all employers purchasing such materials." Based on a settlement with the California Attorney General, the website for the Brazilian Blowout products now contains a Material Safety Data Sheet for Brazilian Blowout Acai Professional Smoothing Solution, which indicates that the product is classified as a hazardous substance and warns about using proper ventilation. Adverse Event Reports Hair salon stylists in Oregon first raised concerns about a hair smoothing product labeled "formaldehyde-free" when they began experiencing nosebleeds within a month of using the product and reportedly later developed chest pain and sore throats. One stylist contacted the Oregon Health and Science University's Center for Research on Occupational and Environmental Toxicology, which conducted an investigation in 2010 with the Oregon Occupational Safety and Health Division. Researchers found significant formaldehyde levels in 105 samples of hair smoothing treatments from 54 different salons. Oregon's Occupational Safety and Health Division then issued alerts about the formaldehyde levels to over 21,000 state-licensed hair stylists. Although products such as the Brazilian Blowout Acai Professional Smoothing Solution were labeled "formaldehyde-free," the tests found that the products had an average formaldehyde content of more than 8%. Some products contained amounts of formaldehyde "well above what could legally be labeled as 'formaldehyde-free.'" Oregon's Occupational Safety and Health Division received reports of adverse events from stylists across the United States after its alert, which included "burning of eyes and throat, watering of eyes, dry mouth, loss of smell, headache and a feeling of 'grogginess,' malaise, shortness of breath and breathing problems, a diagnosis of epiglottitis attributed by the stylist to their use of the product, fingertip numbness, and dermatitis," as well as reports of hair loss. FDA has received reports from state and local groups of "eye irritation, breathing problems, and headaches," as well as adverse event reports from "hair stylists, their customers, and individual users" of similar symptoms, plus fainting, bronchitis, inhalation pneumonitis, and vomiting. Similarly, Health Canada reportedly received adverse reaction reports for hair products with formaldehyde from 50-60 individuals, which included "burning eyes, nose, throat and breathing difficulties, with one report of hair loss," as well as reports of "headache, arthritis, dizziness, epistaxis [nosebleeds], swollen glands, and numb tongue." NIOSH and OSHA Investigations In December 2010, NIOSH conducted a health hazard evaluation of the Brazilian Blowout Acai Professional Smoothing Solution, as used by one hair stylist employee on another hair stylist in a salon. The evaluation indicated that the solution's concentration of formaldehyde (greater than 0.1%) was enough to merit the "hazard communication requirements of the OSHA formaldehyde standard." OSHA has conducted its own investigations of keratin treatment products. OSHA's investigations "found formaldehyde in the air when stylists used hair smoothing products," even though not all of the products had "formaldehyde listed on their labels or in material safety data sheets as required by law." OSHA air tests of one product labeled as "formaldehyde-free" exceeded OSHA's limits on formaldehyde. OSHA has issued at least one citation to an employer after air sampling found that salon workers "were exposed to formaldehyde levels that exceeded OSHA's 15-minute short term exposure limit." OSHA issued a Hazard Alert to hair salons indicating the hazards associated with the use of hair smoothing treatment products and the responsibilities of salons that use these products under the federal Occupational Safety and Health Act. California and several other states have issued similar notices. In August 2011, the CEO of Brazilian Blowout sent a letter to salon owners indicating that "all OSHA and independent air-quality tests conducted on the Brazilian Blowout Professional Smoothing Solution … have yielded results well-below even the most stringent of OSHA standards." In September 2011, OSHA issued a letter to the Brazilian Blowout CEO informing him that OSHA disagreed with his remarks and requesting that he immediately take corrective actions such as sending a correction or retraction to his letter to salon owners, "clearly stating that OSHA air quality tests conducted … have yielded results above acceptable OSHA limits." Actions by Other Countries In 2011, Health Canada issued an advisory naming eleven keratin or similar smoothing hair treatment products with levels of formaldehyde ranging from 0.35% to 8.4%, which exceed the level of 0.2% at which it is "permitted as a preservative" in Canada. Therefore, "hair smoothing products with formaldehyde levels" above 0.2% are banned from being sold in Canada. This 0.2% level for formaldehyde and its equivalents is also the upper limit recommended by the Cosmetic Ingredient Review panel. Authorities in France and Germany have warned against the use of hair smoothing products with high concentrations of formaldehyde, and both France and Ireland took steps to remove products from the market. Cosmetic Ingredient Review Analysis The Cosmetic Ingredient Review (CIR) recently re-evaluated the safety of formaldehyde and addressed the safety of methylene glycol, a compound formed when formaldehyde is combined with water, in cosmetic products. As mentioned in the body of this report, under the CIR program, expert panels analyze information on the safety of ingredients used in cosmetic products. In October 2011, CIR issued a final amended report on formaldehyde and methylene glycol that stated that "[n]ot surprisingly, formaldehyde is an irritant at low concentration, especially to the eyes and the respiratory tract. Formaldehyde exposure can result in a sensitization reaction." CIR stated that its panel "continues to believe that formaldehyde gas can produce [nasopharyngeal] cancers at high doses." CIR's expert panel "was concerned" with adverse event reports, which it noted were "consistent with measured air levels of formaldehyde in salons" using hair straightening products and indicated that not all ventilation controls were effective in allowing for safe use. CIR cited the Oregon Occupational Safety and Health Division's workplace survey of ventilation efforts that ranged from "a building HVAC system, propping the business's doors open, or operating ceiling fans." The CIR panel concluded that "[i]n the present practices of use and concentration (on the order of 10% formaldehyde/methylene glycol, blow drying and heating up to 450°F with a flat iron, inadequate ventilation, resulting in many reports of adverse effects), hair smoothing products containing formaldehyde and methylene glycol are unsafe." However, CIR found that formaldehyde and methylene glycol "are safe for use in cosmetics when formulated to ensure use at the minimal effective concentration, but in no case should the formalin [formaldehyde and water solution] concentration exceed 0.2%." As an example, the panel discussed the use and concentration of formaldehyde and methylene glycol in nail hardening products. An Assessment of FDA's Authorities Some Members of Congress and the chief scientist of an industry trade association have asked FDA to take action on keratin hair treatment products. This section discusses FDA's existing authorities and potential actions that the agency could take with regard to such cosmetic products, as well as the warning letter that FDA has issued to the CEO of Brazilian Blowout and actions by the California Attorney General. FDA does not have authority to regulate "the operation of salons or the practice of cosmetology." FDA does not ban formaldehyde or methylene glycol in cosmetic products. According to the CIR, FDA's voluntary cosmetic registration program contained 77 uses of formaldehyde and formaldehyde solution (formalin). FDA has stated that the safety of formaldehyde "as a cosmetic ingredient depends on a variety of factors, such as its concentration in the final product and how the final product is used." FDA could issue a rule prohibiting or restricting the use of formaldehyde and formaldehyde solutions in cosmetic products if the agency concluded that such substances were poisonous or deleterious. If such ingredients were deemed deleterious, their inclusion in a cosmetic product would render the product adulterated under the FFDCA. It is a prohibited act to introduce an adulterated product into interstate commerce under the FFDCA and such an action may subject an individual or company to criminal penalties. FDA does not require a warning label on cosmetic products containing formaldehyde, formalin, methlyene glycol, or related chemicals. However, FDA is authorized to conduct rulemaking to require a warning statement on cosmetic products with such ingredients. FDA regulations provide that "[t]he label of a cosmetic product shall bear a warning statement whenever necessary or appropriate to prevent a health hazard that may be associated with the product." FDA may take enforcement actions against adulterated or misbranded cosmetic products, such as cosmetic products with misleading labels. Labeling must be deemed to be misleading if it does not reveal material facts "in light of other representations made or suggested by statement, [or] word." FDA has indicated that the omission of material facts on the labeling of keratin hair treatment products—i.e. labeling these products "formaldehyde-free" when they in fact contain formaldehyde—could make such products misbranded under the FFDCA. In August 2011, FDA issued a warning letter to the CEO of Brazilian Blowout, noting that the product was both adulterated and misbranded under the FFDCA. FDA asserted that the product was adulterated because the cosmetic "bears or contains a deleterious substance [methylene glycol] that may render it injurious to users under the conditions of use prescribed in your labeling." Additionally, FDA stated that the product was misbranded because "its label and labeling (including instructions for use) makes misleading statements regarding the product's ingredients and fails to reveal material facts with respect to consequences that may result from the use of the product." FDA advised the CEO to take corrective actions or face potential enforcement actions, including seizures and injunctions, and emphasized that manufacturers have a duty to ensure the products they market are safe and in compliance with FDA requirements. Depending on how "formaldehyde free" hair keratin products have been advertised, the Federal Trade Commission also may be authorized to initiate an action for deceptive advertising. Action by state attorneys general may also be possible. The California Attorney General's office filed a lawsuit against one company for labeling violations, deceptive advertising, and violations of state cosmetics and toxics acts. The lawsuit resulted in a settlement with the manufacturer requiring a "CAUTION" warning on two of its products (including a California Proposition 65 cancer warning); the production of a Material Safety Data Sheet and its posting on the company's website; the end of deceptive advertising, including modifications to the company's website; retesting of products at approved laboratories; reporting to the California Department of Public Health Safe Cosmetics Program; the disclosure of refund policies; proof of professional licensing before sale of professional use only products; civil penalties; and attorneys fees. As discussed earlier in this report, FDA does not have the authority to require premarket approval or premarket review of cosmetic ingredients or cosmetic products, except for color additives. Additionally, FDA cannot mandate that a company recall a product that may violate the FFDCA or FPLA, but the agency can request that a manufacturer voluntarily recall a cosmetic product. Nor does the agency have the authority to mandate adverse event reports for interactions that consumers experience from the use of a company's products. However, as indicated earlier, FDA has encouraged consumer reporting of adverse events associated with cosmetics. The agency's website discusses complaints regarding the use of Brazilian Blowout and other hair smoothing products and urges consumers and salon professionals to report adverse events to FDA. Finally, FDA cannot require professional use cosmetic products, such as Brazilian Blowout, to list their ingredients if they are not "consumer commodities"—products produced or distributed for retail sale—under the FPLA. However, if a cosmetic product was labeled "for professional use only" but sold at retail, the ingredients must be listed, or the cosmetic will be considered to be misbranded. FDA stated in November 2010 that it was "investigating whether or not Brazilian Blowout is marketed directly to consumers. If so, failure to comply with the ingredient declaration requirement would constitute misbranding."

The 1938 Federal Food, Drug, and Cosmetic Act (FFDCA) granted the Food and Drug Administration (FDA) the authority to regulate cosmetic products and their ingredients. The statutory provisions of the FFDCA that address cosmetics include adulteration and misbranding provisions. In addition to the FFDCA, cosmetics are regulated under the Fair Packaging and Labeling Act (FPLA) and related regulations. The cosmetics provisions were amended by the Color Additive Amendments Act of 1960 and the Poison Prevention Packaging Act, but remain basically the same as the provisions in the 1938 FFDCA. FDA's authorities over cosmetic products include some of those applicable to other FDA-regulated products, such as food, drugs, medical devices, and tobacco. For example, FDA has the authority to take certain enforcement actions—such as seizures, injunctions, and criminal penalties—against adulterated or misbranded cosmetics. Additionally, as with drug and food companies, FDA may conduct inspections of cosmetic manufacturers and prohibit imports of cosmetics that violate the FFDCA. The agency also has issued rules restricting the use of ingredients that the agency has determined are poisonous or deleterious. However, FDA's authority over cosmetics is less comprehensive than its authority over other FDA-regulated products with regard to registration; testing; premarket notification, clearance, or approval; good manufacturing practices; mandatory risk labeling; adverse event reports; and recalls. For example, FDA does not impose registration requirements on cosmetic manufacturers. Rather, cosmetic manufacturers may decide to comply with voluntary FDA regulations on registration. With the exception of color additives, FDA does not require premarket notification, safety testing, review, or approval of the chemicals used in cosmetic products. Cosmetic manufacturers also are not required to use good manufacturing practices (GMP)—although FDA has released GMP guidelines for cosmetic manufacturers—nor required to file ingredient information with, or report adverse reactions to, the agency. Instead, under a voluntary FDA program, cosmetic manufacturers and packagers may report the ingredients used in their product formulations. FDA does not have the authority to require a manufacturer to recall a cosmetic product from the marketplace, although the agency has issued general regulations on voluntary recalls. The agency's ability to issue regulations on cosmetic products is limited by the agency's statutory authorities or lack thereof. As a result, cosmetics are arguably more self-regulated than other FDA-regulated products. The manner in which a cosmetic product could or should be regulated, however, is not always clear. FDA's guidelines have provided the cosmetic industry with considerable flexibility for product development and claims. The question remains as to whether that flexibility and the extent of government oversight of cosmetic products are still appropriate.

The Situation Before September 11, 2001 Even before the current crisis, Afghanistan had suffered twenty-two years of war, which included a long Sovietoccupation,followed by civil war, and, beginning in 1996, harsh Taliban rule in most of the country. (1) With a devastated infrastructureand minimal government and social services, even basic health care and education were almost nonexistent. TheTalibanleadership focused available resources largely on maintaining internal security and seeking to eliminate the lastpockets ofethnic minority opposition in the North and Northeast. During this internal conflict, the Taliban placed restrictionsonwomen working outside the home, further aggravating levels of poverty. These factors, in combination with aseveredrought over the last three years, produced enormous human suffering in Afghanistan. As of September 10, 2001, according to UNHCR, nearly four million Afghans (out of a total population of about 26million) were refugees - two million in Pakistan, one and a half million in Iran, as well as others in Russia, India,theCentral Asian Republics, Europe, and elsewhere. In addition, as of September 10th, nearly one million otherAfghans wereinternally displaced persons (IDPs) uprooted by drought and conflict. (2) Atthat time U.N. agencies were searching for waysto help five million of the most vulnerable Afghans, i.e., those in critical need of food and shelter. For IDPs thismeantproviding assistance close to where they lived to help them return to their own homes. United Nations (U.N.) agencies, working in coordination with the U.N. Assistance Mission in Afghanistan (UNAMA) andU.N. Organization for Coordination of Humanitarian Affairs (OCHA), include the U.N. High Commissioner forRefugees(UNHCR), U.N. Development Program (UNDP), U.N. Children's Fund (UNICEF), World Food Program (WFP),U.N.Food and Agriculture Organization (FAO), and U.N. Mine Action Service (UNMAS). International organizationssuch asthe International Committee of the Red Cross (ICRC), and numerous international nongovernmental organizations(NGOs)such as Oxfam and Save the Children have also provided relief inside Afghanistan and in refugee camps inneighboringcountries. (3) The United States has been the largest provider of humanitarian assistance to the people of Afghanistan through itscontributions to the UNHCR, other agencies, and NGOs. From 1994 until just recently, the United States did nothave aUnited States Agency for International Development (USAID) mission in Afghanistan. (4) U.S. aid was provided mainlythrough U.N. agencies and NGOs. Via the WFP, the United States provided more than 80% of all food shipmentstoAfghanistan during the last fiscal year and more than 47% this year. (5) Key Developments Since September 11, 2001 The humanitarian situation deteriorated even further following the September 11, 2001 terrorist attacks in theUnitedStates. The U.S.-led campaign in Afghanistan against the Taliban and Al Qaeda, "Operation Enduring Freedom,"beganon October 7, 2001. Within two months, by early December, many of the Taliban strongholds had collapsed. Fearsofgetting caught up in U.S. attacks against the Taliban triggered Afghan population flights from major cities bothtowardrural areas and the country's borders with Iran and Pakistan, despite the risk posed by land mines and unexplodedmunitions. Although some humanitarian efforts continued during the height of the anti-Taliban war, mostinternationalrelief staff also left, making the provision of assistance more complicated. Still, food relief efforts can be creditedwithpreventing a widely-feared famine last winter. Political Framework The Bonn Conference and Interim Government. An interim governmentwas formed on December 22, 2001 following a meeting in Bonn, Germany. Led by Hamid Karzai, a Pashtun leader,thenew Afghan Interim Administration (AIA) presided over the beginnings of transition to recovery and reconstruction.Itruled for nearly six months before the Afghan lloya jirga , or grand assembly, took place in June. TheBonn Agreementalso outlined a basic three-year framework for establishing a functioning government and essential institutions inAfghanistan along with immediate security measures to be taken. The Lloya Jirga and Transitional Government. Former King Zahir Shahopened the emergency lloya jirga , which was attended by 1,550 delegates and which chose a newgovernment to runAfghanistan over the next two years until a new constitution is drafted and elections are held. The first phase of the lloyajirga process got underway on April 15 when several hundred tribal leaders gathered to select districtrepresentatives. ByJune each of Afghanistan's 381 districts had convened assemblies (shuras) to select district representatives. At the lloyajirga Karzai was chosen to lead the Islamic Transitional Government of Afghanistan (ITGA). The newcabinet had areduced Northern Alliance representation and established regional leaders as vice presidents. The former King doesnothold a formal position in the government. The lloya jirga concluded on June 19 without establishinga parliament. Plans for Security The International Security Assistance Force. As a result of the BonnConference a U.N. mandated International Security Assistance Force (ISAF) was installed in Afghanistan inDecemberwith 4,500 peacekeepers drawn from 19 countries. Until June it was led by the British (Operation Fingal). (6) Now underTurkish command, it continues to operate in Kabul and immediate surrounding areas. Its mission is to assist thenew ITGAwith the provision of security and stability in Kabul, dispose of mines and unexploded ordinance, and eventuallytrainsoldiers for an Afghan army. The Kabul airport is open for military flights. Separate from ISAF, the total numberof U.S.military personnel on the ground is roughly 7,000 with a focus on logistics, airlifts, and intelligence. U.S. troopsandpersonnel, along with the British and other coalition troops, are continuing the war effort against Taliban and AlQaedaremnants. The Afghan National Army. Part of the current security plan includes setting up an Afghan National Army (ANA) for border control and stability. Under consideration is the size of themulti-ethnic army (the latest numbers being discussed are 60,000-80,000), which armed forces would be involvedintraining, and how the ANA would work with the international forces already in place. As the first units are expectedtofinish training in 18 months, the provision of security in the interim is also under discussion. A Training Task Force(madeup of roughly 150 Special Forces troops plus any troops contributed by allied nations) has completed the initialtraining of600 Afghan enlisted soldiers and officers. It is anticipated that a total of 2,500 Afghans will be trained by the endof 2002. Apart from preparation for combat and border patrols, the Afghan forces would eventually be instructed on a setof morecomplex issues - respect for human rights, loyalty to government, and civilian-military affairs. (7) Meanwhile, UNDP issetting up a Police Trust Fund to begin making plans for a new national police force. Renewed Diplomatic Ties In addition to the United States, a number of countries have reopened their embassies in Kabul. Ambassador JamesDobbins was U.S. Envoy to the Northern Alliance from November 2001 to April 2002 and helped coordinatereconstruction efforts. The new U.S. Ambassador to Afghanistan is Robert Finn. The current Special Envoy toAfghanistanis NSC Senior Director for the Near East Zalmay Khalilzad. Ryan Crocker has been appointed Charge D'Affaires. TheU.N. Special Envoy is Algeria's former Foreign Minister Lakhadar Brahimi. The new Afghan government hasopened itsembassy in Washington with Ishag Shahryar as Ambassador. The Tokyo Reconstruction Conference The International Conference on Reconstruction Assistance to Afghanistan was held in Tokyo on January 21 and 22, 2002,and brought together the AIA and the international donor community with sixty-one countries and twenty-oneinternationalorganizations represented. This conference provided the means to focus on reconstruction assistance in Afghanistan(morebelow). Current Operating Environment The humanitarian needs and support required for a recovery in Afghanistan must be understood in the contextof thecontinuing vast numbers of refugees and IDPs, the variations among the regions in which they are located, and thepoliticaland security situation throughout the country. The collapsed infrastructure, rugged terrain, and extreme weather aresignificant factors with regard to access, food aid, logistics, and plans for reconstruction. With another winterapproaching,the current operating environment is complex with a number of urgent challenges. At a meeting in August, UNHCRCommissioner Lubbers and President Karzai both recognized the need now for stronger links between humanitarianandreconstruction projects so that Afghans can begin to move beyond initial reintegration to more permanentresettlement. Included in the next section are brief references to some recent initiatives under way. Security Situation Armed factions are continuing to feud in different parts of the country. The goals of these warlords and other elements areto try to seize local power and territory and maintain profits from drugs and smuggling. (8) Lack of security is a hugeproblem throughout the country. In Kabul, despite the protection of ISAF, there have been recent incidents ofviolencewhich only highlight the precarious atmosphere at this stage of the recovery. IDPs and refugees caught in this situation, particularly minorities, face dire choices. If they decide to leave, they becomevulnerable and homeless; if they stay, they risk harassment and violence. Reports of human rights abuses, rape,assault, andtheft come from different areas. There is great concern about the security of aid workers delivering food andemergencycare outside Kabul. Similar reports of theft and beatings have made drivers wary and highlighted the fragileenvironmentunder which humanitarian assistance is operating. Stolen food has reportedly been distributed to local residents andmilitary units. The security of the central government has become of critical concern. On July 6, 2002, assassins killed Haji AbdulQuadir, Vice President and Minister of Public Works in Afghanistan. On September 5, 2002, Afghan PresidentHamidKarzai narrowly escaped an attempted assassination. He had been under the protection of U.S. Special Forces sincethedeath of Haji Abdul Quadir in July. The Central Government Clearly related to security are questions concerning the effectiveness of the ITGA in administering the government,facilitating the implementation of recovery initiatives, and addressing broader concerns of security and terrorismthroughout Afghanistan. The ITGA faces threats to security from three potential directions. First, the country's lack of resources have encouraged a thriving drug trade. Before the Taliban, Afghanistan's majorexport was opium. It produced 75% of the world supply. Under the Taliban, which enforced a ban on opiumcultivation in1999, according to some estimates, opium poppy cultivation dropped from 3,000 tons to 200 tons. However, thesenumbers are deceiving. It is believed that drugs continued to be a lucrative source of income both for the Talibanand theiropponents because large stockpiles built up under Taliban rule, which may well have been intended for the worldmarket,were held back as supply exceeded demand and caused a depression in price. Indeed, this spring may see the largestpoppycrop in recent years. Controlling the drug trade is a huge challenge in a country with few other resources and thepotentialfor profits from heroin on the world market. While the Karzai-led interim government has ordered a ban on theproduction,use, and trafficking of all drugs, the government has little or no power of enforcement. Sources report a recent increase incultivation linked to lawlessness and banditry on the one hand, and the great need among farmers for some formoflivelihood on the other. Second, former combatants can have a direct impact on humanitarian assistance and recovery efforts. If local struggles forpower prevent, delay, or interrupt refugee and IDP returns, this will severely hamper any recovery efforts. Third,Afghanistan's neighbors - Pakistan, Iran, and Uzbekistan - can also play key roles, depending on whether or not theyprovide support to these local contenders for power. Population Movements Population movements continue in and out of and within Afghanistan. It is estimated that there are still 3 million refugees,mostly in Iran and Pakistan. The approximate number of IDPs remaining to date is roughly 750,000. The totalnumber ofpeople requiring relocation assistance is therefore still considerable. In coordination with government initiatives,UNHCR set up voluntary return programs for refugees. Tripartite Agreements on repatriation between UNHCR,Afghanistan, and the governments of Pakistan and Iran, respectively, outline the framework for the voluntary returnofAfghan refugees. UNHCR reports that since March 1, more than 1.8 million Afghan refugees have repatriatedmainly fromPakistan with some refugees (185,000) returning from Iran. Approximately 10,000 refugees from Tajikistan andTurkmenistan have also been assisted in their return. This is double the number expected by UNHCR and expectedtoclimb to 2 million by year's end. Another 230,000 IDPs have returned to their homes with the assistance of theInternational Organization for Migration (IOM). The numbers of remaining refugees and IDPs is approximate because there is no formal registration process until they seekassistance for their return Some date back to previous wars; others are part of the latest wave. There is some"recycling" ofrefugees-those who repeatedly cross borders for economic and family reasons, flee because of crime and fighting,ormigrate because of lack of food. With no sustainable livelihood, many of these refugees are forced to seekassistance eitherwithin Afghanistan or outside its borders. There is some concern that the budget constraints UNHCR is facing(already ithas had to reduce its welcome home package) may mean inadequate levels of assistance followed by an increasein refugeescrossing back into Pakistan and Iran, repeat migration of former IDPs, or an increase in urban refugees. There isparticularconcern about the conditions within Kabul for recent arrivals choosing to resettle there and the impact on overallstabilityand security. (9) Although the rate of return is much higher than expected, it will probably take several years for resettlement to becompleted, security permitting. Depending upon what takes place in Afghanistan, the organizations coordinatingaid toAfghanistan and the international community may be forced to further accelerate the timetable for repatriation ofrefugeesand return of IDPs or face a reduced return rate. Longer-term care in refugee camps and other measures may berequired toallow for recovery to take hold while providing life-saving measures in the form of food, security, shelter, and basicmedical care. Winter Preparation According to USAID, the ITGA Afghan Assistance Coordination Authority (AACA) and the ITGA Ministry for RuralReconstruction and Development (MRRD) in coordination with the U.N. Joint Logistics Center (UNJLC), U.N.agencies,and NGOs, is putting together a humanitarian assistance strategy in preparation for winter. The two-prongedapproach isdesigned to address urban issues as they affect refugees and IDPs and rural winter access issues. These discussionshaveincluded prepositioning of food and non-food supplies in inaccessible areas and a road clearance strategy. In Kabul,U.N.Habitat is conducting a survey of damaged homes to determine approximately how many families might needwinterizationassistance. Food Security Afghanistan has had three years of drought, although there have been periods of precipitation in different parts of thecountry. A USAID-funded assessment indicates that the drought can be expected to last another 12-18 months.Shiftingweather patterns cause mini natural disasters and reduce access to certain areas, caused housing problems at somesheltersand camps, and increase assistance and protection needs. The weather, like the terrain, is varied and harsh andcreates"pockets of need" which are difficult to reach by relief agencies. Food insecurity is likely to continue in many parts of Afghanistan. This in turn may contribute to existing ethnic tensionsand encourage further population movements within Afghanistan or across its borders. The U.S. strategy is to move as much food as possible into villages where people reside. In order to avoid diversion andtheft of commodities, most food has been stored in bordering countries and moved into Afghanistan by variousmeans,including trucks, pack animals, and airdrops. Free distribution and food-for-work programs direct the efforts ofable-bodied recipients into community development projects. The WFP has conducted rapid helicopter deliveriesin highlyinaccessible areas. Over six million people will continue to require targeted food assistance. The WFP says it isexpectingbreaks in its cereal pipeline this autumn and based on the current level of donor contributions, cereals may beunavailableafter December. Prepositioning food stocks is a critical part of preparing for winter. USAID reports that there is enough improved wheat seed for the fall planting season. Lack of water is the most formidableobstacle to food production; lack of fertilizer is also a contributing factor. The FAO and WFP report that 2002 cropyieldswere increased by 82 percent over last year. The impact of drought and loss of productive assets combined withhuge debtand no source of livelihood continue to make food security a high priority. Environment and Infrastructure Afghanistan's environment has also been severely compromised by the war and drought, which has had direct bearing notonly on the planting season, livestock production, and agricultural recovery, but more short-term concerns as well. Aninadequate supply of water has an impact on basic human needs, such as health, consumption, and shelter (buildingbrickhouses requires water). Dried-up wells, poor irrigation practices, and lack of overall water management systemsare criticalfactors. Water shortages are a huge problem as there is not enough water for returnees. Deforestation, lack ofenergy, andpoor infrastructure, including roads and bridges, are also significant factors that present formidable obstacles toreconstruction. The rebuilding of roads, so critical to reconstruction, is now underway. Other projects such as thedrillingof wells, the constructing and repairing of irrigation and water-supply systems, and the repair and maintenance ofwaterpumping systems are also being initiated. The U.N. Environment Program (UNEP) recently began a survey of environmental damage throughout Afghanistan. TheUNEP Afghanistan Task Force has put together five teams of scientists and experts who will conduct a fact-findingmissionover the next several months. Their mission is to assess the impact of 30 years of conflict on the environment. Thenews isnot encouraging. It is estimated that Afghanistan has lost 30 percent of its forests since 1979 and that its rangelands,watershed, and agricultural areas have also been seriously compromised by "military activities, refugee movements,theoverexploitation of natural resources, and a lack of management and institutional capacity." (10) Less than 1 percent of theland is protected. Three years of drought have only further exacerbated these problems. The rebuilding of Afghanistan will have to include the clean up of contaminated sites, sustainable rural development andmanagement of natural resources, and the revival of wildlife and ecosystems. Protection of the environment willimproveliving conditions for the Afghan people and enhance job creation. In the longer term, the UNEP Afghanistan TaskForceplans to determine management strategies, build local capacity through projects and training, develop an institutionalframework, and improve compliance with international environmental agreements. Almost every basic humanitarian need has an environmental component that will continue to be important for theforeseeable future and will require careful planning in the transition to reconstruction. For example, the restorationofelectric power either could involve rebuilding conventional, dirty diesel and oil power plants or constructingdistributed,clean micro turbines to provide electricity and heat, and the development of wind and solar energy. The provisionof cleanwater could be improved with the reconstruction of wells, development of efficient irrigation systems, andmonitoring ofwater quality. Innovative sanitation and waste treatment facilities could be designed to reduce risks to human healthandultimately destruction to the environment. Land Mines Land mines remain a huge problem throughout Afghanistan. Afghanistan is believed to have one of the worst mine andunexploded ordnance problems in the world, with 5-7 million still littered about the country. The Land MineMonitorestimates that of 724 million square meters of contaminated land, over half, 344 million square meters is classifiedashigh-priority land for agriculture. With over 80% of the Afghan population relying on agriculture for its livelihood,this isa substantial obstacle not only to refugee and IDP returns, but to the basic recovery and reconstruction plans as well. The ITGA acceded to the Ottawa Convention, which bans landmines, on July 29. As part of the effort to bring attention tothe issue, mine awareness sessions are being added to the education curriculum and being conducted within IDPcamps atborder crossing points. Health Sector The WHO, UNICEF, regional health officials, health-related U.N. agencies, and key NGOs are assisting the AfghanMinistry of Health and discussing ways to rebuild the almost non-existent public health services. According toUSAID,Afghanistan's public health facilities cover roughly 12% of what is needed. The system ranks 173rdworldwide. (11) Issuesto be covered range from the provision of quality health care, increasing the supply of pharmaceuticals, to healthcareaccess for millions of Afghans. A meeting in March outlined an agenda for reconstruction of the health sector. There havebeen reports of outbreaks of influenza, scurvy, and malaria in several parts of Afghanistan. Tuberculosis is alsoconsideredto be a growing problem. Significant health impacts which are symptoms of much larger problems include heroinaddiction and landmine injuries. The Afghan Ministry of Public Health, WHO, and UNICEF conducted a polioimmunization campaign in early September for nearly six million children under the age of five. In preparation forwinter,WHO plans to provide supplies to government clinics in the Central area that are not receiving NGO support. WHOwillalso initiate mobile health services. For children and infants, particular attention will be paid to Acute RespiratoryInfection. Education and Community Development The education system, particularly for women and girls, requires a great deal of assistance if schools are to function witheven the most basic infrastructure and tools in the upcoming school year. The University of Nebraska-Omaha (UNO)Center for Afghan Studies, working with USAID, published over 10.6 million textbooks for Afghan students bymid-April2002. Children have returned to school, despite very poor conditions in many of the schools. The emphasis onrevampingthe educational system paid particular attention to the role of women and girls, as teachers and students respectively. UNO's project, America's Rapid Response to Education needs in Afghanistan (ARRENA) project supports educationalcapacity-building, teacher training, primary, secondary and vocational education in Afghanistan. (12) Other projects areunderway to rebuild schools. An assessment is being conducted by USAID's Office of Transition Initiatives (OTI)todesign a strategy for building political stability, particularly through community-based programming. Income generationthrough "food for work" and "cash for work" programs are viewed as important mechanisms for Afghans to increasetheirincome and meet daily food requirements, while making a start on reestablishing themselves within the community. In addition, through the International Organization for Migration (IOM) the Afghanistan Emergency Information Projectprovides a daily humanitarian information bulletin for radio broadcast. Up to 30,000 radios were distributed in thespringto vulnerable segments of the Afghan population. An agreement with Voice of America expanded the project'sregionalcapacity and increased its special broadcasts on important information pertaining to the relief effort. The International Response U.S. Humanitarian Assistance According to USAID, during FY2001 the U.S. government provided $184.3 million in humanitarian assistance toAfghanistan ranging from airlifts of tents and blankets to assistance with polio eradication, from tons of wheat tocropsubstitution assistance for poppy growers. On October 4, 2001, President Bush announced that the United Stateswouldprovide $320 million for FY2002 in U.S. humanitarian assistance to Afghans both inside and outside Afghanistan'sborders. Multiple U.S. agencies are providing some form of humanitarian assistance, including USAID/Office ofForeignDisaster Assistance (OFDA), USAID/Food For Peace (FFP), Democracy & Governance (USAID/DG), UnitedStatesDepartment of Agriculture (USDA), Department of State's Bureau of Population, Refugees, and Migration(State/PRM),Department of State's Demining Program, the Department of State's Bureau of International Narcotics and LawEnforcement Affairs (State/INL), the Centers for Disease Control and Prevention (CDC), and the Department ofDefense(DOD). U.S. humanitarian assistance covers a wide variety of aid, services, and projects. As of mid-September, the United Stateshas provided over $509 million in FY2002 Afghan humanitarian assistance directly through government agenciesor as a result of grants to international organizations and NGOs, which goes well beyond the original commitment of $320million. (13) Through the Afghan Interim Authority Fund coordinated by UNDP, donor support is being provided directly to theoperations and activities of the ITGA. Humanitarian assistance from other countries has also been forthcomingsinceOctober 2001. In May 2002 the World Bank resumed its operations in Afghanistan. While exact figures are difficulttoascertain, both bilateral and multilateral donors have made contributions toward immediate and transitionalassistanceprograms. (14) Transitional Assistance and Reconstruction International Conference on Reconstruction. UNDP and World Bankofficials estimate that the reconstruction of Afghanistan will require $1.7 billion in the first year, $10 billion over5 years,and $15 billion in the next decade. Others argue these numbers may be low, and put the overall cost at closer to $30billion. The International Conference on Reconstruction Assistance to Afghanistan held in Tokyo on January 21 and 22, 2002 (15) gave the then AIA a chance to demonstrate its commitment to the next phase of Afghanistan's recovery and theinternational donor community an opportunity to come together and formally demonstrate support for this initiative. Thesixty-one countries and twenty-one international organizations represented pledged $1.8 billion for 2002. The U.S.government alone pledged $297 million. The cumulative total was $4.5 billion, with some states making pledgesover multiple years and commitments of different time frames. Some countries offered support in kind but with nomonetaryvalue. See table below. Table 1. Pledges from the Tokyo Reconstruction Conference (U.S. $ - millions) Source: The New York Times , January 22, 2002. The U.S. contribution is just under 25%, about on par with the U.S. share of funding in the United Nations and the WorldBank. (16) The United States hopes that other nations will carry a greaterportion of the costs for reconstruction andpeacekeeping since it has paid for most of the military campaign against the Taliban and Al Qaeda. By comparison,the EUpledged the euro equivalent of $495 million for 2002, which comes to nearly 30% of the assessed need and amountpledgedat the conference. Within this pledge the European Commission also approved an Initial Recovery Program forAfghanistan. There have been some reports that Afghanistan officials have complained about the slow pace at which pledged funds werebeing paid. In a similar vein, the United States has been critical of some its allies, in particular the Europeans, fornotmeeting their "fair share" of the cost of recovery and for not doing enough on a multilateral level. On the one hand,determining the "fair share" of the costs of reconstruction for any one country or group of countries varies fromconflict toconflict and depends in part on the resources being spent on conflicts elsewhere. On the other hand, the way inwhichfunds are distributed - be it multilaterally through U.N. agencies or bilaterally with funds supporting internationalorganizations and NGOs directly - appears to be at issue in Afghanistan. One argument is that since greaterprotection isgiven to refugees and IDPs under the mandate of the UNHCR (as opposed to a specific NGO) donors should givemultilaterally. U.S. Reconstruction Assistance. The U.S. pledge to assist the people ofAfghanistan in 2002 is broken down as follows: Table 2. U.S. Programs to Assist the People of Afghanistan (U.S.$ - millions) Source: The U.S. Department of State, The White House, Office of the Press Secretary, January 28, 2002 All funds for the U.S. pledge of $297 were drawn from existing sources-either from the $40 billion Emergency TerrorismResponse supplemental ( P.L. 107-38 ) that was passed shortly after the September 11, 2001 attacks or from regularFY2002appropriations. The FY2002 supplemental provided additional funds. The U.S. allocation covers humanitarianneeds(food relief, refugee assistance) and transition-to-reconstruction initiatives (development assistance, communityprograms,quick impact projects). Assistance requirements cover a wide range of tasks due to the extreme conditions andcomplexityof the operating environment in Afghanistan. As such, these initiatives can be viewed along parallel, but integrated,tracksrather than the more usual progression over time from one stage to another. The new Afghan government has access to funds from other sources as well. According to the State Department, inJanuary 2002, a $50 million line of credit to finance U.S. projects was granted by the Overseas Private InvestmentCorporation. The Department of Labor will also make available $3 million to implement job programs. In addition to the $297 million in U.S. government funds, the United States has freed up assets frozen when the Talibanregime was in power, including $193 million of gold in the Federal Reserve Bank of New York and $24.9 millionin cash. The Afghan government also has access to an additional $49.3 million, including $25 million in other AfghanCentral Bankaccounts; $23 million held by the International Transport Association (for overflights of Afghanistan); and $1.3millionfrom Ariana Afghan Airlines. (18) In May 2002, President Bush grantedAfghanistan "Most Favored Nation" status. U.S. Legislation FY2002 Emergency Supplemental. Both the House and the Senateproposed higher aid levels for Afghanistan reconstruction and security funding than the President's $250 millionrequest. (19) The FY2002 Supplemental ( P.L. 107-206 , H.R. 4775 ) did not set a specific amount for Afghanistan, but itappears that amounts for economic and refugee aid are likely to be at least $54 million more than proposed, notincludingfunding for narcotics programs or military assistance. The legislation directs the executive branch to report onAfghanistansecurity and delivery of assistance within 30 days of enactment. The FY2002 supplemental assistance is in additionto the$297 million in FY2002 funding previously allocated. Appropriations for FY2003. No figures were provided in theAdministration's request for Afghanistan for FY2003, although the Administration has told Congress that its requestincluded about $140 million, $98 million of which would come from Foreign Operations appropriations accounts.TheSenate version of the FY2003 foreign aid appropriations ( S. 2779 , S.Rept. 107-219 ) recommends a slightlyhigher level, $157 million for Afghanistan, and the House version ( H.R. 5410 ) recommends almost doubletherequest, $295.5 million. On September 12, 2002, the Administration pledged an additional $80 million for road reconstruction, but did not identifywhere the funds would be found. The Afghanistan Freedom Support Act of 2002. In December 2001, H.R. 3427 , to provide assistance for the relief and reconstruction of Afghanistan, and for other purposes, wasreferred to the House International Relations Committee. The Afghanistan Freedom Support Act of 2002( H.R. 3994 ) would provide reconstruction aid to Afghanistan over four years. The bill focuses on creatingastable environment for Afghanistan, addressing such issues as counternarcotics, terrorism, and enforcement, thecoordination of U.S. efforts (given its multiple-agency involvement) and humanitarian and relief assistance. Thebill wasintroduced on March 14 by House International Relations Committee Chairman Henry Hyde and later co-sponsoredwithRanking Member Tom Lantos, and Middle East Subcommittee Chairman Benjamin Gilman and Ranking DemocratGaryAckerman. The Committee adopted three amendments and approved the bill by voice vote following markup onMarch 20,2002. On April 25, it was reported (Amended) by the Committee on International Relations ( H.Rept. 107-420 ) andplacedon the House Calendar (No. 250). On May 15, the Rules Committee resolution ( H.Res. 419 ) was agreed tointhe House. On May 21, the House passed H.R. 3994 by a vote of 407 to 4. The bill authorizes $1.15 billionfor the period FY2002-05 for reconstruction and military assistance for Afghanistan. A Senate version of the Afghanistan Freedom Support Act, S. 2712 , was introduced by Senator Chuck Hagelon July 9, 2002, and referred to the Senate Foreign Relations Committee. Senator Hagel offered a substituteamendment to S. 2712 . Three amendments were offered to the substitute. The Senate Foreign Relations Committee agreedby unanimous voice vote to order the bill reported, as amended on August 1. The amended bill includes a Sense ofCongress that calls for an expanded ISAF with an authorization of an additional $1 billion over two years. It also increasesthe authorization for recovery assistance to $2.5 billion over four years ($2 billion for humanitarian and economicassistance from FY2002-FY2005 and $500 million for an enterprise fund to encourage private sector developmentand jobcreation.) As with H.R. 3994 , the bill authorize $300 million in drawdown authority for military and securityassistance to Afghanistan and to certain other countries. "The intent of Congress is to authorize up to $3.8 billion[overfour years] in new money and not to draw money from a static pool of international aid." (20) The main differences between the two versions appear to be in the amount and time frame of funds authorized; issues ofstatutory authority and congressional notification; specific programmatic difference in matters such as militarydrawdownauthority, funds for an enterprise fund, and eligibility for assistance (foreign countries and internationalorganizations);scope and size of U.S. participation in the ISAF; and requirements with respect to U.S. personnel involvement in poppy cultivation in Afghanistan. Issues and Questions for Congress Security If reconstruction is to be a success, most observers believe it must occur in a secure environment without threat to the newgovernment and initiatives on the ground. As U.S. troops make headway on finishing the Afghan phase of the war,thereare many questions about ensuring a secure environment for reconstruction. Extending past Kabul for reasons ofsecurity,aid distribution, and reconstruction initiatives, and the credibility of the ITGA is critical. Can peace occur withoutU.S.involvement in the peacekeeping effort? How involved will the U.S. troops be in assembling and training an Afghanarmy? What role should the United States play in drug enforcement and the war on terrorism inside Afghanistan? Many believe a peacekeeping force is essential and the United States must be part of such a force. Until recently, the BushAdministration has been adamant that it will not take part in a peacekeeping force in Afghanistan. However, theU.N. hascalled for more foreign troops to disarm various groups and control warlords. The recent upsurge in conflictsuggests thepossibility that the U.S. decision may be reconsidered. Under the current mandate, peacekeepers are in Kabul andhave noimpact outside the capital. Some argue that the ISAF is too small and too limited to be effective. Amid discussionaboutthe type of peacekeeping force required has been the question of how long peacekeepers will be required to stay. There remain the twin evils of drugs and terrorism, inextricably linked, but requiring different forms of intervention andenforcement. Moreover, in addition to cracking down on the problem itself, alternative forms of livelihood arecritical,such as crop substitution, community projects, and other programs to benefit those directly involved in theseactivities. Central Government Critical to Afghanistan's recovery in the short term and stability in the long term is the credibility and effective functioningof its government. Moreover, the ITGA is facing the critical need for economic revitalization, accounting andbankingmechanisms, and debt relief for the average Afghan. It must be able to pay regularly the salaries of its police, armyofficers,and public employees. It is crucial that it be able to extend its governmental institutions outside Kabul. What rolewill theUnited States continue to play in helping to build administrative capacity in the form of a national government andinstitutional development? What is the United States currently doing to help the Afghan government function andpreparefor its next phase? Oversight and Coordination of Aid Projects In order to keep the support of the international community, reconstruction efforts need to demonstrate the effective use offunds and their distribution. What is the United States doing to make sure aid is being spent wisely? What role istheUnited States playing to facilitate international collaboration on oversight and coordination of aid projects? Howis theUnited States coordinating its various agencies participating in reconstruction efforts? From coordination mechanisms to a system of accountability, future donations in Afghanistan depend on the way in whichcurrent funds are used and whether they reach those for whom they are intended. Although the work of the U.N.,international organizations, NGOs, and governments will be critical, the sheer number of actors on the ground createsomeconcerns about aid assistance and how projects will be managed and coordinated. Few rules exist about how donor money is to be spent. Moreover, the lack of experience by the ITGA coupled with itsmany competing priorities (not least of which is that a financial infrastructure is not yet in place), mean thatassistance andguidance on monetary matters (including agreements with lenders and contributions by donors) by the internationalcommunity remain critical. Recently, a new structure to manage the international assistance effort was put in place. The Program Secretariat Structure(PSS) is designed to replace the "Lead Agency" approach seen in other complex humanitarian emergencies. It ismeant tohold U.N. agencies and international organizations accountable within their sectors of responsibility. It is also partof abroader effort to include Afghan organizations in the recovery and reconstruction effort which will be important forthetransfer of responsibilities and capabilities in the future. A number of U.S. agencies are involved in the relief and recovery effort in Afghanistan. Important to the overall understanding of the U.S. role in Afghanistan are the coordination mechanisms in place for this wide range ofagencies inits day-to-day activities on the ground and in Washington and the ability to track overall spending by the USG. Evaluating Aid Priorities As nine months have passed since many of the Taliban stongholds collapsed and the international community began therelief and recovery effort in earnest, what does a report card on Afghanistan reveal? What are the most criticalobstacles tofurthering the goals of assistance and reconstruction? Has the international community's assessment of what it willtake forAfghanistan's recovery changed in terms of time and funding required? So far, there is little development-type aid in the U.S. pledge, although some is focused on quick impact programs,long-term agriculture, women and children, and education. Is it any clearer where the United States shouldconcentrate itsaid priorities and efforts? With what level and mix of assistance? Burdensharing There have been reports that the United States is providing more than its share of the multilateral relief and reconstructioneffort. The European allies, in particular, have been sited as not providing enough support, and even then, spendingtheirmoney directly through European NGOs. These organizations are usually outside the protection regime availablethroughmultilateral agencies such as the U.N. High Commissioner for Refugees. Why have foreign donors been slow tocome upwith the necessary funds? Is the problem related to bureaucracy in Europe or are there impediments in Afghanistanitselfthat make donors reluctant to give immediately? Women and Children The Taliban treatment of women and restrictions it imposed not only severely curtailed the work force, but reducedwomen's basic rights, education, and access to health. On December 12, 2001 Congress passed the Afghan WomenandChildren Relief Act of 2001 ( S. 1573 , P.L. 107-81 ) to address some of these concerns. A Ministry ofWomen's Affairs has been established within the ITGA. Schools reopened in Afghanistan in March 2002 and girlsreturnedto the classroom for the first time since the Taliban came to power. How much impact will this legislation have onreconstruction initiatives specifically focused on women and children? To what extent will their needs be a primarypointof focus in aid distribution and the recovery effort? What are the barriers to the implementation of women'sprojects? Collateral Damage Extensive press coverage from the bombing campaign in Afghanistan revealed that there have been a number of innocentvictims of erroneous U.S. bombings. While the hunt for the Taliban and Al Qaeda continues, the potential formistakentargets remains a risk. In recent months claims of erroneous bombing targets have raised the question of victimcompensation and U.S. responsibility and also highlighted the difficulty of intelligence gathering and securityproblems onthe ground. Although statutes and legislation exist to protect victims of war, these are typically worked out on acase-by-case basis. The issue is blurred by the recognition that the end result may not be a matter of simple humanerror,but rather a complex combination of factors for which it is more difficult to determine responsibility. Collateraldamage includes civilian losses, considered to be a by-product of war, despite efforts to minimize innocent civiliancasualties. Language in the FY2003 Senate Foreign Operations bill refers to Afghan civilians suffering injury from militaryoperationsand recommends assistance that is available under the Patrick Leahy War Victims Fund be used to provide"rehabilitationand related assistance." Should legislation be developed specifically for Afghan citizens who are victims ofcollateraldamage? How should individuals be compensated either for injury or death of a family member? Under whatcircumstances? Should a separate fund be made available to these victims and who should administer it? Table 3. International Security Assistance Force ParticipatingCountries as of July 31,2002 Source: UN Security Council, Monthly Report on the Operations of the ISAF, August 16, 2002.

For the past 22 years, Afghanistan has been embroiled in conflict. Humanitarian assistance programs have been a key partof the overall multilateral effort to relieve human suffering and assist refugees and internally displaced persons(IDPs). Since September 11, 2001, while actions are still being taken to eliminate Taliban and Al Qaeda forces and otherssupporting terrorism, the needs have only become more urgent. The case of Afghanistan may present a special category of crisis, in which the United States and others play a significantrole in the war on terrorism while simultaneously providing humanitarian and reconstruction assistance to theinnocentcivilians caught in the crossfire. Moreover, the conditions in Afghanistan represent a challenging mix ofinfrastructuredestruction, ongoing security concerns, and humanitarian needs requiring an immediate response. So far, theinternationalcommunity has recognized that large amounts of aid and resources will be required in the reconstruction effort. Inaddition,a long-term commitment will be necessary to ensure a stable, democratic Afghanistan emerges and will not fall preyto thetwin evils of drugs and terrorism. While continuing to hunt down Al Qaeda forces within Afghanistan, transitional and reconstruction assistance has alsomoved ahead. An examination of the progress of reconstruction efforts and aid priorities in the last year reveals thecomplexity of the tasks ahead and raises questions about the the long-term role to be played by the United States. Congress may continue to look at the contributions by and responsibilities of key allies partnering in the effortswithinAfghanistan. The current operating environment demonstrates ongoing challenges for the government and peopleofAfghanistan and for the international community, such as security issues, population movements, food security,environment and infrastructure, health, and education. While the international donors conference in January 2001indicateda strong willingness on the part of the international community to assist in the restoration of Afghanistan, it alsorevealedthe cost could amount to more than $15 billion over the next decade. A total of $1.8 billion was pledged for 2002,althoughsome pledges have not yet been fulfilled. The many moving parts of the war on terrorism coupled with the uncertainty of developments within Afghanistan makelong-term planning and exit strategies impossible at this stage. Still, of potential, immediate interest to Congressaresecurity concerns, support of the transitional administration, oversight and coordination of aid projects, and theplight ofwomen and children.

Introduction Recent mortgage repayment problems and subsequent increases in foreclosures have generated concern in Congress as to whether borrowers are taking out high interest loans that they cannot afford. There are at least four possible explanations why some borrowers receive higher-priced loans. First, borrowers with weak credit histories may face higher borrowing costs than borrowers with better credit histories if lenders require more compensation for taking on greater credit or default risks. Second, the actual costs of the mortgage may have been hidden or simply not transparent when borrowers entered into the lending transaction. Hidden costs can surprise a borrower and cause financial distress, which may lead to foreclosure. Third, borrowers may have entered into high cost loans as a result of discrimination. According to the Federal Reserve Board, minorities are still more likely to pay rates above specified pricing thresholds (prior to controlling for some related borrower characteristics). Fourth, recent mortgage repayment problems may reflect a rise in various forms of predatory lending. In short, borrowers may have obtained expensive mortgage loans for a variety of reasons, which may have resulted in recent repayment problems. Various legislation has been enacted to oversee lending practices in the mortgage market. The Home Mortgage Disclosure Act (HMDA) of 1975 requires the disclosure of mortgage loan information so regulators can monitor mortgage lending activity. In addition, the 1994 Home Ownership Equity Protection Act (HOEPA), enacted as an amendment to the Truth-In-Lending Act (TILA) of 1968, requires additional disclosures to consumers for high cost refinance and other non-purchase loans secured by their principal residences. The Real Estate Settlement Procedures Act (RESPA) of 1974 is designed to protect mortgage borrowers from paying excessive fees related to real estate transactions. RESPA requires standardized disclosures about the settlement or closing costs of residential mortgages. This report briefly describes the role of HMDA reporting for monitoring higher-priced lending activities, discusses policy issues, and summarizes recent regulatory decisions made by the Federal Reserve Board, the agency that implements these statutes. This report also discusses how HOEPA and federally insured mortgage loans may be affected by recent regulatory changes. Background on HMDA Reporting HMDA was enacted in 1975 to assist government regulators and the private sector with the monitoring of anti-discriminatory practices. HMDA is implemented by the Federal Reserve Board via Regulation C (12 CFR Part 203), and the public loan data set is available at the Federal Financial Institutions Examination Council's website. HMDA data is used to assist with the supervision and enforcement of fair lending compliance. The Office of the Comptroller of the Currency (OCC), for example, is a federal agency that uses the HMDA data to assist with its fair lending and Community Reinvestment Act (CRA) examinations of nationally chartered banks. Reporting Issues Prior to 2008 Redlining and Frequency of Rejection When HMDA was enacted, there was concern that less affluent and minority neighborhoods did not enjoy the same access to financial services as do other neighborhoods. Financial institutions allegedly accepted deposits but did not make mortgage loans in certain neighborhoods, and these lending practices were viewed as contributing to further neighborhood deterioration. HMDA required institutions covered under the law to report home mortgage originations by geographic area, financial institution type, borrower race, sex, income, and whether the loans were for home purchase or refinance. This information would show geographical patterns of mortgage originations and help regulators determine where further investigation of redlining, or geographical discrimination, was necessary. In 1989, Congress expanded HMDA to include the race, sex, and borrower income of those applicants that were rejected as well as those who were approved. This change allowed regulators to monitor the frequency that applicants from certain groups were denied mortgage loans relative to other groups. The HMDA data could then be used to track any differences in denial rates by income, race, and gender. Risk-Based Pricing Beginning in the 1990s, credit became increasingly available for less creditworthy borrowers. Instead of turning down loan requests for borrowers of lower credit quality, lenders began charging these borrowers higher interest rates to compensate for the additional risk. As a result, regulators monitoring discrimination began to show greater concern about the mortgage loan rates charged to different groups of borrowers. Congress expanded HMDA in 2002 to include rate-spread information. At the time, the rate-spread was defined as the difference between the annual percentage rate (APR), which is the annual total cost of a loan, and the rate on U.S. Treasury securities of comparable maturity. The flat mortgage interest rate was not chosen because, by definition, it contains only the cost of the principal loan amount expressed as a percentage. The APR, however, includes the cost of the principal loan amount, insurance, and other fees—all expressed as a percentage. The law requiring rate-spread information was implemented in 2004. Reporting Requirements and Coverage All home-secured mortgage loans do not get reported under HMDA, for at least three reasons. First, covered institutions, or those subject to HMDA reporting requirements, include only those banks, savings and loans, credit unions, and mortgage and consumer finance companies that meet thresholds regarding asset size or percentage of business related to housing-lending activity. Lenders that do not have offices in metropolitan statistical areas are also not required to report HMDA data. Second, Regulation C requires lenders to report only loans that meet certain rate-spread thresholds. The reporting thresholds for first mortgage loans had been those with a spread of 3 percentage points; for the second mortgage loans, the reporting threshold was 5 percentage points. Loans not meeting these rate-spread thresholds would not be reported. Third, home equity loans taken out for purposes other than home improvements or other home related purposes are not reported under HMDA. Given that only loans meeting statutory requirements are reported, HMDA currently covers approximately 80% of the national mortgage market. Difficulties Identifying High-Priced Lending Abuses The HMDA data, like all databases, has its caveats. When using the HMDA data to identify high-priced lending activity, understanding data limitations is important to correctly interpret the empirical findings. Key issues are presented below. Lack of Credit History Information The HMDA data has been criticized for not including more variables that could be used to either verify or rule out discrimination. An example of a relevant variable is borrower credit history information. Some borrowers pay more for their loans relative to others because they exhibit higher levels of credit risk. Having credit history information would be necessary to determine if observed pricing differentials reflect differences in financial risk or discrimination. Other useful variables include borrower characteristics, such as total assets and debts, and loan characteristics, such as the loan-to-value ratio. Given that HMDA data do not include all relevant information that bears on lender risk, the basis for individual lending decisions is portrayed incompletely. Lenders are not required to report every variable used to evaluate applicants because the HMDA data is released to the public, which could compromise the privacy of individuals holding reported loans. It is possible that public users of HMDA data would be able to match collected information with local records and determine the identity of individuals. Because federal regulator agencies can obtain loan data from financial institutions they wish to examine more closely, the reporting of all borrower information to HMDA is not necessary for those agencies that enforce fair lending and fair housing laws. Federal agencies also follow Interagency Fair Lending Examination Procedures, provided by the Federal Financial Institutions Examination Council (FFIEC), to evaluate unlawful discrimination in the prime market. These procedures include review of (1) sample bank loan files; (2) loan prices relative to compensation of brokers; (3) whether the institutions use pricing models that are empirically based and statistically sound; and (4) whether the disparities are substantial. Hence, even if more variables were collected, HMDA data are intended for use in targeting institutions for closer examination but not as the sole basis for enforcing anti-discrimination laws in individual cases. Reporting Problems with the APR With greater usage of complex non-traditional mortgage loan products, the APR may become increasingly difficult indicator to interpret. The APR tells nothing about balloon payments, prepayment options, or the length of term that an adjustable interest rate is locked. In addition, closing costs vary by state, which means local differences will always persist. Hence, the APR measure may provide little information about relative pricing, because the underlying loan products and terms vary substantially. Movements in Interest Rates Changes in short-term relative to long-term rates, also known as yield curve rotations, may affect loan reporting to HMDA. Given that mortgage loans are often priced on rates that better reflect the expected life-span of the loan (as opposed to rates that match the entire mortgage term), the HMDA data can reflect a duration-matching problem rather than a problem of excessive higher-priced lending. For example, borrowers often sell their homes or refinance into a new mortgage before their existing mortgage expires. Regulation C, however, had required the rate-spread calculation for 30-year (fixed or adjustable rate) mortgage loans to use the 30-year Treasury yield as the benchmark rate. Suppose Treasury market interest rates change so that shorter-term rates rise relative to longer-term rates. The rate-spreads calculations, which may have even been negative under a steeper yield curve, will increase and may become positive, potentially resulting in more loans meeting the HMDA thresholds. Consequently, such timing or duration mismatches captured by the rate-spread calculations, which increase when the differences in duration between APR and benchmark rates are large, could result in more 30-year fixed rate mortgages reported as HMDA rate-spread loans. Interest rate changes may also affect the reporting of higher-priced lending in particular if the proportion of adjustable-rate mortgages (ARMs) relative to fixed-rate mortgages increases. A flattening of the yield curve is likely to cause the rate-spreads on both fixed rate mortgages and ARMs to be similar in size. As a result, ARMs would have higher rate spreads relative to those computed under steeper yield curves, and there would be an increase in the number of ARMS reported as high-priced loans. Recent Modifications to Regulation C To address some concerns described above, the Federal Reserve has changed the benchmark rate used to calculate the rate-spread for reporting HMDA loans. The Federal Reserve proposes use of the average mortgage rates found in the Primary Mortgage Market Survey (PMMS) conducted by Freddie Mac as the benchmark rates for rate-spread calculations. The reporting thresholds for first mortgage loans will now be those with a spread equal to or greater than 1.5 percentage points; for the second mortgage loans, the reporting threshold will be equal to or greater than 3.5 percentage points. The use of an average prime mortgage rate, which the PMMS reports on a weekly basis, is likely to follow the rates of prime mortgage rates more closely than Treasury rates. Whenever the yield curve changes, a rate-spread computed as the difference between a mortgage rate and an average prime mortgage rate is likely to show less volatility than one computed as the difference between a mortgage rate and a Treasury rate. As a result of this regulatory change, it may become easier to attribute an observable increase in rate-spread reported loans to actual changes in lending practices, which ultimately is the objective for HMDA reporting. Implications for HOEPA Loans The 1994 Home Ownership Equity Protection Act (HOEPA) is an amendment to the Truth-In-Lending Act (TILA) of 1968. TILA requires lenders to disclose the cost of credit and repayment terms of all consumer loans before borrowers enter into any transactions. HOEPA imposes additional disclosure requirements for consumers obtaining high cost refinance and other non-purchase (closed-ended second) loans secured by their principal residences. A loan is considered to be a HOEPA loan if either the APR exceeds the rate of a comparable Treasury security by more than 8 percentage points on a first mortgage, 10 percentage points on a second mortgage, or if the consumer pays total points and fees exceeding the larger of $561 or 8% of the total loan amount. Should a loan satisfy any of these criteria, the borrower must be provided with disclosures three days before the loan is closed in addition to the three-day right of rescission generally required by TILA, which means a total of six days to decide whether or not to enter into the transaction. In 2002, revisions to Regulation C required lenders to report HOEPA loans in HMDA, and they must also identify such loans as being subject to HOEPA requirements. HOEPA, however, is implemented via Regulation Z (12 CFR Part 226, sections 31, 32, and 34). HOEPA has been extended to cover more loans. Since 2002, coverage has been extended by lowering the price trigger from 10 to the current 8 percentage points above a comparable Treasury security. The Federal Reserve Board has also amended Regulation Z to apply HOEPA rules to all mortgage lenders (and not just those supervised and examined by the Federal Reserve). The amended rule added four key protections. The first protection prohibits lenders from making loans based upon the home value without regard for the borrower's ability to repay the loan from income and assets. Second, verification of income and assets will be required for determining repayment ability. Third, higher-cost loans may not have prepayment penalties that last for more than two years, and prepayment penalties are not allowed for loans in which the monthly payment can change during the initial four years. Finally, escrow accounts for property taxes and homeowners' insurance must be established for all first lien mortgages. Additional protections covered in the rule are described in the Federal Reserve announcement. HOEPA loans may have been considered a subset of the larger set of HMDA loans when both rate spread calculations relied upon comparable U.S. Treasury securities for the benchmark rates. Now that the Federal Reserve has modified the benchmark rates used to compute HMDA rate spreads, HMDA and HOEPA rate spreads will be calculated under separate methods. The benchmark rate for computing HOEPA loans is defined by federal statute, and modification of the benchmark rate for HOEPA loans would be left for Congress to decide. Loans meeting the existing HOEPA thresholds may still simultaneously meet the newly adopted HMDA thresholds. HOEPA rate spreads, however, will now be more sensitive to Treasury yield curve movements than HMDA rate spreads. Implications for FHA-Insured Loans Mortgage insurance is usually required for borrowers lacking either a downpayment or home equity of at least 20% of the property value. Prime (or conventional) as well as subprime homebuyers may purchase private mortgage insurance. The Federal Housing Administration (FHA) is a federally operated mortgage insurance program that primarily serves first-time and less creditworthy borrowers. Should the borrower default on a FHA-insured mortgage loan obligation, the lender will be reimbursed for the loss. The FHA is a self-financing program under which premiums must be sufficient to cover its costs and expected losses. FHA fees are collected via an upfront premium charge when the loan is originated and an annual premium charge thereafter. After passage of the Housing and Economic Act of 2008, FHA received the statutory authority to charge up to 3% in its upfront premium and 0.55% annually. Consequently, the bulk of the total mortgage insurance premium must be collected upfront, and FHA has little flexibility to collect a larger portion of the insurance fees via the annual premium mechanism. FHA-insured mortgage loans, therefore, run the risk of hitting the 1.5% threshold of reportable HMDA rate-spread loans. The FHA upfront premium charges would likely be calculated in the APR of the mortgage loan, which would cause the rate-spread to be higher. The flexibility to shift how the FHA insurance fees are collected or, more specifically, to make greater use of the annual premium mechanism, arguably has at least three advantages. First, annual premium collections would reduce the risk of FHA loans being incorrectly identified as higher-priced loans under HMDA reporting requirements. Second, computing refunds or premium reductions via the annual premium may arguably be easier should FHA borrowers become eligible for rebates. Third, under certain circumstances, an annual premium mechanism may also reduce financial burdens on FHA borrowers. For example, borrowers planning to reside in their homes for a relatively short period of time would not incur additional interest costs due to financing large insurance premiums into their mortgage loans.

Recent developments in the subprime home loan market have triggered concern in Congress and the public at large as to whether borrowers were fully informed about the terms of their mortgage loans. Some observers have suggested that some borrowers in the subprime market may have been victims of predatory lending practices or other discriminatory activity. Bills introduced in the 110th Congress, such as S. 1299 (Senator Charles Schumer et al.) and S. 2452 (Senator Christopher Dodd et al.) would seek to remedy perceived abuses particularly with higher-priced mortgage lending. This report describes current issues and recent changes to the Home Mortgage Disclosure Act (HMDA) of 1975. Also included are brief explanations of how recent reporting revisions may affect the reporting of loans covered by the Home Ownership and Equity Protection Act of 1994 as well as those insured by the Federal Housing Administration.

Introduction This report provides information concerning EPA's Maximum Achievable Control Technology standards for boilers (the Boiler MACT), an EPA rule designed to reduce emissions of hazardous air pollutants, and three related rules. The related rules set standards for small boilers ("area sources") and boilers that use solid waste as fuel ("commercial and industrial solid waste incinerators"), and they identify what materials EPA considers to be solid waste. Because boilers are used as power sources throughout industry, and for power or heat by large commercial establishments and institutions, there has been widespread interest in the requirements of all four of these rules and their potential effects. On December 20, 2012, EPA finalized changes to the four rules, revising the standards that it had promulgated March 21, 2011. Owners and operators of affected boilers will have until 2016 to install equipment necessary to meet the new emission standards, with the possibility of an additional year if it is necessary. Under the March 2011 rules, major source boilers subject to the MACT rule would have faced a May 2014 deadline for compliance. On May 16, 2011, however, EPA announced that it was staying the effective dates of the Boiler MACT and one of the related rules, in order to take additional public comment and reconsider what it had promulgated, leaving in doubt both the final form of the rules and when the standards might go into effect. The federal District Court for the District of Columbia vacated the agency's stay on January 9, 2012, but the court's action had little effect, as EPA subsequently issued a "No Action Assurance Letter." The letter stated that the agency would exercise its enforcement discretion to not enforce certain notification deadlines in the March 2011 rule. The agency also proposed, in its reconsideration of the rules, to extend the effective date (and hence the required compliance date) of the Boiler MACT until three years after completion of the rules' reconsideration. In December 2012, the agency finalized that decision. Thus, when the agency publishes the reconsidered rules in the Federal Register , it will have added about two years to the deadline for emissions sources to comply. In addition, the preamble to the reconsidered rule notes that: ... the CAA allows title V permitting authorities to grant sources, on a case-by-case basis, extensions to the compliance time of up to one year if such time is needed for the installation of controls.... Permitting authorities are already familiar with, and in many cases have experience with, applying the 1-year extension authority under section 112(i)(4)(A) since the provision applies to all NESHAP [National Emission Standards for Hazardous Air Pollutants]. We believe that should the range of circumstances that commenters have cited as impeding sources' ability to install controls within three years materialize, then it is reasonable for permitting authorities to take those circumstances into consideration when evaluating a source's request for a 1-year extension, and where such applications prove to be well-founded, it is also reasonable for permitting authorities to make the 1-year extension available to applicants. Thus, the agency envisions up to a four-year compliance deadline if sources can demonstrate that extra time is needed for the installation of controls. Given the boiler rules' potential impacts, Congress has taken a strong interest in them. EPA estimates that, as finalized on December 20, 2012, the Boiler MACT will affect about 14,000 boilers and process heaters. In order to reduce emissions of a wide array of hazardous air pollutants, about 12% of the affected units would be required to install pollution control equipment. The 12% include coal-fired, biomass-fired, and liquid-fired boilers. The agency estimates the capital costs associated with the rule for existing boilers at $4.6 billion to meet the compliance deadline in 2016; annualized costs, which spread the costs of capital over the expected life of the equipment and include operating and maintenance costs as well, were estimated at $1.2 billion per year. These cost estimates are less than half the estimated cost of EPA's originally proposed version of the rule, for reasons that we will explore below. As shown in Table 2 , later in this report, most boilers—84% of those affected by the rule—are fueled by natural gas or similar gases such as refinery gas, according to EPA. These gas-powered boilers would incur capital costs averaging a little less than $6,500 per unit, according to the agency. Through fuel savings, the agency expects a reduction in operating costs to more than compensate for the capital expenditures of most gas-powered units. Why Is EPA Considering Regulating These Sources? EPA has developed regulations addressing boiler emissions because it has found, based on emissions data, that they are major sources of hazardous air pollutants (HAPs). Section 112 of the Clean Air Act, which requires controls on major sources of HAPs, defines a major source as any facility that emits 10 tons or more of a single listed HAP or 25 tons of any combination of HAPs annually. The HAPs themselves (187 substances) were listed by Congress in the 1990 Clean Air Act Amendments. Boilers emit at least 20 of the listed HAPs, including mercury, arsenic, chromium, cadmium, selenium, nickel, lead, manganese, phosphorous, antimony, beryllium, polycyclic organic matter, benzene, formaldehyde, acetaldehyde, dioxins, furans, hydrogen chloride, hydrogen cyanide, and hydrogen fluoride. Six of these 20 are classified as known or probable human carcinogens. Others affect the lungs, skin, central nervous system (including adverse developmental effects), and/or kidneys. By controlling boiler emissions, EPA expects to avoid 3,100 to 7,900 premature deaths annually, as well as many other health effects, including 5,000 nonfatal heart attacks annually. The Boiler MACT will replace a rule promulgated on September 13, 2004, and subsequently vacated and remanded to EPA by the D.C. Circuit Court of Appeals. The court vacated that rule in 2007, saying EPA had wrongly excluded many industrial boilers from the definition of solid waste incinerators, which have more stringent emissions requirements under the Clean Air Act. EPA was under a court order to finalize replacement rules by February 21, 2011. Meanwhile, boiler emissions have been subject to state standards, which are generally not as stringent as what EPA has proposed. Reconsideration of the 2011 Rule In early December 2010, the agency petitioned the District Court for the District of Columbia for up to 15 months of additional time to complete the rulemaking. The agency argued that in light of the extensive comments it received on the proposed rules, "EPA believes that the overall public interest is best served by allowing EPA to re-propose the rules so that [it] will be able to issue emission standards that are based upon a thorough consideration of all available data and reduce potential litigation risks." The court had issued a summary judgment against the agency in 2006 for failure to discharge fully its duty to promulgate standards for emissions of hazardous air pollutants. On March 31, 2006, the court imposed a schedule under which EPA was to have discharged all of the statutory duties at issue by June 15, 2009. That deadline was subsequently extended by more than a year and a half. On January 20, 2011, the court denied EPA's request for a further 15-month extension, concluding that EPA had engaged in discretionary delay in the face of a congressional directive (i.e., the 1990 Clean Air Act Amendments, under which the rules were to have been promulgated by November 2000); the court gave the agency one month to issue final rules. Having been denied the extension it sought, the agency issued a statement saying, "The standards will be significantly different than what EPA proposed…. The agency believes these changes still deserve further public review and comment and expects to solicit further comment through a reconsideration of the rules." True to its word, the agency issued a Notice of Reconsideration at the same time that it promulgated the final rule in March 2011. The notice listed 14 provisions for which the agency thought additional opportunity for public review and comment should be obtained, and it stated that the agency might seek public comment on other aspects of the rules. The 14 provisions included such basic elements as the subcategories used to set standards in the boiler rule, the emission standards themselves, and the monitoring requirements. This left numerous questions concerning not only the substance of the rule, but the schedule for implementation. Following promulgation, existing facilities would normally have three years to comply with the standards, but since the agency was reconsidering key aspects of the rules, one was left to wonder how regulated entities should determine what standards they would ultimately be required to comply with, and on what schedule. By staying the effective date of the standards on May 16, 2011, the agency addressed this uncertainty, effectively giving itself and regulated entities an extension of time that the court had denied them. In the end, the agency added almost two years to its deliberation process before finalizing the reconsidered rules in December 2012. The Re-Promulgated Standards Emission Standards for Existing Units In order to understand the standards that EPA finalized in December 2012 and the controversy surrounding them, it helps to begin with the agency's June 4, 2010, proposal (which we refer to, generally, in this report as the standards EPA "originally" proposed). In that proposal, EPA divided boilers into 11 subcategories, with separate emission limits for new and existing units in 9 of the 11. The nine subcategories included three types of coal-fired boilers and four types of biomass-fired boilers. The proposed emission limits covered five substances (or groups of substances): mercury; dioxins/furans; particulate matter (as a surrogate for non-mercury metals); hydrogen chloride (as a surrogate for all acid gases); and carbon monoxide (as a surrogate for non-dioxin organic air toxics, including formaldehyde). As explained below, EPA has now replaced the emission standards for dioxins/furans with a work practice standard; thus, the final emission standards only address four groups of pollutants. The Clean Air Act requires that MACT emission standards be based on the emission control achieved by the best controlled similar sources. Thus, the emission limits originally proposed for the five groups of pollutants were based on monitoring data obtained from facilities in each of the nine subcategories of existing boilers. For new sources, the statute requires (in §112(d)(3)) that standards be based on the emission control achieved by the best controlled similar source. For existing sources, on the other hand, the same subsection of the statute requires standards no less stringent than the average emission limitation achieved by the best performing 12% of existing sources. The performance of the best 12% is generally referred to as the "MACT floor," since it sets the minimum requirements for MACT standards. The MACT floor is based solely on the performance of existing facilities in the category or subcategory of sources, with no consideration of the cost or economic impacts thereof. The Administrator is only allowed to take costs, health, energy, and environmental factors into consideration to the extent that she considers setting standards that go beyond the floor. Given the statutorily required methodology for identifying the MACT floor, the number of subcategories the agency identifies is an important factor in determining how stringent the standards will be: the more subcategories EPA identifies, the more variation there will be in the MACT floor for each, and thus the more flexibility the agency will have in setting different, potentially less stringent emission standards for different boiler types. If, because of subcategorization, the Administrator decided that a subcategory's MACT floor did not provide sufficient protection for human health or the environment, she would still have the authority to set "beyond the floor" standards for a subcategory: in doing so, however, she could consider the cost of the standards and other factors. Thus, one issue raised by commenters on the proposed rule was whether EPA's subcategorization of the boiler universe appropriately considered the differences in size, fuels, boiler design, location, etc., or whether the subcategories should be modified from those originally proposed. In the reconsidered rule, EPA responded to the comments it received by modifying its subcategories. Instead of 11 types of boiler, the final rule identified 19, including four types of coal-fired units, seven biomass subcategories, and three subcategories of liquid-fueled boilers. Based on new data provided by industry and on some corrections to the data it had used earlier, the emission standards for almost every subcategory have been modified. The net effect of all these changes is a substantial easing of the originally proposed standards' stringency. As shown in Table 1 , existing coal-fired boilers will be allowed to emit 100% more particulate matter (PM), 10% more hydrogen chloride (HCl), 90% more mercury, and 44% to 350% more carbon monoxide than would have been allowed by the original June 2010 proposal. The increase in allowable emissions is even greater for most of the pollutants emitted by existing biomass units: they will be allowed to emit more than triple the HCl, six times the mercury, and as much as 22 times the PM that would have been allowed under the originally proposed standards. The standards for liquid-fueled units also changed, allowing six times as much mercury and at least 130 times the carbon monoxide. Of the changes provided by the reconsidered standards, the dioxin/furan standards may be the most significant. EPA determined that the dioxin limits in the March 2011 standards had been set below levels that could be accurately measured. As a result, the agency replaced the numeric emission limits that it had set in March 2011 with work practice standards: the latter will require an annual tune up of the boiler to ensure good combustion, which EPA believes will ensure minimal dioxin emissions without requiring emissions monitoring. A second issue raised by critics of the agency's original proposal had to do with the way that EPA identified the best performers within the subcategories. As it has done previously for other categories of sources, EPA has averaged the emissions performance of the top 12% of existing units separately for each of the four pollutants subject to emission limits. Critics who believed the proposed standards were too stringent argued that by considering the pollutants separately, the agency was, in effect, cherry-picking the best performers and setting a combined standard for the pollutants that no existing facility may actually meet. This question—whether one identifies the best-performing sources pollutant-by-pollutant or for all the pollutants as a group—was addressed in regard to another standard, the Hospital/Medical/Infectious Waste Incinerator rule, which EPA promulgated in October 2009. In promulgating that rule, the agency stated: There is no reason not to consider emissions data and controls in use at sources that may be the best performers from some pollutants but not for other pollutants. The MACT floor controls applicable for one pollutant do not preclude the use of MACT floor controls for another pollutant. Therefore, it is appropriate to consider controls at sources employing MACT controls for some pollutants, but not all. EPA acknowledged in the preamble to that rule that "there appears … to be a substantial ambiguity in the statutory language about whether the MACT floor is to be based on the performance of an entire source or on the performance achieved in controlling particular hazardous air pollutants." But the agency noted that commenters in the past have not objected to the use of the pollutant-by-pollutant approach. They also noted that the D.C. Circuit Court of Appeals has reviewed MACT floor determinations made on a pollutant-by-pollutant basis without finding error in the approach. Thus, the agency believes the best reading of the act is that the standards are to be set on a pollutant-by-pollutant basis—the only exception being if there is reason to believe that control of one pollutant will lead to increased emissions of another. In the preamble to the March 2011 Boiler MACT standards, EPA provided a similar discussion, concluding that, although the language of Section 112(d)(3) is ambiguous, "EPA's HAP-by-HAP approach fulfills the evident statutory purpose and is supported by the most pertinent legislative history." The agency did not reconsider this aspect of its standard-setting process. The reconsidered standards, although modified, still embody a pollutant-by-pollutant approach. Work Practice Standards for Existing Units In the final reconsidered rules, three subcategories are not subject to emission limits. Most of these units are natural gas/refinery gas/clean gas units (a subcategory that EPA calls Gas 1). For these, the agency set only a work practice standard, requiring that the boilers be tuned up periodically and that the owners submit reports to EPA setting forth specific information from the tune-up procedure. The Administrator has authority to substitute a work practice standard for emission standards when, in her judgment, it is not feasible to prescribe or enforce an emission standard. As noted earlier, 84% of existing boilers fall into the natural gas/refinery gas/other clean gas subcategory, and thus are only subject to the tune-up requirements. Work practice standards (in lieu of emission standards) were also established for limited use boilers. Limited use boilers are defined as units that have an enforceable average annual capacity factor of no more than 10%. All boilers are also required to perform a one-time energy assessment to identify cost-effective energy conservation measures. Standards for New Boilers EPA also promulgated MACT standards for new (as opposed to existing) major source boilers. These standards are, in most cases, more stringent than the standards for existing units. The agency assumes that no new coal-fired major source boilers (and very few major source boilers of any kind) will be built in the next three years. The agency has stated that the projected type and number of new boilers comes from the Energy Information Administration at the Department of Energy and is not based on the Boiler MACT. Of the estimated 1,844 new units, the agency expects 1,762 to be powered by natural gas, with annualized costs of compliance averaging $2,900 apiece. The other 82 new boilers are projected to be fueled by biomass, with annual compliance costs of $1.2 million each. EPA's Estimates of the Boiler MACT's Costs and Benefits Among the existing boilers affected by the Boiler MACT rule, there are an estimated 955 units that burn liquids and 1,123 units that burn solids (621 of them coal-fired and the rest biomass-fired). The rule also applies to other types of boilers, but the 2,078 liquid, coal, and biomass units, which account for 14.7% of the affected units, account for 97% of the compliance cost for existing units. In general, the promulgated emission limits apply to boilers that have a designed heat input capacity of 10 million Btu per hour or greater. How big is this? A coal-fired boiler subject to the MACT would be one that is capable of burning roughly 1,000 pounds (a half-ton) of coal per hour. Wood has less energy per pound than coal: a biomass-fired boiler burning wood might require as much as 1,500 pounds of wood per hour to produce 10 million Btus. A boiler burning fuel oil would need to burn about 70 gallons per hour. Many of the boilers to be regulated are substantially larger than this. An analysis released by the Council of Industrial Boiler Owners (CIBO), for example, used a 250 million Btu/hour boiler as the base for its cost estimates. For a boiler burning fuel oil, this would mean burning 1,750 gallons per hour. In order to comply with the rule's emission limits, these facilities may need to install fabric filters (also known as baghouses) to achieve PM and mercury control; wet scrubbers to meet the hydrochloric acid limits; replacement burners, tune-ups, and combustion controls for carbon monoxide and organic HAPs; and carbon injection for mercury control. These are the available technologies for maximum control of the relevant emissions. Some observers maintain that, because EPA weakened the standards as compared to what it originally proposed, the vast majority of facilities won't have to install these technologies. The National Association of Clean Air Agencies (NACAA), the association that represents most state and local air pollution control officials, surveyed its members in 2008 to determine what should be defined as MACT. Using the data it obtained from state officials, NACAA concluded that EPA's 2011 final mercury emission standard for coal-fired boilers was almost 16 times higher than the average of the best performing 12% ; the carbon monoxide standard was 213 times what the MACT floor should be, according to NACAA. The problem according to NACAA's Executive Director, is that "Compliance test results provided by state and local permitting officials were not used [in setting the MACT standards]; instead EPA relied on industry data." EPA explained that some of the data that NACAA provided could not be used, because the test reports were incomplete. The agency also noted that its process for setting a standard is more complicated than simply averaging the best test results. Specifically, the agency subjects the emissions data to what is called a "variability analysis." This type of analysis attempts to recognize that operating conditions and resulting emissions vary over time, yet facilities need to be in compliance with emissions limits at all times. Emissions can change for several reasons: there is variation in the amount of contaminants in fuel, for example; the boiler will sometimes be operating at less than full load; and statistical tests applied to the data are used to set the actual standard. The agency first identifies the best 12% by ranking the units based on their best test results. In the next step, they add all available test results for those units. Finally, using a statistical test, they calculate a standard that these units can meet 99% of the time, despite variability in operating conditions. This results in standards that are less stringent than the straight average of the best 12% test results. Costs Projected by EPA As shown in Table 2 , EPA estimates the capital costs of the reconsidered rule for existing boilers to be $4.6 billion, with annualized costs of nearly $1.2 billion. These costs fall almost entirely on units burning solids (coal or biomass) and liquids. Most boilers, which are fueled by natural gas, will experience a reduction in operating costs that more than compensates for any capital costs, according to EPA. In order to estimate what impact these costs would have on the economy, EPA used a multi-market partial equilibrium model developed for its Office of Air Quality Planning and Standards. The model projected how stakeholders in 100 U.S. industries might respond to the promulgated rule. The model found no U.S. industry in which production would decline by more than 0.05%. Despite the clear advantage that the promulgated rule would give to natural-gas-fired boilers, EPA did not consider fuel-switching as a potential compliance strategy (except in the limited case of liquid-fueled boilers that already have the capability to burn natural gas), for a variety of reasons. In the preamble to the originally proposed rule, the agency stated: "This decision was based on the overall effect of fuel switching on HAP emissions, technical and design considerations discussed previously in this preamble, and concerns about fuel availability." Although switching from solid to gaseous fuels "would decrease PM and some metals emissions, emissions of some organic HAP (e.g., formaldehyde) would increase," according to the agency's analysis. Further, the agency maintained, natural gas may be unavailable: Natural gas pipelines are not available in all regions of the U.S., and natural gas is simply not available as a fuel for many industrial, commercial, and institutional boilers and process heaters. Moreover, even where pipelines provide access to natural gas, supplies of natural gas may not be adequate. Nevertheless, if the cost of compliance is sufficiently great, the incentive to explore fuel-switching would seem substantial, particularly for facilities not burning a byproduct of the plant's operation. Recent accounts of the substantial increases in gas reserves as shale gas resources are developed could ease some of the natural gas availability concerns, and might bear further analysis. Benefits Projected by EPA EPA estimates that implementation of the Boiler MACT, as promulgated, would reduce nationwide emissions from major source boilers and process heaters, compared to emissions in by 3,100 to 5,300 pounds per year of mercury, 2,500 tons per year (tpy) of non-mercury metals, 39,000 tpy of hydrogen chloride, 16,593 tpy of directly emitted fine particulate matter (PM 2.5 ), 180,000 tpy of carbon monoxide, and 571,727 tpy of sulfur dioxide. For most of these pollutants, the expected reductions are similar to those of the originally proposed rule. This is not the case for mercury, however. The June 2010 proposed version of the rule was estimated to reduce mercury emissions by 7.5 tons, three to five times as much as the current proposal. Boilers are currently thought to be the fourth-largest stationary source of mercury, yet other categories of sources have been required to reduce mercury emissions to a greater extent than will be required by the promulgated or reconsidered Boiler MACT rule. EPA's explanation for the continued mercury emissions is that much of the remaining mercury comes from small oil-fired boilers, which do not currently have controls, and which individually emit relatively small amounts of mercury. Thus, when the agency defined MACT for these units, it did not result in substantial mercury reductions. According to EPA, beginning in 2015, emission reductions resulting from the rule would lead to important health benefits, including the annual avoidance of: 3,100 to 7,900 premature deaths, 2,000 cases of chronic bronchitis, 5,000 nonfatal heart attacks, 5,350 hospital and emergency room visits, 4,600 cases of acute bronchitis, 390,000 days when people miss work, 51,000 cases of aggravated asthma, and 96,000 cases of respiratory symptoms. EPA estimates the annual value of these benefits to range from $25 billion to $67 billion in 2015—outweighing the annualized costs by at least $23 billion. In its Regulatory Impact Analysis, the agency stated that it was only able to provide a partial estimate of the value of the rule's benefits: We were unable to monetize the direct benefits associated with reducing HAPs in this analysis. In Section 7.5.5 of this RIA, we provide a full qualitative discussion of the direct health benefits associated with the reductions in emissions of HAPs anticipated by these rules, including a full discussion of the complexity associated with monetizing HAP benefits. We also provide maps of reduced mercury deposition in that section. Therefore, all monetized benefits provided in this analysis only reflect improvements in ambient PM 2.5 and ozone concentrations. Thus, the monetized benefits estimate is an underestimate of the total benefits. The extent of this underestimate, whether small or large, is unknown. Other Cost Estimates Not surprisingly for a rule of this size, EPA's cost estimate is not the only one available. Industry-funded studies of the originally proposed and subsequent versions of the rule, including one from the Council of Industrial Boiler Owners (CIBO), placed the costs of the rule substantially higher than EPA's estimates. An analysis by the American Forest and Paper Association found especially high costs and potential job losses in the forest products industries. By contrast, the National Association of Clean Air Agencies concluded that CIBO's study exaggerated the potential costs. EPA itself maintains that Clean Air Act rules have often proven less expensive than its own and affected industries' estimates have projected before they were promulgated. Given the short time since the reconsidered (December 2012) rule was finalized, affected industries have not generally provided as much detail regarding their view of its effects, although CIBO, for one, still believes the rule will be more costly than EPA's projections. CIBO reduced its estimate of the rule's cost from $20.7 billion (for the originally proposed rule) to $11.7 billion for the reconsidered version, but still says the rule will put 187,00 jobs "at risk" of being eliminated. As noted earlier, though, EPA legally cannot take cost or economic impact into consideration in identifying the MACT floor, and almost all of the numeric standards in the rule are based on the agency's determination of the MACT floor. The only exceptions, the PM emission limits for biomass-fueled units, would impose no additional cost, according to EPA, because they rely on equipment installed to meet a MACT-floor standard for mercury. EPA considered the feasibility of its standards indirectly, by establishing 19 subcategories of sources, but in setting MACT floors for them, it cannot base its decisions on cost considerations. Should EPA Have Set Health-Based Standards Under Section 112(d)(4)? According to EPA, "emissions data collected during development of the proposed rule show that hydrogen chloride [HCl] emissions represent the predominant HAP emitted by industrial, commercial, and institutional (ICI) boilers, accounting for 61 percent of the total HAP emissions." Given the importance of HCl emissions, one of the key issues in considering EPA's original proposal was whether the agency should have exercised its authority to set standards for HCl and other acid gases under Section 112(d)(4), which gives the Administrator flexibility to set standards less stringent than MACT for HAPs that have a health threshold (i.e., substances that are not harmful to people exposed to levels below some threshold). In developing and promulgating other regulations, including the vacated 2004 MACT standard for boilers, EPA established that HCl has a health threshold, that it is not classified as a human carcinogen, and that there is limited health risk associated with HCl emissions from discrete units. Nevertheless, in the June 2010 proposal (and in the final standards), the Administrator decided not to exercise her discretion to set less stringent standards for HCl emissions for several reasons, including 1. the agency lacked information on the peak short-term emissions of HCl from boilers and thus could not determine whether acute exposures will pose health concerns; 2. HCl emissions from boilers mix with other emissions that are respiratory irritants, and EPA has no studies explicitly addressing the toxicity of these mixtures; 3. in considering whether to exercise her discretion under Section 112(d)(4), the Administrator must determine that a health-based standard in lieu of a MACT will not result in adverse environmental effects. HCl gas forms an acidic solution in the atmosphere and could exacerbate the impacts of acid deposition from sulfur and nitrogen oxides; 4. the agency had limited information on facility-specific emissions that it would need to set a health-based standard; 5. the agency would have needed to decide whether it would be appropriate to set 112(d)(4) standards for each acid gas emitted by boilers, or a single standard as a surrogate for them all; and 6. as proposed (and as promulgated), the MACT standard would result in significant reductions in emissions of other pollutants, most notably sulfur dioxide, particulate matter, other acid gases, mercury, and other metals. These reductions would provide substantial public health benefits that would be foregone if the agency set a less stringent standard. Whether the agency should have set standards for HCl under Section 112(d)(4) was one of the key points raised in comments, including those submitted by 41 Senators in a letter to the Administrator, on September 24, 2010, and by 105 Members of the House in a letter submitted August 2, 2010. As the Senate letter stated: To help reduce the burden of the rule in a manner that does not compromise public health and safety, … we ask that you carefully consider the extensive record that supported the Agency's determination to include health-based emissions limitations for hydrogen chloride and manganese in the previous Boiler MACT rulemaking that was set aside by the reviewing court on wholly unrelated grounds. In the March 2011 rule and in the December 2012 reconsideration, the agency did not change its mind on the use of Section 112(d)(4), but it did significantly change the hydrogen chloride standards, presumably based on new data supplied by affected entities. The changes, which are summarized in Table 3 , allow more HCl emissions from all types of sources, especially from biomass- and gas-fired units. Smaller (Area) Sources Smaller boilers (those at facilities that emit less than 10 tons of an individual HAP and less than 25 tons of all HAPS combined) face regulations as well, but for the most part the Clean Air Act allows them to meet a less stringent standard, termed "Generally Available Control Technology" (GACT). Most of these units are located at commercial and institutional (as opposed to industrial) facilities, according to EPA. A separate rule setting standards for these "area sources" was promulgated in March 2011, on the same day as the MACT standards for major sources, and these standards were also reconsidered, with final changes signed on December 20, 2012. EPA did not stay implementation of the 2011 version of the area source rule, and the reconsidered version contains a compliance deadline of March 21, 2014. Unlike the major sources discussed earlier, these facilities will not receive an additional two years to comply. The area source rule distinguishes boilers that have a heat input capacity of 10 million Btu per hour or more from those that are smaller. The smaller units make up the overwhelming majority of the units covered by the area source rule; they would be subject to GACT. Under GACT, these units would not be required to meet emission limits. Rather, they would be required to meet a work practice standard by performing a boiler tune-up every two to five years. According to EPA, "By improving the combustion efficiency of the boiler, fuel usage can be reduced and losses from combustion imperfections can be minimized. Minimizing and optimizing fuel use will reduce emissions of mercury and all other air toxics." Some units under the area source rule would be subject to MACT for at least some pollutants. These are the coal-fired units that have a heat input capacity of 10 million Btu per hour or more, but are at facilities that don't meet the major source definition because, even counting their boiler emissions, they emit less than 10 tons of any individual HAP and less than 25 tons of any combination of them. According to the agency, these larger boiler units at area sources would need to meet standards based on MACT for some of the pollutants they emit: "The final standards for existing and new coal-fired boilers at area sources are based on MACT for mercury and CO, and on GACT for PM. The final standards for existing and new biomass boilers and existing and new oil-fired boilers at area sources are based on GACT." The area source rule would affect approximately 183,000 existing boilers powered by oil, biomass, and coal, located at 92,000 facilities. It would impose annualized costs of $490 million, according to EPA. After considering fuel savings from efficiency improvements that would result from the tune-ups required by the rule, the estimated annualized cost would be reduced. EPA also estimates that about 6,800 new boilers will be constructed at area sources in the next three years; net costs for meeting the area source standards at these facilities are estimated by EPA to be $48 million annually. After accounting for fuel savings from improvements in combustion efficiency, EPA estimates that new sources will experience cost savings of $3.6 million annually rather than incurring compliance costs. EPA's estimate of costs at area source boilers is summarized in Table 4 . The table displays EPA data for the promulgated (March 2011) version of the rule. The Preamble to the December 2012 reconsidered rule states, "... as compared to the control costs estimated for the March 2011 final rule, this final rule will not result in any meaningful change in the capital and annual cost due to the increase in emission limits and the decrease in burden on small facilities." Gas-fired boilers, of which EPA estimates there are 1.3 million, would not be affected by the area source rule. Because the costs of compliance are substantially less than for the MACT rule, the area source rule has not been particularly controversial. Related Rules on Solid Waste Incineration The Boiler MACT and the Area Source Rule were two of four rules related to boilers that EPA promulgated the same day. The other two rules address boilers that use solid waste as fuel and identify what materials EPA considers to be solid waste. EPA projects that these rules will have less impact than the Boiler MACT, but they address the issues that were at the heart of the court decision that overturned and remanded the boiler rules in 2007. As noted earlier, the U.S. Court of Appeals for the D.C. Circuit, in Natural Resources Defense Council v. EPA , found that EPA had wrongly excluded many industrial boilers from the definition of solid waste incinerators, which have more stringent emissions requirements under Section 129 of the Clean Air Act. Thus, in addition to the Boiler MACT and Area Source rules, the agency promulgated a rule on the Identification of Non-Hazardous Secondary Materials that Are Solid Waste, and a rule that would set emission standards for Commercial/Industrial Solid Waste Incinerators (the "CISWI Rule"). The first rule identifies solid waste, and the second sets emission standards for the facilities that burn it. On December 2012, EPA finalized amendments to both of these rules, as well. Defining Solid Waste The purpose of this rule is to clarify which materials are considered solid waste when burned in combustion units and which are not. To be considered solid waste, the basic criterion is whether the material has been discarded. Discarded materials are generally considered solid waste; other materials are not. Whether a material is deemed discarded may be unclear or subject to debate, particularly to a recycler who values the material. EPA addresses this by stating that discarded materials can avoid classification as waste if they meet a number of what it calls "legitimacy criteria": 1. if the material is managed as a valuable commodity; 2. if the material has meaningful heating value (or, for a material considered an ingredient, if it makes a useful contribution to the production or manufacturing process); and 3. if the material contains contaminants at levels comparable to or lower than traditional fuels or ingredients. Non-hazardous secondary materials that meet legitimacy criteria, such as the following, would not be considered solid waste under the rule promulgated in March 2011: material used as a fuel that remains within the control of the generator (whether at the site of generation or another site the generator has control over); scrap tires removed from vehicles and managed under established tire collection programs; resinated wood residuals, provided they have not been discarded and are used as fuel either by the generator or outside the generator's control; material used as an ingredient in a manufacturing process (whether by the generator or a third party); material that has been sufficiently processed to produce a fuel or ingredient product; and material that has been determined through a case-by-case petition process to not have been discarded and to be indistinguishable in all relevant aspects from a fuel product. Controversy over this rule centered on how EPA would interpret these criteria for certain recovered materials that are commonly used as fuel, particularly "off-spec" used oil and whole scrap tires. The originally proposed rule did not specifically identify these materials as solid waste. However, in the preamble to the original proposal, EPA did identify these materials as solid waste even when they are used as fuel. Used Oil EPA defines used oil as either complying with limits for contaminants of concern ("on-spec") or not ("off-spec"). On-spec oil is exempt from waste management regulations, because the contaminants in it are either at the same concentration or at a lower concentration than in virgin refined fuel oil. Off-spec used oil, on the other hand, even if it is managed within the control of the generator, contains contaminants at levels that are not comparable to traditional fuels, and thus would not be considered a non-waste fuel under the legitimacy criteria described above. Under previous regulations promulgated under the Resource Conservation and Recovery Act (RCRA, 40 CFR part 279), off-spec used oil could be burned in used-oil-fired space heaters, provided that, in EPA's words: (1) The heater burns only used oil that the owner or operator generates or used oil received from household do-it-yourself used oil generators; (2) the heater is designed to have a maximum capacity of not more than 0.5 million Btu per hour; and (3) the combustion gases from the heater are vented to the ambient air. The RCRA used oil regulations base this provision on a finding that uncontrolled emissions from these sources do not pose a significant threat to human health and the environment. (Used Oil Final Rule, 50 FR 49194 (November 29, 1985).) However, consistent with our determination that off-spec used oil be considered a solid waste when burned as a fuel, we believe that off-spec used oil managed within the control of the generator would not qualify for the generator controlled exclusion when burned in a used oil fired-space heater, since contaminant levels are not comparable to traditional fuels. Therefore, we are proposing that off-spec used oil combusted at a unit that is within the control of the generator would be solid waste. If the used oil were classified as solid waste, then the space heater would have to meet the "CISWI" incinerator standards described below, which no space heater is likely to meet. Most used oil is considered on-spec, but many of those who commented on the proposal argued that unless there is a general exclusion such as that written into the existing RCRA regulations, it would be necessary to test the oil and determine that it is on-spec before burning it in a space heater. Doing so would be costly and impractical. Thus, the proposed regulations, in the minds of many commenters, would have had the practical effect of banning the use of waste oil in space heaters. The proposal also appeared to contradict the existing RCRA regulations, but did not specifically repeal them. As a result, the Code of Federal Regulations might have contained two conflicting sets of rules applicable to the combustion of used oil. The final rule promulgated in March 2011 clarified these issues: EPA is specifically clarifying in this final rule that used oil combusted in an oil-fired space heater that meets the provisions of 40 CFR 279.23 [i.e., the existing RCRA regulations] need not be tested to establish whether or not such oil is on or off-spec. This includes used oil generated by small facilities such as auto repair shops and machine shops that have such units, and used oil-generated by homeowners who change their own oil (referred to as ''do-it-yourself'' or ''DIY'' oil) that are burned in such units. This is because the CISWI regulations promulgated elsewhere in the Federal Register today do not establish emissions limits for such units, and therefore the concerns of the commenters that such units would have to comply with CAA Section 129 standards have been addressed for this population of combustion units. This clarification is unchanged by the reconsidered final rule. Scrap Tires The rule proposed in June 2010 also would have imposed new restrictions on the use of scrap tires as fuel: whole used tires (even if collected from tire dealerships and automotive shops and overseen by a state tire collection oversight program) are initially abandoned and thus meet the plain meaning of discard. As a result, whole used tires that are not processed into a legitimate fuel or ingredient (e.g., shredded/chipped with steel belts removed) would be considered a solid waste. We acknowledge that whole tires can be legitimately burned as fuel, but because they have been discarded, whole tires would be considered solid wastes and subject to the CAA section 129 requirements unless processed into a non-waste fuel product. This would have been a change from current policy and would have affected the use of scrap tires as fuel. EPA reversed itself in the March 2011 final rule: After careful consideration of the comments and all the material in the rulemaking record, including documents cited in the ANPRM [Advance Notice of Proposed Rulemaking] and the preamble to the proposed rule, the Agency agrees that a system where scrap tires are removed from vehicles and are collected and managed under the oversight of established tire collection programs are not "discarded in the first instance." Such tires (including both whole tires and tires that have been shredded—with or without metal removal) are non-waste when used as a fuel in combustion units. These programs ensure that the tires are not discarded en route to the combustor for use as fuel and are handled as a valuable commodity as required in the legitimacy criterion in today's rule at § 241.3(d)(1)(i). Further Clarification Since the March 2011 final rule, EPA has attempted to further clarify what fuels would be considered non-hazardous secondary materials (NHSM), as opposed to solid waste, generally broadening the definitions and criteria to permit more such materials to be used in boilers without the boiler being considered an incinerator. In the December 2012 reconsideration, the agency codified determinations that certain NHSMs are non-wastes when used as fuels; these include scrap tires from tire collection programs, resinated wood, coal refuse recovered from legacy piles, and dewatered pulp and paper sludges that are burned on-site by pulp and paper mills. The CISWI Rule The reconsidered Commercial/Industrial Solid Waste Incinerator (CISWI) rule finalized on December 20, 2012, sets emission standards for commercial and industrial facilities that burn materials determined to be solid waste (i.e., materials that do not meet the above criteria). CISWI's emission standards are required to be set under Section 129 of the Clean Air Act, which has more stringent requirements than Section 112. In addition to the five groups of pollutants addressed by the Boiler MACT, the CISWI rule sets emission limits for lead, cadmium, sulfur dioxide, and nitrogen oxides. Section 129 also makes no distinction between major sources and area sources, thus setting the more stringent MACT standards for smaller facilities. EPA has identified seven subcategories of CISWI facilities: incinerators, small remote incinerators, energy recovery units (ERUs) for biomass fuels, ERUs for coal, ERUs for liquids and gases, and two types of waste burning kilns—a total of 106 existing sources at 76 facilities. The total nationwide annualized costs of compliance for these units are estimated by EPA to be $271 million. EPA estimates the benefits of the final rule, including the avoidance of 47-120 premature deaths annually, at $380 million-$1 billion. Controversy over the originally proposed CISWI standards focused on a category called "burn-off ovens." Burn-off ovens, as defined by EPA in the originally proposed rule, are units that combust residual materials off racks, parts, drums or hooks so that those items can be re-used in various production processes. Operators of such facilities stated that there are more than 15,000 such units (EPA had identified 36), and they maintained that the units should not be characterized as incinerators, but should be considered boilers, subject to either the Boiler MACT or the Area Source rule. In the March 2011 CISWI rule, EPA concluded that it didn't have sufficient data for burn-off ovens, and removed them and several other types of units from the incinerator definition. As a result, burn-off ovens are considered boilers, and depending on their emissions, are subject to either the major source or area source boiler standards. Burn-off ovens are not discussed in the December 2012 reconsidered rule. Conclusion EPA's Boiler MACT has been controversial since its original proposal in June 2010. The version of the rule promulgated March 21, 2011, and the reconsidered version finalized December 20, 2012, are much less stringent than the rule as first proposed. Nevertheless, some stakeholders remain concerned about the potential impact of the rules; challenges—in court, and perhaps in Congress—are still possible. Members of Congress have been active participants in EPA's public comment process (more than 100 Members of the House and more than 40 Senators wrote EPA regarding the originally proposed rule) and they have remained interested in these rulemakings. In the 112 th Congress, bills were introduced in both the House and Senate ( H.R. 2250 and S. 1392 ) to change the Clean Air Act requirements for these rules and the deadlines for implementation. The bills would have provided additional time for implementation of standards and would have changed key aspects of the Section 112 requirements as they apply to boilers and CISWI units. They would have revoked the standards promulgated on March 21, 2011, and required promulgation of replacements for the Boiler MACT and related rules 15 months after the date of the bills' enactment; and they would have required EPA to set a compliance date no earlier than five years after the date of promulgation. At a minimum, this would have given the affected units three years of additional time to comply with MACT standards. The bills would also have made substantive changes in the Section 112 requirements as applied to boilers and CISWI units. They would have removed the requirements that currently apply in the absence of EPA regulation—what are called the "MACT hammers": under current law, permits issued in the absence of MACT regulations are required to include MACT emission limits determined on a case-by-case basis. The bills would have defined certain sources currently considered as "new" to be "existing" sources, which would be subject to less stringent requirements. And they would have set less stringent requirements for the standards themselves, requiring EPA to choose the "least burdensome" regulatory alternative, and requiring that standards can be met "consistently and concurrently with emission standards for all other air pollutants," which might prohibit EPA's use of the "pollutant by pollutant" approach that it used in setting the currently promulgated standards. H.R. 2250 passed the House, 275-142, on October 13, 2011. A Senate version similar to H.R. 2250 was offered as an amendment ( S.Amdt. 1660 ) to the surface transportation bill ( S. 1813 ) on March 8, 2012, but was not adopted on a vote of 52-46 (60 votes being necessary for adoption). In the reconsidered rules, finalized December 20, 2012, EPA took a number of steps in the direction of its critics, giving affected units an additional two years to comply and making many of the emission limits less stringent. Whether these changes will be sufficient to mollify the affected industries and the agency's other critics remains to be seen.

On December 20, 2012, EPA Administrator Lisa Jackson signed final revisions to EPA's 2011 Maximum Achievable Control Technology standards for boilers (the "Boiler MACT"). The Boiler MACT has been among the most controversial EPA regulations over the last three years, because of its wide reach and potential economic impact. Boilers are widely used for heat and power throughout industry, and by large commercial establishments and institutions, as well. EPA found it difficult to adequately characterize and develop emissions data for the many types of boilers, leading many in the regulated community to complain that the originally proposed standards would not be economically achievable. Although EPA and others disputed the industry cost estimates, the revised rule modifies all of the originally proposed standards, lowering the projected cost, and grants owners and operators additional time to comply. Whether these changes will quell the long controversy or raise new issues remains to be seen. EPA developed the regulations because it has found, based on emissions data, that boilers (especially coal-, biomass-, and liquid-fired boilers) are major sources of hazardous air pollutants (HAPs). The Clean Air Act defines a major source as any facility that emits 10 tons or more of a single listed HAP or 25 tons of any combination of HAPs annually. The HAPs themselves (187 substances) were listed by Congress in the 1990 Clean Air Act Amendments. Congress also set specific requirements for the stringency of MACT standards, limiting EPA's ability to promulgate less stringent requirements. The revised MACT will affect about 14,000 existing boilers and process heaters, with capital costs of $4.6 billion, according to the agency. Annualized costs, which spread the costs of capital over the expected life of the equipment and include operating and maintenance expenses, are estimated by EPA at $1.2 billion per year. In response to comments on an earlier proposal and on the promulgated 2011 rule, the modified rule reduces the number of units expected to require controls, and makes the emissions standards much less stringent, cutting the agency's estimate of annualized control costs by more than half. Most of the costs of the final rule would be borne by boilers that burn coal, biomass, or liquid fuels; only 12% of the 14,000 units covered by the rule will need to install equipment to meet it. Most of the rest are fueled by natural gas or refinery gases. These boilers would not have to install pollution control equipment and most would experience cost savings under the rule's provisions, according to EPA. For the rule as a whole, EPA estimated that benefits—including the avoidance of 3,100 to 7,900 premature deaths annually—would outweigh costs by at least $23 billion per year. Affected industries and many in Congress raised objections to the rule as proposed in 2010 and as promulgated in 2011, and bills were introduced in both the House and Senate in the 112th Congress to alter the rule's requirements and delay its implementation. H.R. 2250 passed the House 275-142 on October 13, 2011. Provisions similar to H.R. 2250 were offered as an amendment (S.Amdt. 1660) to the Senate version of the surface transportation bill (S. 1813) on March 8, 2012, but were not adopted. Numerous stakeholders have also challenged the rules in court. These challenges are expected to proceed now that EPA has finalized the rule. In addition to the Boiler MACT, this report discusses three related rules that EPA developed at the same time, dealing with smaller "area source" boilers and with commercial and industrial boilers that burn solid waste (the "CISWI" and solid waste rules). The latter two rules have also been controversial. Revised versions of the three related rules were also finalized December 20.

PART ONE: OVERVIEW Introduction1 In the past decade, China's "soft power"—global influence attained through diplomatic, economic, cultural, and other non-coercive means—has grown along with its international standing. Despite this development, the United States remains the preeminent global force in many areas of soft power. The United States exceeds the People's Republic of China (PRC) in global trade, and far surpasses China in GDP and foreign direct investment. It continues to be the dominant external political and military actor in the Middle East and political and economic influence in Latin America. It maintains robust, formal alliances in Europe and Asia, and far outweighs China in military spending and capabilities. However, many analysts contend that U.S. soft power has declined in relative terms, and some studies show a dramatic loss in global confidence in the United States' foreign policies. Some experts argue that China's rise poses serious challenges to U.S. interests, while others believe that its implications are limited and that U.S. strengths remain formidable. Contrasting Diplomatic Styles The PRC has captured the attention of many developing countries due to its pragmatic approach to diplomacy, the ways in which the government links diplomacy, commerce, and foreign aid, and the dramatic expansion of its global economic influence. Since the end of the Cold War and the acceleration of China's economic take-off in the mid-1990s, Beijing's "win-win" diplomatic style has featured greater accommodation and an emphasis on short-term, common economic interests. In the past several years, China's proliferating trade, investment, and foreign aid accords with other countries, made possible by its own rapid development, have stressed mutual benefits. Through these agreements, China has gained markets for its goods, access to raw materials, and international esteem while providing other countries with foreign investment and aid projects without imposing conditions such as political and economic performance criteria. China's style of diplomacy and its foreign policy principle of "non-interference" have been characterized as sensitive to local conditions rather than imposing standards. Many countries appear to appreciate this style. China's Economic Attractiveness Even without Beijing's new brand of diplomacy, many developing countries are attracted to China because of what its economy represents. In Southeast Asia and Latin America, the United States continues to dominate trade and foreign direct investment. However, the PRC, which is expected to rival the United States in terms of total trade by 2011, promises its economic partners ever-growing opportunities for trade and investment. China also is perceived as representing an alternative, non-democratic model of development. Finally, many developing countries are drawn to China's example of asymmetric power. Although the U.S. government's projection of soft power has evolved to address new foreign policy challenges in the post-9/11 world, many experts believe it has been less adaptable than China to the changing needs of many developing countries. The U.S. emphasis on shared democratic values, considered to be a pillar of American soft power, can be perceived in other countries as an obstacle to arriving at solutions to international problems. Foreign policy observers have raised several issues related to the U.S. use of soft power tools: Some experts argue that the United States has neglected public diplomacy, particularly in helping to shape foreign perceptions of American policy. Leaders in many developing countries assert that U.S. bilateral and regional diplomacy has lacked sensitivity toward the local conditions in their countries and regions. Others lament that U.S. foreign aid objectives and programs, which have focused upon counter-terrorism and democracy-building, have placed a low priority on development. Some countries have found U.S. criteria for foreign aid and free trade agreements to be too stringent. PRC and U.S. Soft Power in Five Regions Economics and diplomacy are the central, mutually reinforcing components of China's growing soft power in the regions discussed below. Trade, investment, and aid, particularly that which involves gaining access to raw materials for China's development, are behind much of the PRC's recent inroads throughout the developing world. Security and strategic concerns and goals also play prominent roles in China's soft power projections in Central Asia and Southeast Asia. Competition with Taiwan for diplomatic recognition has spurred PRC engagement with Latin America and Africa. For the medium-term, Chinese leaders appear to have accepted the military dominance of the United States in Southeast Asia and the strategic roles played by Russia and the United States in Central Asia. They also recognize the longer-term U.S. sphere of influence in Latin America and U.S. strategic role in the Middle East. Contrasting ideologies and diplomatic approaches between China and the United States may be starkest in the Middle East, where Beijing has openly supported Arab and Palestinian causes and engaged in military cooperation with Iran. Diplomacy The U.S. government public diplomacy and international military training programs aim in large part to cultivate shared democratic values among the professional and leadership classes of foreign countries. Despite cutbacks during the 1990s, U.S. public diplomacy programs, including educational and cultural exchange activities, continue to facilitate an understanding of American values and culture, the sharing of ideas, and access to many intellectual areas in which Americans are world leaders. The regions with the largest U.S. public diplomacy efforts in terms of funding are Europe/Eurasia and the Western Hemisphere (Latin America and the Carribean). Likewise, the U.S. International Military Education and Training (IMET) program seeks to promote democratic values, mutual understanding, and professional and personal relationships in addition to military capacity. China's fledgling public diplomacy counterparts, such as the Confucius Institutes, place more emphasis upon teaching than intellectual exchange and upon imparting an understanding of China rather than seeking common values through dialogue. Furthermore, PRC foreign military training programs do not emphasize the building of personal or cultural rapport between Chinese and foreign military officers. While U.S. public and military diplomacy programs have helped to build a social layer of professionals, academics, policy-makers, military leaders, and other opinion makers sympathetic to American ideals in many countries, China also has made strides in the area of state diplomacy. Beginning in the mid-1990s, Beijing's ideological and isolationist foreign policy became more engaged and pragmatic. The PRC began to promote its trade and security interests through bilateral and multilateral cooperation. In the past several years, many observers note, China's conduct of official bilateral exchanges has appeared to be more active than that of the United States, especially with smaller developing countries. Through these meetings, the PRC has asserted itself as a global leader. China also has played a prominent or leading role in new regional groupings that it has helped to establish, such as the East Asia Summit (EAS), the Shanghai Cooperation Organization (SCO) in Central Asia, the Forum on China-Africa Cooperation (FOCAC), and the China-Arab Cooperation Forum. By contrast, among leadership circles in some regions, particularly Latin America and Southeast Asia, Washington has been accused of neglecting regional concerns that are not related to the war on terrorism. Foreign Assistance The United States continues to exert global foreign aid leadership and maintain a major, and much appreciated, aid presence in Central Asia, Africa, the Middle East, and Latin America. U.S. foreign assistance to Southeast Asia has increased markedly since 2001, although most new funding has been directed at counter-terrorism and related programs in Indonesia and the Philippines. Japan remains the dominant provider of official development assistance (ODA) in Southeast Asia. In 2004, the Bush Administration launched two significant development aid programs—the President's Emergency Plan for AIDS Relief (PEPFAR) and the Millennium Challenge Account (MCA)—which represent far more ambitious humanitarian and development goals than does PRC aid. The MCA promotes good governance, investment in health and education, and economic freedom by providing assistance to countries that satisfy performance criteria. The U.S. State Department's Middle East Partnership Initiative (MEPI) encourages reform in four areas—politics, economics, education, and women's empowerment—through grants to non-governmental organizations (NGOs), businesses, and universities. The U.S. Peace Corps, which has sent 190,000 American volunteers to serve in 139 countries since 1960, has no real counterpart in China. The PRC's six-year-old "youth volunteers" program has sent several hundred Chinese youth to about one dozen countries in Asia, Africa, and Latin America. In terms of ODA grants, the United States is the world's largest foreign aid donor far exceeding China. According to some estimates, China's ODA ranges from $1.5 billion to $2 billion annually, compared to the United States' core ODA budget of $19.5 billion in FY2007 (not including military assistance). However, China's emergence as a major foreign aid provider has had a significant impact both in the developing world and among major foreign aid donors because of its size, growth, availability, and symbolic value. The PRC often offers concessional loans, trade deals, and state-sponsored investments as part of aid packages, and when these are included, PRC aid may far surpass U.S. ODA. According to one study using unofficial reports of both actual and pledged aid, Beijing provided or offered a total of $31 billion in economic assistance to Southeast Asian, African and Latin American countries in 2007, a threefold increase compared to 2005 and 20 times greater than 2003. Chinese foreign assistance is attractive to many developing countries because it generally does not require changes in the policies or performance of recipient countries' governments. Furthermore, PRC aid finances highly visible projects, such as infrastructure and government buildings, that provide immediate benefits and recognition of China. The PRC also is providing professional and technical training for people from developing countries, particularly in Africa. A U.S. Resurgence? By some indicators, China's rising soft power may have experienced some recent setbacks, while the U.S. image has shown signs of a possible renewal. China has received criticism from other major powers for its economic relations with many countries reported to have serious human rights problems. China's allegedly apolitical and mercantile foreign policy, lack of transparency, and absence of political conditions and social and environmental safeguards on PRC foreign investment and aid projects have brought some instances of public outcry against Chinese political and economic influence in some developing countries. Perceptions of Beijing's poor domestic human rights record, including its policies toward ethnic minorities, also have undermined its global image and influence. Many countries, particularly in Southeast Asia, remain wary of Beijing's intentions and doubtful of its sincerity even as they welcome PRC economic ties and aid. The United States possesses latent reserves of soft power. Many aspects of U.S. social, economic, cultural, academic, technological, and other forms of influence, much of which emanate from the private sector or outside the scope of government, remain unmatched in the world. Many American ideals have long-term, universal appeal, while the United States continues to be a magnet for immigrants and foreign students. Despite a perceived lack of attention among elites, the United States has maintained favorable public image ratings in many African and Latin American countries as well as in the Philippines, a U.S. ally. According to a recent poll, Indonesians and Vietnamese regard U.S. and Japanese soft power as slightly greater than China's. Globally, negative views toward the United States appear to be significantly correlated to the Iraq war. Attitudes can vary in response to changes in U.S. foreign policies, leadership, diplomacy, and other instruments of soft power. On the one hand, this suggests that attitudes toward the United States can change. On the other hand, in some cases, such as in the Middle East, U.S. public diplomacy has had little impact within the context of unpopular U.S. foreign policies. New foreign aid programs, such as PEPFAR and the Millennium Challenge Account, and U.S. disaster relief efforts, such as those in Indonesia and Pakistan in 2005, have helped to improve the image of the United States in some countries and regions. In the past two years, public perceptions of the United States, particularly in Western Europe, Japan, South Korea, and India, have improved somewhat in comparison to those of China. Among the countries with the widest image gaps between the United States and China and that favor the United States are Poland, Japan, South Korea, and India. Those that strongly favor China include Pakistan, Egypt, Jordan, and Indonesia. While there are positive signs, the Pew Research Center suggests that much more work lies ahead, stating that, overall, the U.S. image "remains far less positive than it was before the war [in Iraq] and at the beginning of the century." Foreign Policy Interests and Implements of Power13 While the challenge of China's soft power does not alter vital U.S. interests, it affects the ways and means the United States uses to protect its interests and attain its strategic goals. The rise of China, political recidivism in Russia, and the war in Iraq give rise to concerns about what the international power structure will be as we move through the 21 st Century. The United States still is the world's foremost military power, largest economy, technology leader, and cultural magnet. However, the pull of the "Chinese model," the rise of competing centers of power, the emergence of challenges not easily resolved using Cold War era implements of power, the decentralization of security threats, unfavorable trends in world public opinion, and burgeoning U.S. financial problems give pause to both scholars and policymakers. The United States and China share the same vital national interests of security and prosperity, although each has a particular additional interest and each defines its interests somewhat differently. Each seeks freedom from fear and want and to preserve its territorial integrity. For the United States, its particular interest lies in value preservation and projection of those values. Many Americans view the spread of democracy and free markets as enhancing national security and often seek improvements in human rights as part of their negotiating goals. China has a particular existential interest in regime preservation or the survival of the Chinese Communist Party as the sole ruler of China. This dovetails back into the Chinese vital interest of economic prosperity. The Party needs economic growth in order to deliver a rising standard of living to the people and provide legitimacy for its one-party rule. The means, goals, and strategies by which each country pursues its national interests differ in many important respects. Each country wields an array of hard and soft power that includes its military, diplomatic and political activities, economic and financial clout, and considerable cultural and informational appeal. Each country deploys its power, however, in different ways. In cases, the differences may be subtle, but some are glaring. As for strategic goals, arguably each country aims at maintaining internal and external stability and developing amicable and cooperative relations with the rest of the world. At times, though, the need for security trumps stability, and a country may undertake a destabilizing action (such a the invasion of Iraq). Each occupies a different position in world leadership. Even China recognizes that the United States is the only nation that has the will, stature, and means to mobilize the world community to undertake the great projects of the day. China's philosophy has been characterized as "live and let live," a more nonconfrontational approach that eschews outside interference in "internal matters." China portrays itself as a benign, non-colonial power with influence, deep pockets, an ever expanding manufacturing base, and a nation that has lifted 300 million of its people out of poverty and, therefore, has become a potent model for other developing nations. The United States has long viewed itself as exceptional and a "shining city on a hill" for freedom-loving peoples all over the world. It too has deep pockets. China likely recognizes that it is not the center of the world, as its name in Chinese implies (often translated as Middle Kingdom), but it seems to be wielding its soft power in order to pursue its national interests in ways not unfamiliar, but at times anathema, to the United States. It appears that Beijing views its rise as a global force or at least a dominant factor in East Asia as only a matter of time. The Post-Cold War Interlude The victory by the Western world in the Cold War brought triumph not only for the military strategists but also for those engaged in the great intangible battle for the hearts and minds of aspiring peoples everywhere. The American model reigned supreme: democracy; free markets; privatization; flows of international trade and investment; and a lifestyle of a home, car, and education for one's children. The model also placed the United States as an arguably benign global power with unquestioned military supremacy and which could marshal European and other resources to keep the peace. The Soviet model of socialist planning, one-party rule, satellite states, the hard hand of repression, and building a military machine far beyond that which government could afford collapsed with the Berlin Wall. Parallel with the American model was European unification. Intra-European conflicts had ended. The specter of another World War centered on Germany, France, and England faded as the European Coal Community evolved into the European Economic Community and finally into the European Union. Diplomatic fusion, economic integration, and the security umbrella provided by the North Atlantic Treaty Organization directed European energies from internecine strife toward building a Europe to be much more than the globe's greatest outdoor museum. At hardly any time did countries aspire to adopt the Chinese model. Mao's disastrous Great Leap Forward, Cultural Revolution, collective farms, state owned enterprises, egalitarian poverty (except for Party insiders), and repressive government had little appeal except to other dictatorial regimes. True, communist insurgencies in Southeast Asia inspired by Maoist doctrine and assisted by Beijing did gain some traction, but eventually most of them were suppressed. Now even Vietnam has turned toward the American economic model, although it has retained a political system more like that in China. Ironically, Beijing has been encouraging North Korea to follow a Chinese-type model of economic reform that includes opening its borders to more trade, allowing markets, and attracting foreign investments. The China Model? Some observers believe that in the future, China could displace the United States in much the same way that the United States displaced England as the world's great power. This view is heard in many quarters: conservatives, liberals, nationalists, internationalists, and isolationists. Notable is the articulation of a view of the seeming "inevitability" of the proposition that the "East is back" with China leading the pack. For those espousing this view, the debate turns on when—not whether—this power shift will happen and what the United States can do about it. Others, however, warn of trouble down the road for China, and others caution against linear projections into the future and extrapolating onto the globe a decade or so of Chinese successes. One commentator writes that the Chinese threat or challenge is not likely to appear as another Soviet Union, straining to keep pace with America's military, but more likely to be an "asymmetrical superpower," one that manipulates a situation so effectively that the outcome favors Chinese interests. In many respects, China epitomizes what may be called a "new wave" of regional powers. The world is being confronted by a more ambitious China today, but not far behind are India and Brazil as well as a sprinkling of populous nations, such as Indonesia or Nigeria, who are in the ascendant and who feel that their time has been too long in coming. The concern over rising Chinese power today might apply to the power of India and Brazil tomorrow. As this memorandum shows, except for exports, China still lags behind the United States in most metrics of power—both soft and hard. The rate at which China is closing the gap (commensurate with its national interests) certainly has been accelerating, but the country still has a long way to go. Further, the metrics belie what may be the real story of China's ascendency. The actual story may not be in who has the most guns, largest aid budget, or whose companies are trading with and investing the most in developing nations, but it could lie in which national model is able to capture the attitudes and actions (hearts and minds) of people, states, and non-state actors in the world. The model China is offering is partly similar but contrasts strongly with much of the Western model. Some have characterized this as the decline of the so-called "Washington Consensus" among developing countries and the rise of the "Beijing Consensus." The Beijing Consensus purports to represent the thinking of policymakers in China and underlies their approach to relations with countries of the developing world. The essence of the consensus is that China, India, and other countries that ignored the Washington Consensus have succeeded while those who followed American advice or underwent World Bank or International Monetary Fund (IMF) discipline have failed in many of their basic goals—such as lifting their populations out of poverty. The Beijing consensus is skeptical about adopting wholesale Western economic ideals of privatization and free trade, molding one's political system to conform to Western-style democratic institutions, and allowing markets to handle everything, even though China actually adopted many of these policies in the process of its development over the past quarter century. The Beijing consensus contends that nations can fit into the global system without abandoning their way of life or compromising their independence (viz. authoritarian government). Countries can choose the most useful aspects of the Western model and avail themselves of foreign investments and technology without themselves becoming "Western." This Beijing Consensus is thought to have three primary principles: use of innovation and cutting edge technology to create change that moves faster than the problems that change creates; management of chaos caused by change; and self-determination or using leverage to hold away larger powers that may be tempted to tread on your toes. In practice, the Beijing Consensus implies rejection of the usual notion that workers in developing economies must be consigned to sewing garments, working handicrafts, and assembling toys. Countries can start at the labor-intensive, traditional industries, but they also can move directly into high-technology both through foreign investment and by borrowing and localizing existing world technology. When American semiconductor makers first began operating in China in the early 1990s, they reportedly did so with the belief that the China market would be a place to unload out-of-date chips. But the Chinese only wanted the newest, fastest technology. China's move directly into fiber optics rather than copper wire was driven partly by the difficulty of protecting copper wire from thieves, but it also reflected the policy to jump directly into 21 st century telecommunications rather than languish in the leftovers from the labs of Alexander Graham Bell. Chinese State Councilor Chen Zhili reportedly wrote that the country is doomed unless Chinese society finds ways to innovate. She argued that science and technology and human resources talent are the two pillars of China's future. China's problems, she says, are simply too big for old solutions, too tremendous for anything but an army of great ideas and successful implementation. The second principle of "managing chaos" recognizes that once an economy "takes off" with double-digit growth rates, society becomes an unstable stew of hope, raw ambition, fear, misinformation, corruption, competing interest groups, and politics. Traditional society quickly can give way to chaos (another term for political instability). In order to manage such chaos, policies aimed at sustainability and equality—particularly for those left behind—become important. When an economy doubles in size every seven years (growth rate of 10% per year), governments really do not know beforehand what exactly will emerge from the rough and tumble ruckus caused by economic transformation. No magic prescription exists that will both sustain rapid economic growth and maintain stability. The Washington Consensus says to "leave it to the market" and everything will work out eventually. Beijing's approach is to recognize that since the government has no previous experience to fall back upon, the Chinese people have to "wade across the stream by feeling the way with one's toes." Policymakers can stay ahead of the chaos only if they pursue policy innovations as problems occur. Central governments have to be strong, and at times autocratic, in order to both implement innovative policies and to reverse those that go bad before they cause too much damage. One allure of this approach is that some countries are concluding that they can go their own way without following prescriptions that seem designed primarily to benefit advanced industrialized economies. Measures such as restricting life-saving medicines because of intellectual property rights, exposing infant industries to global competition, saving old growth forests similar to those cut down long ago in developed nations, or accepting macroeconomic strictures prescribed by international financial institutions seem avoidable under the Chinese model. Human rights also are not an issue, at least not in the legal sense. The primary attribute in the Chinese model today is for people to be brought out of poverty, not necessarily to have legal freedoms. Developing nations may well view this as an alternative to the economic reform requirements often imposed by international lenders (such as the International Monetary Fund during various financial crises). Rather than taking funding from the World Bank or IMF, they can simply "receive" Chinese aid with no strings attached. (Of course, the rude awakening may come later when not all promised aid is forthcoming.) The third principle is self determination and using leverage to keep the great powers at bay. Although China's nuclear powered military resembles that of other military powers, Beijing recognizes that not everyone can be a superpower, and not everyone needs to be. Every nation, however, can be a power in its own right—perhaps not powerful enough for domination, but at least strong enough for self-determination. China's message to other countries may be that a country does not have to win an arms race; it only needs to build enough asymmetric power to keep hegemonic powers at water's edge. A nation's military exists primarily to deter conflict, since in Chinese military thinking, armed conflict is usually an indication of failure. China's leverage stems partly from deterrent effect of its military but also from the strength of its economic position and growing reliance of other countries on the web of trade and investment relations with businesses in China. Trading partners now have a stake in the success of the Chinese economy (and vice versa). The Chinese model also insists on national sovereignty (in China's case the one-China policy). Implications for the United States To many analysts in the United States, the rise of China and the allure of its model for development is an indicator of the need for adjustment in U.S. foreign policy. The hard lessons of Iraq combined with a deteriorating image of the United States in world public opinion also have caused many in both the Pentagon and State Department to go back to the drawing board and think creatively about the use of U.S. military, diplomatic, economic, and cultural power. Secretary of Defense William Gates recently stated that the new thinking in overall U.S. defense strategy is to build partner-nation capacity so friends can better defend themselves, and while preserving U.S. conventional military deterrence abilities, to become more attentive to both "hard" and "soft" elements of national power. Meanwhile, Secretary of State Condoleezza Rice has proposed "Transformational Diplomacy" (working with other nations to build democracies that respond to the needs of their people and conduct themselves responsibly in the international system) and is attempting to create a Civilian Reserve Corps to assist in reconstruction efforts following military action. Another aspect of soft power is to keep weak and failing states from actually failing, descending into chaos, and becoming an incubator of or safe haven for terrorist groups. Some analysts have devised the concept of "smart power," a combination of hard and soft power. Others, however, say the use of the word "smart" is elitist and condescending or that the use of the phrase "soft power" seems politically untenable for those who already are being accused of being soft on defense. A U.S. ambassador refers to an "all elements of power" strategy in combating terrorism. Whatever name is used, the essence of the argument is that U.S. implements of power must be used in an articulated, coordinated, and concatenated way in order to be more effective. Whether the power be called hard or soft, the objective seems to be for U.S. military, diplomatic, economic, or cultural power to be employed and combined in ways that cut across government agencies and better protect and enhance U.S. interests. The U.S. experience since 9/11 also has suggested certain considerations and constraints in wielding U.S. power. These include the following: large international tasks are most effectively tackled with large international coalitions for financial, physical, as well as political support; future wars involving the United States may well be asymmetrical and involve soft power—a combination of military operations (against conventional as well as insurgent forces), reconstruction, governance, and winning the hearts and minds of people; threats to U.S. security have become "democratized"—whether a single person, a group, or an international network, all can potentially damage American people or assets; budget constraints are real both in terms of opportunity costs and for financing foreign operations; countries are placing more emphasis on national sovereignty—not just guarding against outside incursions but, for some nations, rigidly controlling humanitarian interventions or opposing foreign assistance to local non-governmental organizations for political reasons; as democratic institutions and societies become more entrenched (particularly in developing nations), public opinion, nationalism, and attitudes become large moving forces for governments (even autocratic governments use nationalism to bolster public support); international relations requires dealing not only with governments but with the perceptions and attitudes of people under those governments; globalization and technology have shrunk geographical distances among countries and created more economic interdependence; communications networks have so linked people of the world that everything seems to have a public face; that face often can be distorted according to the interests of those in the network; and the rise in prices of commodities (particularly petroleum) and the U.S. trade deficit are redistributing wealth away from the United States and other industrialized nations toward commodity exporting nations (many are either politically unstable or located in unstable regions) and toward China. Given the above and other considerations, the question becomes where and how to exercise U.S. soft and hard power in the post-9/11 world. As for the question of where, soft power naturally flows everywhere, but it also can be channeled to particular countries or regions. Figure 1 depicts a simplified view of the various countries and regions of the world with characterizations of basic U.S. relations with those countries or regions. With allied nations (NATO, Japan, South Korea, and Australia), relations are fundamentally sound although they may need adjustment at times. Shared strategic visions, military commitments, economic interaction, cultural affinity, and wide communication channels draw these nations together. Even with these nations, however, government-to-government relations often have to be combined with public diplomacy and building perceptions of trust and confidence to garner support for U.S. policies. Russia and China are often considered to be potential strategic competitors, although the United States engages heavily with each. The question with these two nations is how much hard power is necessary to hedge against a possible future strategic confrontation. Some warn of a return to totalitarianism in Russia, but the probability of open hostilities with Russia seems remote. Even Russian experts consider nuclear and large-scale wars with NATO or other U.S.-led coalitions no longer probable and see cooperation with the United States and other industrialized countries growing. As for a possible military confrontation with China, some experts point to China's growing military budget and the possibility of a conflict over the Taiwan Strait. These fit well into a Cold War mentality. The perceived security threat from China is magnified by Beijing's lack of transparency in clarifying its motives for its rising arms budget as well as its rumblings and warnings about Taiwan independence. However, Dennis Blair, the former Commander-in-Chief of U.S. Pacific Command, has written, "In evaluating China's military actions, it is most important to make judgments based on real military capabilities, not on blue-sky projections of individual Chinese actions." He argues that although China has raised suspicions that it may be developing military force for use in the East Asia region and further, the PLA (People's Liberation Army) has not developed nor demonstrated even the rudiments of the actual capabilities to do so. Since China's intentions are unknown, the strategy of the Defense Department has been to pursue a balanced approach by shaping the choices of major and emerging powers in a way that seeks cooperation but also creates prudent hedges against the possibility that cooperative approaches by themselves may fail. The strategy is also to induce China to become a constructive actor and stakeholder in the international system and to strive to ensure that preparing for a possible military confrontation does not in itself trigger one. There are other ways, however, in which China could threaten U.S. power. One would be a Chinese alignment with autocratic energy exporting countries to collaborate strategically to limit U.S. power. Another one would be an "Eurasian Entente," a loose alliance between Russia and China aimed at thwarting the interests of the United States. China and Russia have stepped up their strategic cooperation, but such countervailing alliances still seem far from being realized, and historical Sino-Russian enmities will likely limit how far that relationship can go. (The Shanghai Cooperation Organization is a fledgling attempt at drawing China, Russia, and three countries of Central Europe into an organization addressing security, economic, and cultural concerns.) For North Korea and Iran, relations are dominated by nuclear concerns. Interaction with these states is primarily through multinational diplomacy. With North Korea, both China and South Korea have used a considerable amount of economic, diplomatic, and cultural soft power in dealing with the Kim Jong-il regime, but progress has been slow. As for operations in Iraq and Afghanistan, these are large problems where both hard and soft power are being used to the maximum. The United States dominates in decision making here, and the Chinese model has little relevance. The countries in which Chinese soft power competes most directly with that of the United States fall into three categories: the arc of instability stretching from North Africa through the Middle East and into South Asia, other countries in play (Southeast Asia, Latin America, Sub-Saharan Africa, and Central Asia), and new (and re-emerging) centers of power, the so-called BRICs (Brazil, India, as well as Russia and China, for U.S. soft power). There is some overlap in the categories, but in essence these mainly are countries of the developing and newly industrializing world. Some are democratic, some autocratic, and each represents a potential power node. The United States is in competition for the hearts and minds of citizens of these countries. Some have de facto chosen sides, and others are following development paths that may or may not bring them into conflict with American values and interests. Instruments of Hard and Soft Power The tool kit of U.S. hard and soft power includes the military, diplomacy, economics, and culture along with several intangibles that result from U.S. actions. These include credibility, trust, and general amicability. Military forces include not only those actually engaged in combat but the threat of their use in offensive, defensive, and retaliatory operations. Diplomacy includes political forces, a nation's system of governance, alliances, and international relationships. The economy includes a nation's economic power, economic assistance, trade, foreign investment, financial position, and preferential trading arrangements. Cultural resources include the media, information, public diplomacy, communications, and traditional propaganda. Figure 2 depicts these tools of power and illustrates various combinations of them that typically are used in accomplishing ends or goals in international affairs. The percentages are not based on actual metrics but attempt to depict various combinations of the tools of power that can be used in different activities aimed at wielding power to change the behavior of other nations. The figure begins with the least forceful ways by which implements of power may be used—co-optation—and proceeds through increasingly forceful ways until countries reach open warfare and occupation. Co-opting other nations refers to a process of bringing them into international groupings or ways of thinking in order to align their interests with yours. It is primarily a non-aggressive strategy that relies heavily on the use of information, economics, and diplomacy, although military considerations are always in the background. It is the fundamental premise behind many of the world's alliances, country groupings, the World Trade Organization, and other international institutions. Co-optation also works at corporate and individual levels. Corporations engage in international trade and investment, and individuals work in businesses owned by foreign companies. In these cases, corporate and worker interests on particular issues can align more with foreign than domestic interest groups. It also is the theory behind the democratic peace hypothesis: democracies tend not to fight each other because of shared values. Co-optation is particularly important given the democratization of security threats, particularly terrorism. If anyone in the world can pose a potential security threat, then any security strategy must include winning the hearts and minds of people who might opt to engage in such activity (or those around them who might either support or report such activity to appropriate authorities). Persuasion refers to a process by which an entity is induced to behave in a particular way primarily because of changes in its own interests or because of specific concessions offered by other nations. Here diplomacy plays a key role along with economic enticements, political pressures, information, and the military in the background. A country may be persuaded to behave in a more positive way without an overt external threat of use of military force. For deterrence, the military plays a greater role by changing the target nation's perception of the costs and benefits of taking or not taking certain actions. The credibility of the military force becomes key, but the issues usually are resolved through diplomacy. Threats of a pre-emptive strike or trade sanctions may be used. So far, China has been deterred from taking Taiwan by force partly because of the negative military and political consequences that likely would ensue. If deterrence by threat fails, overt military action can be employed either to preempt or deny. If that also fails, war may ensue, and the military may be used to retaliate—in order to deter any similar adverse actions in the future. The next three activities are included to illustrate how the mix of hard and soft power changes in a sequence of military invasion, post-invasion, and occupation. The Chinese model has little relevance here. The chart depicts a rough symmetry with reliance on soft power declining as the use of hard power rises but then soft power increasing as hard power operations wind down. Changes in the mix of U.S. power prior to overt military action also may affect how both hard and soft power may be used after the battles end. In summary, many voices in policy circles in Washington are calling for the United States to wield its hard and soft power in a more coordinated and articulated way. This has arisen partly from the perceived successes of China in its attempts to win the hearts and minds of people in the developing world, but perhaps more from the complications of the Iraq War, the threat of terrorism, and the problems of globalization. However appealing this developing "consensus" appears on the surface, though, it faces the "devil in the details." It includes the long-running debate over the size of various means used to project U.S. power, particularly the budget of the Pentagon, the specific capabilities of the various instruments of power, the appropriate mix of hard and soft power, and whether new institutions are necessary to cope with the challenges of the 21 st century. Assessing China's Soft Power40 Although Beijing has adopted a more accommodating and multilateralist foreign policy and has not challenged the global "status quo," many experts disagree about the PRC's capabilities and long-term intentions and as well as the implications of China's rise. Some analysts warn that China's growing soft power reflects a set of well-funded, integrated foreign policy goals, developed to secure and advance China's economic and security interests at the expense of the United States. Others argue that China's rise is limited in scope, vulnerable to domestic shocks and public backlash in foreign countries, and represents a trend toward greater integration in the global community. Furthermore, this argument goes, U.S. military might, foreign aid resources, trade and foreign direct investment, and intellectual and cultural influences remain formidable. Many countries continue to seek strong diplomatic, economic, and security relations with the United States even while cultivating ties with China. Regarding China's goals, some observers contend that China's most pressing concerns, at least in the short- to medium-term, are domestic (focused on economic growth and social stability). Furthermore, they argue, Beijing favors a stable periphery and knowingly benefits from the U.S. role in helping to maintain global security. To the extent that China may exploit its soft power for strategic ends, it is to forestall possible "containment" rather than to pursue expansion. Many analysts believe that economic development rather than military supremacy is the primary objective for China's international engagement for a host of reasons—not the least of which are to raise the living standards of its enormous population, to dampen social disaffection about economic and other inequities, and to sustain regime legitimacy after the demise of communist ideology as an acceptable organizing principle. China's annual economic growth rates routinely are in the double digits; in 2007, they reached an annual rate of 11.4 percent—the highest since 1994. This rapid and sustained economic growth has created voracious domestic appetites for resources, capital, and technology. At the same time, Chinese growth has been driven by the development of overseas markets for its goods. These twin developments have served as powerful drivers of China's international trade and investment agreements as well as foreign aid, key components of its soft power. In energy sources alone, for example, China became a net importer in 1995 (it became a net importer of oil in 1993). Its energy demands are expected to continue increasing at an annual rate of 4%-5% through at least 2015, compared to an annual rate of about 1% in industrialized countries. China steadily and successfully has sought trade accords, oil and gas contracts, scientific and technological cooperation, and de-facto multilateral security arrangements with countries both around its periphery and around the world. Access to energy resources and raw commodities to fuel China's domestic growth has played a dominant role in these relationships. Many of these activities are tied to PRC pledges of foreign aid. In pursuit of sustainable economic development, China also is seen to have placed a priority in keeping stable and relatively tension-free relations with its primary export market, the United States, and with other countries and regions. According to this view, Beijing calculates that even the appearance of a more overt pursuit of its regional and global interests could prompt the United States and other countries to strengthen their alliances or form other groupings to counterbalance and deter China's international outreach. Such a development in turn could fetter China's economic growth. Limitations on Chinese Soft Power China's "win-win" approach to international interactions often is considered more symbolic than substantive. Easy things are taken care of first, while inconvenient and difficult things are postponed, possibly indefinitely. Moreover, a "win-win" strategy is a slender reed for maximizing comprehensive soft power. The soft power potential that the PRC can hope to gain from such a strategy, many believe, pales next to the national capacity and willingness of the United States to take on costly and difficult global tasks such as international disaster aid. To date, they contend, nothing in Beijing's current soft power approach suggests that it is willing to embrace such altruism. Moreover, China's lack of transparency raises consistent doubts about whether the levels of aid and investment triumphantly announced are the levels of aid and investment actually provided. Even with a "win-win" strategy, acquiring and maintaining an enhanced international presence brings with it certain complications. Among other things, it provides almost innumerable opportunities for international misunderstandings, resentment, and repercussions. Cultural backlash may be heightened by the style that PRC foreign investments and construction projects have pursued to date—involving the import of Chinese workers instead of using the local population or providing substandard labor conditions for local workers. Chinese overseas operations already have begun to experience fallout from their activities: PRC oil drilling sites and well-workers have been attacked, kidnapped, or killed in Sudan, Somalia, Nigeria, and elsewhere in Africa. Some Central Asian countries have grown concerned about the level of energy assets that China has been accruing within their borders and have moved to limit such acquisitions. As China's international activities expand, tensions along these lines are likely to increase, possibly garnering unfavorable publicity for the PRC and putting stress on the "win-win" approach. Foreign entanglements also could raise political problems at home for PRC policymakers. The increasing availability of Internet and cell phones—China now has the world's largest numbers of Internet and cell phone users—assures that growing numbers of Chinese citizens have more access to information, including information about China's international activities. Confirmation that China is investing millions of dollars in overseas projects, while at home unemployment grows and infrastructure development lags, may prove objectionable to the hundreds of millions of PRC citizens still living below the poverty line—much the way many Americans sometimes react to U.S. overseas investment. As noted above, Beijing is seen to have advantages over the United States in that its overseas activities and investments are conducted by strong, well-funded state-owned companies. These large PRC government activities attract much international attention and give a "hard" edge to PRC soft power. The United States has little to match such centrally directed initiatives, particularly in the wake of years of U.S. budget cutbacks in—and in the case of the U.S. Information Agency, the termination of—high-profile U.S. international public diplomacy programs. But comparing only government-directed and -funded activities overlooks the huge advantage the United States has in the extent of its substantial global private-sector presence. In addition to U.S. business interests, American products, schools, newspapers, journals, banks, movies, TV programs, novels, rock stars, medical institutions, politicians, Chambers of Commerce, state governments, culture, religious groups, ideas, NGOs, and other American institutions and values are liberally scattered over the global map. While this U.S. presence is diverse and uncoordinated, and at times triggers anti-American feelings, it nevertheless leaves a substantial global footprint. This wealth of U.S. influence may provide resources for U.S. soft power strategy. PART TWO: COMPARISONS OF U.S. AND PRC INSTRUMENTS OF HARD AND SOFT POWER Diplomacy and Foreign Assistance The following section examines three aspects of non-economic soft power—public diplomacy, state diplomacy, and foreign assistance. It compares U.S. and PRC efforts in a range of areas, including educational and cultural exchanges, bilateral and multilateral diplomacy, and foreign aid funding and approaches. In the past decade, Beijing has emphasized relatively short-term, economic "mutual benefits" while using these tools of soft power. This approach, on balance, has had a positive impact on elite and public perceptions of China in many countries. By contrast, the United States, particularly since 2001, has focused upon longer-term goals of combating terrorism as well as promoting democratic governance and market-oriented economic development. The Bush Administration's five-year, $15 billion President's Emergency Plan for AIDS Relief (PEPFAR) reportedly has helped to bolster public opinion in favor of the United States in Africa while humanitarian assistance in places such as Indonesia also have helped to boost U.S. standing. However, many countries have not benefitted from counter-terrorism, PEPFAR, or Millennium Challenge Account (MCA) assistance. In 2007, over three-fourths of U.S. assistance to the Middle East consisted of military assistance. In the past decade, U.S. public diplomacy has faced serious challenges to its effectiveness, including the elimination of the U.S. Information Agency (USIA), inadequate staffing, and widespread global opposition to the U.S.-led war in Iraq. The U.S. government administers a wide array of educational and cultural exchange programs, emphasizing research, values, and ideas that may transcend national boundaries. U.S. research universities continue to rank among the world's top educational centers and attract foreign students, many from India and China. By contrast, China's most prominent counterpart, the Confucius Institutes, which teach students in other countries about Chinese history and culture, have less universalistic appeal. Nonetheless, they represent a new component in China's strategy to merge its economic influence with efforts to promote an understanding of its view of the world. The 110 th Congress has held hearings and proposed measures that support U.S. public diplomacy, diplomatic efforts, and foreign aid. The House Committee on Foreign Affairs held two hearings on reforming foreign assistance and diplomacy. (March 8, 2007 and June 25, 2008) The Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ), includes provisions supporting greater communication of U.S. policies and promotion of U.S. values. The Public Diplomacy Resource Centers Act of 2007 ( H.R. 2553 ), passed by the House and reported favorably by the Senate Committee on Foreign Relations, would provide for the establishment of new, and maintenance of existing, libraries and resource centers at or in connection with U.S. diplomatic or consular missions. U.S. Public Diplomacy45 Public diplomacy is the promotion of America's interests, culture and policies by informing and influencing foreign populations. The Department of States proclaims that the goals of U.S. public diplomacy strategy include promoting democracy and good governance and marginalizing extremist leaders and organizations. The U.S. government first officially acknowledged its use of public diplomacy activities in the early years of the 20 th century when President Woodrow Wilson created the Committee on Public Information to disseminate information overseas during World War I. Background In 1941 during World War II, President Roosevelt established the Foreign Information Service to conduct foreign intelligence and propaganda. The next year President Roosevelt created the Office of War Information (OWI) which aired the first Voice of America (VOA) program on February 24, 1942 in Europe. These activities were carried out without any authority or recognition provided by Congress. The U.S. Information and Educational Exchange Act of 1948 (P.L. 80-402), popularly referred to as the Smith-Mundt Act, provided the first overarching legislation authorizing broadcasting and cultural activities, although they had already been going on throughout the 1940s. Throughout the 1990s, both Congress and the executive branch, in the post-Cold War climate, reduced public diplomacy activity funding, and in 1999 abolished the primary public diplomacy agency, the U.S. Information Agency—USIA, altogether. During the 1990s, public diplomacy often was viewed as less important than political and military government functions and, therefore, was seen by some legislators as a pot of money that could be tapped for other government activities. Many U.S. policymakers now recognize the importance of how America and its policies are perceived abroad. At the same time, some observers believe that there are limits to what public diplomacy can do when the problem is not foreign misperceptions of America, but rather disagreements with specific U.S. foreign policies. A major expansion of U.S. public diplomacy activities and funding cannot change that, they say. According to a Pew survey, in 2000, more than 50%, and as high as 83%, of foreign populations around the world held favorable views of the United States. A number of decisions early on by the Bush Administration including refusing to sign onto the Kyoto Treaty, the International Criminal Court, the Chemical Weapons Ban, and the Anti-Ballistic Missile Treaty, lessened foreign opinion of the United States. After the September 11, 2001 terrorist attacks, people around the world expressed shock and support for the U.S. government. Since then, however, negative attitudes about America have increased. After the decision to go to war with Iraq, foreign opinion of the United States fell sharply, not only in the Arab and Muslim world, but even among some of America's closest allies. Many suggest that, ongoing issues, such as prisoners held at Guantanamo Bay and the Abu Ghraib prison torture situation, continue to exacerbate a poor world view of the United States. U.S. Educational and Cultural Exchange Programs The United States government sponsors a broad array of cultural and educational exchange programs for the purpose of "increasing mutual understanding." The State Department's Bureau of Educational and Cultural Exchange administers a number of programs, including the Fulbright Program, English language programs, an American speakers program, citizen exchange programs, student leader programs, and English language programs. There are approximately 30,000 participants each year. U.S. embassies also oversee the U.S. Speakers Program, in which American subject-matter experts address selected audiences in foreign countries on a range of policy issues and various aspects of American society. The largest regional beneficiaries of U.S. exchange programs in terms of funding are Europe and Eurasia and East Asia and the Pacific. Funding Public diplomacy consists primarily of three categories of activities: (1) international information programs (IIP), (2) educational and cultural exchange programs, and (3) international nonmilitary broadcasting. The Under Secretary of State for Public Diplomacy and Public Affairs administers the Bureau for International Information Programs and the Bureau for Educational and Cultural Affairs, while the Broadcasting Board of Governors manages and oversees international broadcasting. Table 1 below shows that total public diplomacy spending nearly doubled between FY1999 and FY2007 (the most recent actual data). (See Figure 3 .) The regions with the largest funding for public diplomacy (FY2007) are Europe/Eurasia and Western Hemisphere (Latin America and the Caribbean). (See Figure 4 .) For FY2009, the Bush Administration requested $395 million for International Information Programs "to influence foreign opinion and win support for U.S. foreign policy goals." PRC Confucius Institutes and Language Training51 The PRC government has established an office for promoting Chinese language and culture as part of a global public diplomacy effort. China's National Office for Teaching Chinese as a Foreign Language, or Hanban , reportedly has established 210 Confucius Institutes worldwide in 64 countries and regions since 2004 to teach Chinese language and culture. Some observers assert that these centers will help China to cultivate friendships and promote an understanding of China throughout the world. They typically are located in colleges and universities in host countries under cooperative arrangements with Chinese educational institutions. More than 200 educational institutes in 61 countries and regions reportedly have applied to open up Confucius Institutes, while China has trained more than 300 teachers and spent $26 million on textbooks and audio equipment for this purpose. Other PRC efforts include hosting overseas scholars in programs similar to U.S. government-sponsored scholarly exchanges and attracting and expanding facilities for foreign students. According to the PRC government, in 2005, more than 30 million people outside China were studying Chinese, although the vast majority of them were not sponsored by the Chinese government. The PRC National Office for Teaching Chinese as a Foreign Language predicted that by 2010, 100 million persons around the globe will be learning Chinese. However, the attraction to Chinese language often reflects more an interest in Chinese economic opportunities than a desire to emulate Chinese politics, society, or culture. Foreign Students The United States, with its first-rate universities, continues to attract far more foreign students than does China. In 2007, the U.S. Department of State issued more than 600,000 student and exchange visitor visas, an increase of 10% over 2006, following several years of decline. The second and third largest centers for foreign students are the U.K. and Germany, each with less than half the U.S. number. In 2007, 195,000 foreign students reportedly were studying in China. China has ambitious plans to enroll more foreign students. The U.S. government tightened its visa policies following the September 11, 2001 terrorist attacks, leading to cases of bureaucratic bungling, perceptions that the United States no longer welcomed foreign students, and three years of declining enrollment. During this time, China not only loosened its own requirements, but announced goals to attract more students from abroad. Other countries in Europe, Oceania, and Asia also launched recruitment efforts to attract foreign students, including those from China, many of whom were discouraged from applying to U.S. universities due to the restrictive visa process. State Diplomacy While U.S. exchange programs may have a long-term impact on public opinion, some experts argue that they are overshadowed by China's official exchanges. China reportedly has been investing in the "best of the brightest" for recruitment into its increasingly sophisticated diplomatic corps and lengthening their assignments in order to foster improved language skills, cultural understanding, and diplomatic effectiveness. One report suggests that in many countries, PRC diplomats have a busier schedule and are more accessible than their American counterparts. By contrast, since 2005, the U.S. government reportedly has frozen staffing levels at many diplomatic posts. Budget constraints and the diversion of human resources to Iraq and Afghanistan have created not only shortfalls in staffing but also cuts in language and other training. After long shunning or passively participating in what it perceived as U.S.-dominated multilateral organizations, in the past decade, China has joined, taken on more active roles in, and created new international groupings. In doing so, Beijing has aimed to achieve several key foreign policy objectives, including enhancing its global stature, defending and promoting its own interests, constraining the United States, enhancing its "win-win" diplomacy, and creating diplomatic and economic partnerships and blocs. By contrast, the Bush Administration's appointment of John Bolton, a long time critic of the United Nations, as the country's U.N. representative (2005-2006), was seen by some foreign observers as a rejection of multilateralism. China has adopted a more assertive role in the United Nations, the World Bank, the Asian Development Bank, and other global and regional entities. The PRC has become more engaged and assertive in the U.N. and deploys a greater number of personnel than the United States to U.N. peacekeeping missions. However, many analysts argue that some aspects of China's foreign policy show a more belligerent and narrowly self-interested outlook, such as Beijing's rigid stance on Taiwan and opposition to harsher measures against Sudan. Bilateral initiatives, such as Friendship and Cooperative Partnership Agreements, Free Trade Agreements, and Strategic Partnership Agreements, have helped to seal friendships. Finally, China has sought to devise new multilateral organizations that exclude the United States, such as the East Asia Summit (EAS), the Shanghai Cooperation Organization (SCO) in Central Asia, the Forum on China-Africa Cooperation Forum (FOCAC), and the China-Arab Cooperation Forum. U.S. Foreign Aid62 Background Foreign assistance is a fundamental component of the U.S. international affairs budget and is viewed by many as an essential instrument of U.S. foreign policy. U.S. foreign assistance programs began in earnest in the mid-1940s with a four-year $13 billion investment in rebuilding Europe under the Marshall Plan. After the Marshall Plan ended in the early 1950s, much of U.S. foreign assistance of the 1950s and 1960s was provided to Southeast Asia to counter Soviet and Chinese influence. The focus of U.S. foreign aid has changed with different world events and administrations. Famine relief in Africa and countering insurgencies in Central America were themes during the 1980s. In the 1990s, support of Middle East peace included aid to Israel, Egypt, Jordan, and the Palestinians. Since the September 11, 2001 terrorist attacks, U.S. assistance programs have taken on a strategic importance, frequently cast as supporting national security and the global war on terrorism. In its FY2009 International Affairs 150 budget the Bush Administration identified the Department of State and the U.S. Agency for International Development (USAID) as playing critical roles in implementing the National Security Strategy. At the same time, however, both State and USAID, according to many foreign policy experts and the Secretary of Defense Robert Gates, have been lacking in resources for several years: "America's civilian institutions of diplomacy and development have been chronically undermanned and underfunded for far too long—relative to what we traditionally spend on the military and more importantly, relative to the responsibilities and challenges our nation has around the world." Additionally, the effectiveness of the foreign policy agencies, particularly USAID, have been hindered by operational changes. Whereas USAID until recently was comprised of development and country experts, now, according to some development experts, it has become an agency of contract managers, both in Washington and overseas, thereby weakening the expertise of the organization. Some policy-makers have expressed concern that new initiatives, such as Secretary Rice's Transformational Diplomacy and Transformational Development (which place greater emphasis on U.S. security and democracy-building goals), have taken resources away from traditional aid programs, particularly in countries that present fewer security threats to the United States or where governments do not meet various performance criteria. Other agencies and programs, such as the Department of Defense, the Millennium Challenge Corporation (MCC), and the President's Emergency Plan for HIV/AIDS Relief (PEPFAR), also may have diverted funds from core programs and reduced coordination of U.S. foreign assistance activities, in general. Some analysts also argue that promoting democracy prematurely in some countries may waste aid or even create a backlash toward other U.S. programs in that country. Funding The United States is the world's largest economic aid donor in dollar terms, but is the smallest contributor among major donor governments in terms of percent of gross national income. U.S. foreign assistance generally declined for several decades to an all-time low of 0.14% of national income in the mid-1990s due to the ending of the Cold War and efforts to balance the federal budget. In the late 1990s, aid gradually increased to respond to international disasters, such as Hurricane Mitch in Central America. Aid funding increased significantly in the 2000s, largely due to the wars in Iraq and Afghanistan. See Table 2 and Figure 5 . However, although the amount of spending for international activities has grown significantly since 2001, compared to changes in the overall size of the federal budget, the share allocated for foreign policy programs has declined. Spending on non-military aid has declined slightly since 2004. See Figure 6 . Out of $14.7 billion spent on bilateral and regional aid programs in FY2007, the Middle East was the largest recipient ($5.1 billion), followed by Africa ($4.7 billion), South and Central Asia ($2.1 billion), Latin America, ($1.5 billion), Europe and Eurasia ($.85 billion), and East Asia and the Pacific ($0.53 billion). See Figure 7 . China's Foreign Aid69 China's foreign aid is difficult to quantify, due to a lack of official and reliable data. The China Statistical Yearbook 2003-06 released an annual aid figure of $970 million, but this number likely does not include loans, which according to some experts is the main form of PRC aid. According to one source, annual PRC aid ranges between $1.5 billion-$2 billion. When loans and state-sponsored investment are included, according to one study using unofficial reports of pledged aid, the PRC promised a total of $31 billion in economic assistance to Southeast Asian, Latin American, and African countries in 2007, a threefold increase compared to 2005 and 20 times greater than 2003. By contrast, the United States' core official development assistance (ODA) budget (bilateral development, economic, and security assistance; not including military and multilateral assistance) was $19.5 billion in FY2007 out of a total foreign operations budget of $26.4 billion. According to OECD data, the United States' ODA budget is the largest among OECD member countries, followed by Japan, the United Kingdom, France, and Germany. China's estimated aid levels are comparable to those of Australia, Belgium, or Denmark. Another problem with calculating Chinese foreign assistance is that it is often difficult to confirm when or whether aid and loan pledges were actually disbursed. The unique characteristics of PRC foreign aid often result in it being overlooked. Like Japan but unlike most major aid donors, a large portion of Chinese assistance consists of interest-free or concessional loans—up to 41%—rather than grants, which constitute only 3%, according to one study. Debt forgiveness is also a major form of PRC foreign aid. In addition, China often extends aid packages that include not only loans but also trade and investment agreements, largely in the energy sector. According to some analysts, when these kinds of assistance are added, China becomes one of the largest bilateral aid donors in some countries and regions. Furthermore, PRC assistance often garners appreciation among foreign leaders and citizens disproportionate to its costs: (1) China offers assistance without the conditions that Western donors frequently place on aid (i.e. democratic reform, market opening, and environmental protection). China's policy of "non-interference in other countries' domestic affairs" often wins international support because it is regarded as respectful of their countries' sovereignty; (2) Chinese aid does not require a lengthy process involving setting up and meeting social and environmental safeguards; (3) PRC assistance, often announced at lavish receptions with toasts to the recipient country's leaders, carries great symbolic value; (4) Many Chinese aid projects, such as government buildings, infrastructure, hospitals, and energy facilities, often funded by loans from the China Import-Export Bank and built by Chinese companies, are high profile efforts with tangible benefits and serve as constant reminders of China's beneficence; (5) Some Chinese aid and investment projects reportedly tackle challenging projects that other aid donors have avoided because of technical difficulties or hardships. China has taken some tentative steps toward making its foreign aid process more open, coordinating its projects with other ODA providers, and offering more development-oriented assistance, while continuing to eschew the label of major ODA donor. Beijing reportedly is gradually developing an official aid structure and considering creating a unified aid agency. In 2007, the PRC participated in the "Pacific Core Partners Meeting" which included discussions among ten countries and several multilateral organizations with an interest in reaching a consensus on goals for development aid in the Southwest Pacific. During the same year, China for the first time provided aid to Cambodia through an international pledging process. The PRC aid programs are expanding to include technical assistance, medical assistance, political development (elections), and food aid. China has begun sending "youth volunteers," similar to U.S. Peace Corps volunteers, engaged in Chinese language instruction, computer skills, agricultural and poultry technologies, sports and music training, and traditional Chinese medicine. Global Public Perceptions78 Although public perceptions of the United States and China vary widely within regions and are sensitive to current events, some public opinion studies point to a significant decline for the United States after 2002. A comparison of surveys conducted in 2002 and 2007 by the Pew Research Center shows that images of the United States declined in 26 of 33 countries. In a 2005 Pew 16-nation survey, images of the United States had improved somewhat from its low point following the invasion of Iraq in 2003, but its favorability rating still placed it last among five major powers—Germany, France, Japan, and China. In a 2006 Harris Poll, among European countries, the United States was viewed as the greatest threat to global stability, followed by Iran and China. Although positive attitudes toward China have declined somewhat in the past few years, the PRC's image is regarded as "decidedly favorable" in 27 of 47 nations surveyed by Pew in 2007. These responses reflect a view of China's economic influence as largely positive, especially among developing countries that do not compete directly with China. However, concerns about China's military strength are evident in Europe, Japan, and South Korea. Western European nations have become increasingly critical of China's role in the world. In a 2008 Harris Poll, among major European countries, China has overtaken the United States as the "biggest threat to global stability." Some observers argue that China's self-cultivated image of "peaceful development" may have been marred by reports of the PRC police crackdown in Tibet and Chinese foreign students attacking human rights demonstrators in Seoul, South Korea during the Olympic torch relay there. PRC and U.S. Military Diplomacy85 This section discusses two aspects of the PRC's military diplomacy for comparison with U.S. spending: training foreign militaries and participating in peacekeeping. For many years, China has used military training to support arms sales as well as the diplomacy that is conducted by the military, collectively called the People's Liberation Army (PLA). China also has highlighted its role in United Nations (UN) peacekeeping to boost its diplomatic image and contend that the PRC is a cooperative country in international security and a responsible permanent member of the U.N. Security Council. China is not as transparent as the United States in publishing its military spending and deployment information, and PRC official media report vague and selective information about the PLA's foreign contacts. Nevertheless, some funding data about the PLA's role in peacekeeping operations has been objectively reported by the UN. Overview of Military Budgets The PRC's defense budget can be used as one indicator of the priority placed on the modernization of its military, collectively called the People's Liberation Army (PLA). On March 4, 2008, the PRC announced its military budget for 2008 that totaled 417.8 billion yuan (US$58.8 billion), claiming a 17.6 percent increase over last year's military budget. Actually, the newly announced 2008 budget is an increase of 19.1 percent over last year's announced budget (vs actual budget). Using the PRC's own announced military budgets, the 2008 budget is a doubling of the 2004 budget. This trend of double-digit percentage increases has persisted for years. Nominally, China has raised its announced military budget by double-digit percentage increases every year since 1989. After the Taiwan Strait Crisis of 1995-1996, China's announced military budget has increased in real terms (accounting for inflation) every year, including real double-digit percentage increases every year since 1998. China's military budget is the highest in Asia. In comparison, the U.S. base defense budget (for Defense Department activities other than the ongoing military operations in Afghanistan and Iraq) for FY2008 totaled $460.3 billion, as provided by the FY2008 Defense Appropriations Act ( P.L. 110-116 ). The Defense Department estimates that China's total military expenditures is greater than the military budget as officially announced. The Secretary of Defense's 2008 report to Congress on PRC military power estimated that China's total defense-related spending for 2007 could be $97-139 billion, about two to three times the announced military budget. In comparison, total U.S. spending for national defense in FY2007 (including base budget for the Defense Department, war-related funding, related funding for the Energy Department, and related intelligence and homeland security spending) totaled $528.6 billion. The following graph ( Figure 8 ) depicts the increase in military budgets as announced by China. Military Training The PLA has extended training to foreign militaries, mostly of developing countries. For decades, military training has been conducted in support of China's arms sales or transfers. From 1999 to 2006, China ranked 5 th among the leading suppliers of weapons to developing countries (behind the United States, Russia, United Kingdom, and France). The value of China's arms deliveries during the eight-year period totaled $5.8 billion. (The value of U.S. arms deliveries to developing countries in the same period totaled $61.1 billion.) For example, in the 1980s and 1990s, the PLA Navy trained Pakistan's and Bangladesh's naval officers to maintain frigates and torpedo boats from China. In Africa, the PLA trained air force pilots of Zimbabwe to fly F-7 fighters and to operate air defense systems supplied by the PRC. During a visit to the Philippines in September 2007, PRC Defense Minister Cao Gangchuan offered a grant worth $6.6 million to the military for non-lethal military equipment, construction machinery, Chinese-language training, participation in naval exercises in China, and military courses in Beijing. At the same time, China sought to sell at a discount eight Z-9 utility helicopters to the Philippines' army. In 2004, China provided a preferential loan to Cambodia for the purchase of seven patrol boats, one landing ship, and one floating dock, worth a total of $60 million. At the handover ceremony in November 2007 attended by China's ambassador, an executive of the China State Shipbuilding Corporation cited further cooperation with Cambodia, involving personnel training, maintenance, and spare parts. Additionally, training for foreign militaries has been conducted at the PLA's National Defense University (NDU) in Beijing in part to enhance friendly ties with foreign militaries, sometimes with scholarships. At the end of 2006, the PRC government reported that various PLA educational institutions in China hosted more than 2,000 military students from over 140 countries. However, the PLA's primary objective in offering training in China to foreign militaries is not to build personal or cultural rapport and relationships between PLA and foreign military officers. At the NDU, classrooms for foreign military officers are located in a secondary campus, and foreign students are separated from PLA students. Even officers from Zimbabwe complained about isolation from and lack of interaction from PLA officers. Some countries have refused to conduct exchanges unless foreign students are integrated with PLA students on a reciprocal basis at the PLA's NDU. In contrast, the U.S. International Military Education and Training (IMET) program seeks to increase mutual understanding and defense cooperation; support combined operations with the U.S. military; and promote democratic values and human rights. In particular, IMET helps to develop professional and personal relationships that provide U.S. access to and influence in foreign militaries as the critical actors in transitions to democracies. In reporting training as part of building bilateral military relationships, the PLA has increasingly stressed China's cooperative attitude in international security, particularly non-traditional security problems like counter-terrorism, humanitarian assistance, and disaster relief. In July 2007, a PLA training base in the southern city of Guangzhou held an exercise with Thailand's special forces, training to counter violent international drug smugglers. A report in Jakarta in early 2008 said that China offered training and education for 23 military officers from Indonesia plus a seminar in China on international disaster relief for two Indonesian officers among others from the Association for South East Asian Nations (ASEAN). In April 2008, the PLA's University of Science and Technology in Nanjing conducted the first de-mining course to train military officers from Sudan, to show China's support for that country's reconciliation. In Asia, the PLA has extended military training to Cambodia. In 2003, coinciding with a visit by the PLA Chief of General Staff, media in Phnom Penh reported rare information on the PLA's military aid, saying that China provided $3 million annually to Cambodia for military training. In addition to Cambodia, media reports have quoted senior PLA officers as mentioning vague training for the militaries of Pakistan, Vietnam, Indonesia, Singapore, Bangladesh, Mongolia, and the Philippines. China has provided military training for the forces of the junta ruling Burma. In the case of Thailand, China has proceeded to enhance military assistance, including training, in spite of the military coup in Bangkok in September 2006 and in contrast to U.S. concerns. In January 2007, the PLA hosted the Thai Army Commander-in-Chief who led the coup that ousted the prime minister and offered military aid and training worth $49 million to the Thai military. In Central and South America, where a number of countries still recognize the Republic of China (commonly called Taiwan), the PLA reportedly has provided training for the militaries of various countries, including Surinam, Argentina, Guyana, Venezuela, Cuba, and Brazil. An increasing number of officers from Latin American militaries have attended PLA academies. In August 2007, the NDU in Beijing hosted the Third Latin American Senior Officer Symposium and the First Symposium of Senior Defense Officers from the Caribbean and South Pacific. In Africa since 2006, China has stepped up its civilian engagement and military training after a visit by Foreign Minister Li Zhaoxing in January 2006 and a China-African summit of the Forum on China-Africa Cooperation (FOCAC) in November 2006. Heads of state or government from 41 African countries attended the summit in Beijing. Reportedly at times with scholarships and in support of arms sales or supplies, the PLA reportedly has trained personnel from the militaries of countries that include Egypt, Sudan, Zimbabwe, Chad, Madagascar, Guinea, Morocco, Rwanda, Zambia, Nigeria, Benin, Cameroon, Sierra Leone, Ethiopia, Eritrea, Lesotho, and Namibia. In addition, the press in Kinshasa reported in early 2006 that 83 military officers from the Democratic Republic of the Congo were studying at that time in PLA military academies. At the same time that the Beijing government touted training for foreign military students, it cited greater expenses for international cooperation as one of the reasons for China's increased military budget, in a report issued at the end of 2006. However, China's defense budget lacks detailed clarity and transparency, and accounts for only part of total military-related spending. In a more detailed discussion of China's military spending in Beijing held in November 2006, just before the release of the PRC government's report, U.S. specialists found that the PLA's foreign assistance is covered by inter-agency funds from other ministries. In contrast, U.S. military assistance is reported annually in the State Department's request to Congress for funding the budget for international affairs. Military assistance includes three categories of International Military Education and Training (IMET), Foreign Military Financing (FMF), and Peacekeeping Operations (PKO). See Table 3 . According to the budget justifications, the United States funded military assistance in the amounts shown in this table since FY2001. The IMET programs trains roughly 10,000 foreign military students per year from over 130 countries, with the largest totals coming from Europe/Eurasia and the Western Hemisphere (Latin America and the Caribbean). Peacekeeping Operations China shunned participation in U.N. peacekeeping operations until a policy change in 1988, in part because of opposition to what China called military intervention in the name of the U.N. in the internal affairs of other countries. The PLA first participated in a U.N. peacekeeping mission by sending military observers to the Middle East in 1990. By 2000, China was deploying about 650 personnel in 10 U.N. peacekeeping missions. By late 2007, China's personnel at U.N. peacekeeping operations totaled 1,819. However, despite the rising numbers of deployed personnel in foreign countries, the PLA's "peacekeeping" in the 1990s was mainly in sending military observers, not troops or police. The PRC Government's late 2006 report stressed the PLA's participation in U.N. peacekeeping operations, reporting that since 1990, China had sent a total of 5,915 military personnel to join 16 U.N. peacekeeping operations. However, the breakdown of types of personnel showed that they were not combat troops who maintained security. In late 2006, the total of 1,487 PLA "peacekeepers" were mainly military observers and staff officers, engineers, medical personnel, and transportation personnel. There also were 180 police in peacekeeping missions. Some U.S. observers have suspected that the PLA's "peacekeepers" collected intelligence on foreign militaries and focused on protecting China's economic, including energy, investments or facilities. Particularly since 2006, the PRC has touted its participation in U.N. peacekeeping, as part of its claimed "leading" role in international peace and security. In 2006, the PLA claimed that it was the largest contributor to U.N. peacekeeping operations among the five permanent members of the U.N. Security Council, and the Washington Post boosted China as "quietly extending its influence on the world stage through the support of international peacekeeping operations." However, China's argument about its role as the largest participant in peacekeeping among the five permanent members of the U.N. Security Council failed to take into account the various critical roles in maintaining international security played by the U.S. and European militaries outside of U.N. peacekeeping. Despite its expansion of peacekeeping deployments, PRC influence exerted through peacekeeping has been limited. PRC personnel have included, since 2004, police officers (currently numbering 134) at the U.N. peacekeeping mission in Haiti. However, while this deployment raised a concern that Beijing would use its influence for diplomatic recognition, Haiti still maintains a diplomatic relationship with the Republic of China in Taipei (commonly called Taiwan). In 2007, China agreed to send PLA troops as U.N. "peacekeepers" to Darfur to deflect criticism of China's failure to help the humanitarian crisis in Sudan and the Beijing Olympic Games as the "Genocide Olympics." But the PLA sent 315 engineers to build barracks and other construction projects. In testimony in June 2008, Deputy Assistant Secretary for East Asian and Pacific Affairs Tom Christensen criticizing China for not doing more in Sudan. He said that while China has become more involved in addressing the humanitarian crisis in Sudan, Sudan's government continues to use violence against civilians and rebels in Darfur, and renege on key elements of deployment of the United Nations African Mission in Darfur (UNAMID). In the same month, top PRC ruler Hu Jintao continued to have to urge Sudan, during a visit of its vice president, to fulfill its commitments on the deployment of the peacekeeping force and achieve peaceful conditions in Darfur. As of April 2008, China ranked 12 th in the number of military and police personnel participating in U.N. peacekeeping operations, with 1,981 personnel in total in 12 U.N. missions. In comparison, the United States ranked 43 rd , contributing 300 personnel. The top ten contributing countries to U.N. peacekeeping operations are: Pakistan, Bangladesh, India, Nigeria, Nepal, Ghana, Jordan, Rwanda, Italy, and Uruguay. However, while China increasingly has touted the increasing numbers of its personnel in peacekeeping, China has not highlighted the relatively limited funding it has provided to the U.N. for peacekeeping. The top ten contributors of funding for U.N. peacekeeping are: United States, Japan, Germany, United Kingdom, France, Italy, China, Canada, Spain, and South Korea. While the United States leads with the highest contribution to the U.N. peacekeeping budget, providing 26 percent of assessed contributions, China provides 3 percent of assessed contributions. Even at this low level of contribution for the world's fastest growing economy, a PRC diplomat at the U.N. complained in late 2007 about the "financial burden" for China when its required assessments, including for peacekeeping, increased 42 percent from 2006 to 2007. In 2007, China contributed $190.6 million for U.N. peacekeeping operations, while the United States contributed $1.2 billion. International Trade Flows118 For China, international trade is playing a key role in increasing its influence around the world and in enabling the country to import the technology, resources, food, and consumer goods needed to support its economic growth, to finance the other aspects of its national power, and to maintain the legitimacy of the Communist Party government. The access that China has to foreign markets also has enabled it to attract foreign investment. These foreign-affiliated companies not only play a key role in generating economic growth and employment but in the manufacture of world-class products that account for more than half of China's exports. China is now the third largest trading nation in the world (after the United States and Germany), and its commercial interaction is having a major effect both on trading partners and on China's own economy. International trade differs from diplomacy, foreign aid, military exchanges, and other bilateral interaction that requires explicit government action and funding. Trade is largely self-motivated and self-generated, and the financial rewards are captured largely by private producers and consumers along with the chain of service providers who facilitate the transactions. Governments, however, benefit from the international trade transactions through tariff and tax revenues, economic growth, increased economic efficiency, and a generally higher standard of living for residents. Government policy also influences trade flows either in a negative (e.g., protectionism) or positive (e.g., trade promotion) manner. International trade and financial transactions, moreover, generate spillover effects, that carry over into political and security ties among nations. Trade also can be used as a weapon (as with trade sanctions) or it can be used to create interdependencies that may ameliorate hostile interactions or induce countries to take favorable political actions. Trade additionally creates interest groups within the trading countries who value stability and abhor political disruptions to their commercial transactions. Academic studies have shown that among nations, the greater the interdependence (the greater the costs of exiting from an economic relationship), the greater the probability that the nations will not seek political demands that could lead to conflict. On the other hand, economic interdependence also can be used as leverage to bolster political demands. Also, the greater the extent that internationally oriented coalitions in a country (actors with interest in expanding foreign markets or in importing) have political clout, the more likely that outside, economic incentives or sanctions will be effective in influencing policy in the country in question. In addition, economic studies indicate that the expectation of future commercial gains between nations helps to dampen political tensions and deter the onset of hostilities. Such future gains are enhanced by preferential trading arrangements, such as free trade agreements (FTAs). Membership in preferential trading arrangements tends to inhibit interstate conflict. Economic interaction also increases opportunities for international communication, establishing personal ties between people, and cooperating in diplomatic endeavors. This reduces the chances for miscalculations and misperceptions and increases the chances for direct diplomacy and back-channel communications. On the other hand, economic arrangements may increase competition for domestic industries and invite blowback from sectors hurt by increased trade liberalization. China has taken an aggressive stance toward establishing FTAs with trading partners. It has concluded a highly publicized FTA with the Association of South East Asian Nations that would create a zero-tariff market for China and the six early ASEAN members (Indonesia, Singapore, Thailand, Philippines, Malaysia, and Brunei) by 2010 and for the other four members (Vietnam, Cambodia, Laos, and Burma/Myanmar) by 2015. This included an early harvest program that eliminated tariffs on goods immediately, and in 2007 a further agreement brought services under the FTA. China also has FTAs with Hong Kong, Macao, New Zealand, and Chile. It is negotiating with or having pre-negotiation discussions with about two dozen other countries including Australia, South Korea, Pakistan, Peru, Iceland, Switzerland, the Gulf Countries, and the Southern Africa Customs Union. The United States also has been actively concluding free trade deals. It has FTAs in force or pending implementation with Israel, Canada, Mexico, Jordan, Chile, Singapore, Australia, Morocco, Bahrain, Peru, and Oman, plus FTAs with Panama and South Korea awaiting legislative approval. Negotiations have begun for FTAs with Malaysia, Thailand, and the Southern Africa Customs Union. A difference between China and the United States is that China tends to avoid insisting upon controversial or intrusive provisions in its FTAs, whereas the United States usually attempts to negotiate according to a "gold standard template" for its agreements. This high standard usually requires the partner country to open markets long protected for domestic political purposes or to enact legislation, such as greater protection of intellectual property, that may be politically difficult. As a result, China's FTAs usually engender less resistance and tend to result in considerable good will in the partner country—even if the FTA provides only for partial market opening. FTA negotiations with the United States, on the other hand, often trigger political opposition in the potential FTA partner country. Such political opposition, along with other developments, have hindered FTA talks with Thailand and Malaysia. Negotiations on the Korea-U.S. FTA were concluded despite demonstrations against it in South Korea, but the agreement is awaiting formal approval by each country. Rapid economic growth in China combined with a population (1.3 billion people) that is larger than North America and Europe combined has generated soaring demand for food, energy, and minerals as well as business equipment, and consumer goods typical of a newly industrializing nation. Chinese and other multinational corporations have established global supply chains that both feed the Chinese economic juggernaut and carry its manufactured goods to world markets. In recent years, Beijing has focused particularly on securing stable supplies of petroleum and other raw materials. It has combined its huge purchasing power with funds for overseas direct investments and economic assistance to develop supply lines and long-term contracts to ensure deliveries of needed industrial and consumer inputs. In some cases, these efforts have occurred in countries or with autocratic regimes, such as those in Africa, that are considered anathema to other nations. (These issues are discussed in more detail elsewhere in this memorandum.) This section on international trade provides an overview of China's international trade in goods with comparisons to that of the United States. It shows that both nations are major traders, but that China has surpassed the United States in total exports. Both nations trade the most heavily with the rich, industrialized nations of the world. China, however, also trades with many countries under various U.S. sanctions. In 2007, for example, China imported mineral fuel from the Sudan and Iran while the United States did not. China also has more trade overall with Cuba, North Korea, and Burma/Myanmar. Since the comparisons of this section are between the United States and China, trade between the two countries is not addressed. China's emergence as a world trade power has both positive and negative effects on the United States. In 2007, China was the largest source of U.S. imports ($322 billion), the third largest market for U.S. exports ($65 billion), and the country with which the United States has the largest merchandise trade deficit ($256 billion). Low cost imports from China have helped moderate inflation in the United States but at the same time have applied intense competitive pressures on certain U.S. industries making similar products. As shown in Figure 9 , the total trade (exports plus imports) in merchandise of the United States exceeds that of China. While both have been growing in nominal terms—no adjustment for inflation—the trade of China has been catching up with that of the United States. In 1995, U.S. total trade was $1,390 billion or five times that of China's $281 billion. By 2007, U.S. total trade of $3,116 billion was only 1.4 times that of China's $2,175 billion. China, therefore, has become a major trading nation and a competitive rival to the United States in certain industries. The two countries compete, not only in third country economies but also in each other's home markets. Given the rise of globalized supply chains, however, China's economy also complements that of the United States in certain areas. U.S. companies may rely on China to manufacture products designed, advertised, and distributed by the American-based part of the multinational corporation, or they may manufacture in the United States using Chinese components. On a global scale, China now ranks second only to the European Union (EU, extra-EU trade only) in total merchandise exports and third after the United States and the EU in imports. Japan and Canada hold fourth and fifth places in both exports and imports, respectively. A projection by Global Insight, an econometric consulting firm, indicates that by around 2011, total trade in goods by China may exceed that of the United States. (See Figure 10 .) By 2020, the total trade of China could reach nearly double that of the United States. These econometric projections are based on forecasts of economic growth rates for China of an average of 10.2% from 2006-2010 and about 7.4% for the following decade. For the United States, the projected growth rates are at around 2.5% per year. An implication of these trends in trade is that China's presence in the international marketplace is likely to continue to grow. China's imports, in particular, are projected to continue to increase and to reach the level of its exports at around 2010. At that time, China's trading partners may be relying more on China than on the United States both as a market for exports and source of imports. Figure 11 shows U.S. and Chinese total trade with selected major trading partners in 2007. The United States traded more than did China with its neighboring countries of Canada and Mexico as well as with Brazil and Venezuela. Likewise China traded more with its neighbors Hong Kong, Japan, South Korea, Russia, and Taiwan than did the United States. With the European countries of Germany, the UK, France, and the Netherlands, U.S. total trade exceeded that of China. In 2007, the value of China's exports of merchandise surpassed those of the United States. As shown in Figure 12 , whereas in 1995, U.S. exports at $620 billion were more than four times the $149 billion exports from China, in 2007, China's exports at $1,218 billion exceeded the $1,163 billion from the United States. It should be noted that more than half of the exports of merchandise from China originate from foreign invested enterprises. These are products of multinational corporations based primarily in the United States, Japan, South Korea, and Europe that manufacture products designed and marketed to industrialized societies around the world. As for imports, as shown in Figure 13 , in 2007, U.S. imports at $1.954 billion amounted to more than twice China's total of $956 billion. In 1995, however, the United States imported nearly six times as much as did China. China's imports are rising fast. China's economy is not only consuming more imports, but its demand for imports is being added to that from other industrializing nations of the world for products such as petroleum, copper, and soybeans. This rise in demand is considered to be one cause for the recent rise in world commodity prices. Figure 14 compares U.S. and Chinese exports to selected regions of the world in 2007. Both countries export about the same amount overall, but the United States exported more than did China to Oceania/Australia, the Middle East, and Latin America. China exported more than did the United States to its neighbors in South Asia and Northeast Asia as well as to Africa, Europe, and to the rest of the world. U.S. exports to China and China's exports to the United States are included in the "Rest of the World" category. The importance to both countries of export markets in the industrialized countries in Europe and Northeast Asia is evident. Figure 15 compares exports of merchandise to selected regions of the world by the United States and China over the 1995-2007 period. For the regions selected, total exports are almost the same at about $800 billion. (The U.S. and Chinese exports to the regions exclude those exports to each other.) The recent rapid growth in exports from China is readily apparent from the chart. It also is clear that the industrialized regions, such as Europe and Northeast Asia, dominate in the exports of both countries and that U.S. exports to Latin America, which includes Mexico, are considerably greater than those from China. Although China has been promoting trade with certain resource-rich countries, the Chinese pattern of exports has come to resemble that of the United States, although China's exports to Africa have increased recently. Figure 16 compares imports of merchandise from selected regions of the world for the United States and China in 2007. As indicated above, the United States imports considerably more overall than does China. China, however, imports more than does the United States from its neighbors in Northeast Asia (primarily Japan). In other regions shown, the United States imports far more than does China. Even for Africa, the United States still buys nearly three times as much as does China. A variety of factors determine why countries buy from and sell to each other. The major factors, however, tend to be proximity, price, size and sophistication of the market, political restrictions, and endowment of natural resources. Both China and the United States trade, first, with their neighbors, then seek low cost sources of imports, large markets in which to sell, high-income consumers, and certain exporters with specific minerals or fuels to sell. Trade sanctions also may override market forces and shunt potential trade away from specific countries. As shown in Figure 17 , imports by both the United States and China have been growing rapidly. From the selected regions shown, China imported in 2007 about the same amount as the United States did in 1997. The figure also shows the importance to both countries of the more industrialized economies in Europe and Northeast Asia. It also shows the greater amount of imports by the United States from Latin America. China's imports from Latin America and from the Middle East, however, have been growing rapidly. Figure 18 shows imports of energy in the form of mineral fuel and oil (includes crude oil, other oils, petroleum products, coal and coal products, and electrical energy) by China and the United States in 2007. In that year, the United States imported more than three times as much ($361 billion) as did China ($105 billion), but the major sources of those imports were somewhat different for the two countries. Both rely heavily on imports from Saudi Arabia and other nations of the Middle East as well as from Angola, the Congo, and Russia. China, however, imports energy from Sudan and Iran, two countries from which the United States buys none, and also buys more from Kazakhstan and neighboring countries in Asia. The United States also relies much more heavily on energy imports from Canada, Venezuela, Nigeria, Algeria, Iraq, Brazil, and Columbia. Figure 19 shows imports by the United States and China in 2007 from countries indicated by the U.S. State Department as nations with serious problems with human rights, particularly those whose human rights situations have deteriorated. Some of the countries, such as North Korea (Democratic People's Republic of Korea), Myanmar/Burma, and Cuba are under U.S. trade sanctions. The countries with which China imports significantly more than does the United States include Iran, Sudan, Kazakhstan, North Korea, Cuba, Burma (Myanmar), Kyrgyzstan and Sri Lanka. Those countries from which the United States buys more than does China include Vietnam, Pakistan, Bangladesh, Afghanistan, Syria, and Lebanon. Neither country imports much from Rwanda or Eritrea. Figure 20 shows U.S. and China's exports to selected countries that the U.S. State Department has indicated had serious problems with human rights, particularly those whose human rights situations have deteriorated. In 2007, the United States exported a total of $1,163 billion while China exported a total of $1,218 billion in merchandise. With the exception of Lebanon and Eritrea, China exported more to all the listed countries than did the United States. Particularly significant were Vietnam, Iran, Kazakhstan, Krygyzstan, Pakistan, and Bangladesh. China also exports to North Korea and Burma, as well as to Cuba, countries under various U.S. trade sanctions. Figure 21 shows deliveries of conventional arms to the developing world that have resulted from various arms transfer agreements by the United States and China over the 1999-2006 period. Developing nations are defined to be all countries except the United States, Russia, European nations, Canada, Japan, Australia, and New Zealand. While the United States has delivered roughly ten times the amount as has China in recent years, China is a significant supplier of such weapons. During this period, China ranked number six in the world after the United States, Russia, United Kingdom, France and Germany. China's arms deliveries were about the same level as those from Sweden and more than those from Canada and Israel. Over the 2003 to 2006 period, China's arms deliveries consisted primarily of artillery, armored personnel carriers and armored cars, minor surface combatants, supersonic combat aircraft, and other aircraft. In the Middle East, the countries taking delivery of arms from China during this time were Egypt, Iran, Kuwait, and Algeria. Overseas Direct Investment As in international trade, China has been generating media and government attention because of the recent surge in its overseas direct investment activity (foreign direct investments or FDI) in various countries of the world. Beijing has urged its companies to "Go Global" and is facilitating the process. While these investments still are small when compared with those of the United States or other major industrialized nations, the rapid increase in amounts, the purposes, and destinations of these investments has raised concerns in many quarters. As of the end of 2006, more than 5,000 domestic Chinese investment entities had established nearly 10,000 overseas direct invested enterprises in 172 countries (or territories) around the world, according to PRC government figures. The accumulated FDI stock had reached $90.63 billion of which non-finance FDI was $75.02 billion (83%) and $15.61 billion was in finance-related FDI. Of the total, $37.24 billion (41%) was in equity investments, $33.68 billion (37%) in reinvested earnings, and $19.71 billion (22%) in other kinds of investment. In 2006, FDI from China accounted for about 0.8% of global FDI stocks and 2.7% of global FDI outflows (13 th in the world). As of the end of 2006, the cumulative stock of FDI abroad was $2,855.6 billion for the United States as compared with $90.63 billion for China. As for annual outbound FDI flows, in 2006, China reported $21.16 billion while the United States reported $216.6 billion. (See Figure 22 .) Over the 2003-06 period, total overseas direct investment flows from the United States averaged 13 times those of China. China's companies invest outside the country for many of the same reasons that other multinational firms do. The major factors pushing the outbound direct investment are: to bypass trade barriers and to use domestic production capacity because the home market for their products is too small to service markets in order to secure access or to expand market presence; to better compete with foreign-affiliated companies in the Chinese market and to diversify manufacturing facilities; to secure supplies of raw materials and resources; and to circumvent domestic governmental controls (by sending the investment funds to an offshore destination and then bringing it back as a foreign investment). The first four motives are shared to some extent by producers in other countries. The need to "round-trip" investments, however, seems be specific to China. This practice may result in overstatement of both outward and inward FDI in China. One study estimated that 20 to 30% of capital leaving China is "round tripped" back as foreign investment in the domestic economy. Much of this is done through Hong Kong, but tax havens, such as the Cayman Islands and the British Virgin Islands reportedly also are significant. In 2006, these were the top three destinations for Chinese outward FDI with the Cayman Islands and Hong Kong receiving $14.76 billion (84%) out of total outward FDI of $21.16 billion. In China's quest for secure supplies of natural resources, for example, the Chinese investing companies frequently have been dealing with regimes that are considered to be unsavory among Western policy makers. Beijing counters such criticism by stating that its long-held policy is not to interfere in the affairs of others. This policy has enabled China to sometimes "slip under the radar" and invest in places such as Sudan, Burma/Myanmar, and North Korea that are under economic sanctions by the United States and several other Western powers. As for the regional distribution of FDI flows, illustrated in Figure 23 , overseas direct investment from the United States in the regions shown is considerably greater than that from China . This also holds for U.S. and Chinese investments in Europe (not shown). Comparing the magnitude of overseas direct investment for the two countries in the Former Soviet Union (FSU) and South Asia as well as in Africa (less Egypt) shows a similar pattern. In the 2001-2006 period, the United States invested nine times as much in the FSU and South Asia than did China. Over the same period, U.S. overseas direct investment in Latin America and the Caribbean completely dwarfs that by China. In East Asia (excluding China, Hong Kong, and Macau), the United States invested more than 30 times that done by China, although counting China's investments in Hong Kong would raise the Chinese figure by $6.9 billion. These capital flows include reinvested earnings by affiliated companies overseas. Over the 2001-2006 period, for example, U.S. companies and financiers reported direct investments of $70.6 billion in countries of East Asia. However, the companies also reported $82.6 billion in reinvested earnings for the major East Asian countries (Indonesia, Japan, S. Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand) alone. In 2006, the United States reported reinvested earnings for Latin America and other Western Hemisphere countries of $59.1 billion, while total overseas direct investment for that year amounted to $22.3 billion. Since 2002, China has included reinvested earnings in its FDI totals. These have accounted for about a third of Chinese outbound direct investments. China has been a heavy investor in its neighboring economies in East Asia, but much of that FDI has gone into Hong Kong—some for a round trip back to China. Hong Kong, Macau, and the Pacific Islands are excluded in Figure 24 . This figure shows China's outbound FDI in East Asia since 1993. Since 2000, this investment has risen rapidly with a surge in 2005 and a fall back to its previous growth path in 2006. U.S. overseas direct investment in the East Asian region, however, far surpasses that of China. The United States has long invested in countries such as Japan, South Korea, Indonesia, Singapore, and others. In many years, however, much of the investment has been in the form of reinvested earnings from existing U.S. affiliated enterprises in East Asia. Figure 25 compares U.S. and Chinese outbound direct investments in billions of U.S. dollars. Figure 24 above, shows the Chinese outbound FDI in millions of U.S. dollars. As seen in Figure 25 , U.S. investment has been much greater than that of China, but as seen in Figure 24 , the rate of increase for China has been considerable. Note the line in Figure 25 , showing much of U.S. investment is from reinvested earnings and not new equity capital flows. Figure 26 shows China's FDI in Africa, excluding Egypt which is included in the Middle East. As in other regions of the world, China's investments there have boomed in recent years. Chinese activity in Africa has helped trigger world concern over Chinese soft power. As with international trade, Chinese investing companies have been dealing with some regimes that are considered to be unsavory among Western policy makers. In addition, Chinese companies have been investing in extractive industries and possibly locking in supplies of petroleum and other critical raw materials in countries that may be in political turmoil or may be under economic sanctions by other nations. In 2006, China reported direct investment flows of more than a half billion dollars to countries in Africa. When compared with U.S. outbound direct investments in Africa, however, Chinese investment was considerably less than such investments from the United States. As shown in Figure 27 (denominated in billions of dollars), the U.S. outbound FDI in Africa completely dominated that of China during the 1990s but recently investment from China has been rising enough to rival that of the United States. In 2005, the two countries invested about the same amount, while in 2006, the U.S. amount was triple that of China. The direct investment by China in Africa appears to be a part of Beijing's strategy to bolster its energy security. In 2007, China reportedly imported $25 billion worth of crude oil from African countries (primarily Angola, Sudan, and Congo). This amounted to nearly a third of the total $79.7 billion worth of crude oil that China imported that year. China also imported copper, iron ore, and other resources from Africa. Beijing would like to secure this supply through ownership and investments, partly to avoid the price and supply uncertainty associated with buying such commodities on spot markets. These resources are deemed critical for Beijing to maintain the country's economic growth. Figure 28 shows Chinese and U.S. direct investment in the Democratic Republic of the Congo. This is a country in turmoil, so some assets may have been damaged. The cumulative stock figures for China do not seem to reflect the flows accurately. Nevertheless, this is what China reported as its outbound direct investments in the D.R. Congo. Note that while the United States has been reducing its direct investments in the country, China has been increasing its assets there. Neither country, however, has more than $100 million invested there. Figure 29 compares the amounts of U.S. and Chinese direct investments in Sudan. This is another African country undergoing political turmoil. Again, there appear to be inconsistencies between annual flows and cumulative stocks in China's reported data, but the data indicate that while U.S. FDI there has virtually disappeared, China's stock was approaching $500 million. Much of this investment has been in the oil and gas industry. Figure 30 shows various oil and gas concessions in Sudan. The China National Petroleum Corporation has been active in partnering with the Sudanese government's Sudapet and other multinational oil companies in developing Sudan's oil industry, funding the building of upstream resources, constructing industry infrastructure including the export pipeline and downstream facilities. China's concessions include Block No. 1 (Greater Nile Petroleum Operating Company, a consortium that includes the China National Petroleum Corporation); Block No. 3 (Petronas Carigali (Malaysia), Sudapet (Sudan) and China National Petroleum Corporation (CNPC); Block No. 6 (China National Petroleum Corporation); and Block No. 7 (Sudapet and China National Petroleum Corporation). In Latin America, China's outbound direct investment has been relatively small. The data in Figure 31 exclude investments in offshore tax havens (Cayman Islands and the British Virgin Islands) because that investment often is directed elsewhere—even back to China. In 1999, China's FDI to Latin America peaked at $206 million. In 2006, the total was less than $100 million. As seen in Figure 32 (denominated in billions of dollars), Latin America is a major destination for U.S. direct investment that dwarfs that of China. In the Middle East (including Egypt), China has been actively seeking secure supplies of petroleum. As shown in Figures 33 and 34 , even though Chinese investments have been rising in recent years, they still are small compared with those from the United States. China's Sovereign Wealth Fund138 China established its major sovereign wealth fund, the China Investment Corporation (CIC) on September 29, 2007—six months after it first announced its intention to create such a fund. Financed with $200 billion in initial capital, the CIC is the sixth largest sovereign wealth fund (SWF) in the world, according to one assessment. China's sovereign wealth fund potentially could provide Beijing with another instrument to project its soft power around the world. Whether or not China's political leaders created the CIC with this in mind is difficult to determine. Similarly, it is uncertain if China's State Council is willing and able to use the CIC as an instrument of soft power. Finally, even if China has no intention to project soft power globally via its sovereign wealth fund, the investments made by CIC may either enhance or diminish China's global image and, thereby, indirectly augment or reduce China' soft power. To date, the CIC is known to have made a number of investments both inside China and around the world. However, because the CIC does not generally release details of its investments, it is difficult to determine when and how it has used its available capital. Some of its known major investments are: May 20, 2007—China Jianyin Investment Company, now a wholly-owned subsidiary of CIC, signs an agreement to purchase just under 10% of U.S. investment company, Blackstone Group, for $3 billion; November 21, 2007—CIC purchases $100 million in shares of Hong Kong's initial public offering (IPO) for the new China Railway Group, a railway construction company operating mainly in China; November 28, 2007—CIC subsidiary, Central Huijin Investment Company (CHIC), invests $20 billion in China Everbright Bank, a Beijing-based joint-equity commercial bank; December 19, 2007—CIC purchases 9.9% of Morgan Stanley, a major U.S. investment company, for $5 billion; December 31, 2007—CHIC signs an agreement to invest $20 billion in China Development Bank, a state-owned bank; and March 24, 2008—CIC purchases more than $100 million in shares of Visa's IPO. China's Reasons for Creating China Investment Corporation There has been much discussion—and little agreement—about the reasons China chose to create a sovereign wealth fund. At the time it announced its plans to create the CIC, Chinese officials focused in an apparent desire to increase the rate of return on its foreign exchange reserve investments. Just prior to the creation of China's sovereign wealth fund, Jesse Wang Jianxi, a member of the CIC's preparatory group, reportedly stated, "The mission for this company [CIC] is purely investment-return driven." On the day CIC formally started operations, its new chairman, Lou Jiwei, said that the SWF would be making long-term investments aimed at maximizing its returns with acceptable levels of risk. However, analysts and observers of China's political economy speculated that there were other forces influencing the State Council's decision to establish a SWF at this time. Some speculated that the decision to create a separate, semi-autonomous corporation to invest a portion of China's growing foreign exchange reserves was the result of power struggles between China's major financial and economic policy institutions, including the People's Bank of China (PBoC), the Ministry of Finance (MoF), and the National Development and Reform Commission (NDRC). Others saw the move as making a logical administrative separation between the state agency responsible for overseeing overseas financial transactions and the institution managing the government's international investment portfolio. It was also postulated that a major reason the State Council was setting up the CIC was part of a plan to alleviate inflationary pressures building up in China. According to this theory, China's rapidly rising stockpile of foreign exchange reserves—which had more than doubled between September 2005 and September 2007—was creating excess liquidity in China's money supply. In order to remove the excess money from circulation, the PBoC was selling bonds to the public—a process often called sterilization. However, the Chinese bonds were offering a higher yield than the PBoC was earning on its investments in U.S. treasury bonds. Some analysts viewed the creation of the CIC as providing the Chinese government an investment avenue by which it could eliminate the financial losses associated with the sterilization of its growing foreign exchange reserves. There were also concerns raised that the Chinese government had created the CIC so it could purchase control over key industries and/or access to important natural resources. Some U.S. commentators raised the alarm that with over $1.4 trillion to invest, China could acquire several major U.S. companies and obtain the power to unduly influence the U.S. economy. Others speculated that China may use the CIC to obtain market power over key natural resources (petroleum, natural gas, iron ore, etc.) or access to sensitive technology by purchasing a seat on a corporation's board of directors. China responded to these concerns by providing reassuring statements about the types of investments the CIC would not be making. Chinese officials reportedly told German Chancellor Angela Merkel during her visit to China in August 2007 that the future CIC "had no intention of buying strategic stakes in big western companies." CIC Chairman Lou also indicated that the CIC will not invest in infrastructure. China's Vice Minister of Finance Li Yong dismissed "rumors that China would try to buy out European and American companies in large numbers." Vice Minister Li also stated that the CIC would not buy into overseas airlines, telecommunications or oil companies. An unnamed contact at CIC was cited as saying that the SWF also will not make investments in foreign technology companies as a means of obtaining advanced technology, pointing out, "That's political, and we don't do that." Will and Can China Use the CIC as an Instrument of Soft Power? Even if the State Council did not originally establish the CIC to be used as an instrument of "soft power," once the SWF was in operation, the State Council could decide to use it as a means of advancing China's foreign policy objectives. One possible indication that Chinese officials recognized the "soft power" potential of the CIC was their pattern of pointing out that the investments of SWFs in ailing financial firms—such as CIC's investment in Morgan Stanley—were providing market stability at a time when there was growing concern about a global financial crisis. There is also uncertainty about the ability of the State Council to influence the CIC's investment decisions if it should decide it wants to use the SWF as an instrument of soft power. When the CIC was established, much was made of its autonomy from government influence in its investment decisions. In addition, the CIC has reportedly begun vetting private investment firms around the world as possible contracted "fund managers"for the CIC. If the CIC does subdivide its portfolio among a group of independent fund managers, it should significantly reduce the State Council's ability to influence the CIC and use the SWF as an instrument of soft power. CIC's Unintended Soft Power Effects Ironically, even if the Chinese government has no intention of using the CIC as an instrument of soft power, the investment activities of China's SWF may either enhance or detract from China's global image. China may already have benefitted from CIC's investment in Morgan Stanley among people who see the SWF's action as providing needed market stability in a time of financial uncertainty. However, in a different light, CIC's purchase of Morgan Stanley shares at a time when the firm was struggling could also be viewed as opportunistic and harm China's global image. Both interpretations have been presented by outside observers. In the same way, different analysts had different interpretations of CIC Chairman Lou's statement comparing investment opportunities to a farmer shooting "big, fat rabbits." Some commentators understood the comment to indicate CIC's willingness to jump on good investment opportunities when they occur. Others heard a veiled threat in the statement, likening U.S. financial companies to game to be hunted. Lou himself seemed to recognize the ambiguity of his initial statement, adding, "Some people may say we [CIC] were shot by Morgan Stanley. But who knows?" Since June 2008, the CIC has not made any major overseas investments. The CIC allegedly began accepting applications from investment firms to serve as contracted fund managers in April 2008, but there are no confirmed cases of companies being hired to manage portions of CIC's portfolio. Until the CIC once again becomes active in international markets, it is difficult to assess its potential effects on China's overall soft power. PART THREE: REGIONAL COMPARISONS Southeast Asia154 Many observers cast Southeast Asia as a crucial arena of Sino-U.S. competition. The United States has deep security, trade and investment relations with the region, and many believe that Southeast Asian nations deeply value the longstanding U.S. "security umbrella" against a potentially expansive China. Southeast Asia's proximity to China historically has cut two ways—creating cultural and regional affinities, but also breeding an existential Southeast Asian fear of potential PRC domination. But the PRC has spent over a decade actively courting Southeast Asian states with new diplomatic initiatives, trade and investment, and foreign aid. In fact, both China and the United States have strong ties to Southeast Asia, and both draw upon considerable strengths in projecting soft power in the region. Despite widespread improvements in public perceptions of China and parallel declines in perceptions of the United States, the United States draws upon considerable security and diplomatic assets in Southeast Asia, and neither side can really claim to be the dominant power in the region. Some analysts argue that China seeks to create a sphere of influence in Southeast Asia and to erode U.S. dominance, while others contend that the PRC has not the will, capability, nor acquiescence of countries in the region to carry out such a goal, at least in the short- to medium-term. According to many analysts, Southeast Asian countries generally welcome PRC aid, investment, and friendship, but do not want China to dominate the region militarily. Many citizens in the region support or accept the U.S. military presence, but feel that the United States has often neglected to engage them diplomatically or hear their concerns. This void has been filled in part by China's growing soft power. China's growing influence derives mainly from its role as a market for the region's natural resources, the economic benefits that it bestows through aid (mostly loans for infrastructure projects) and investment, gestures of friendship expressed through its diplomacy and foreign assistance, the PRC's standing as an economic development model, and economic and cultural integration stemming from proximity and migration. The United States maintains its influence based upon its military presence, foreign direct investment, its market for the region's manufactured goods, military and development assistance, and educational opportunities. Many Southeast Asians continue to view the United States as a model of democracy and free market economics, aspire to its middle class lifestyle, and are attracted to its popular culture. Other research emphasizes the overarching principles that inform China's soft power activities and make it a powerful alternative to U.S. soft power. The PRC's official embrace of Southeast Asia—what some refer to as its "charm offensive"—has nurtured China's rising influence. By contrast, perceptions of U.S. aloofness and narrow security interests in the region and of Washington's demanding conditions for diplomatic and financial support have contributed to Southeast Asian disillusionment with the United States. In the past decade, China has cultivated goodwill in Southeast Asia by refraining from devaluing its currency and by contributing to the International Monetary Fund "support package" to Thailand during the 1997-98 Asian Financial Crisis; downplaying territorial disputes and agreeing to strive for peaceful resolutions to such conflicts; developing a very active diplomatic agenda; promoting free trade agreements; and providing economic assistance without conditions. Overseas Chinese communities have long played important parts in the economies, societies, and cultures of Southeast Asian states, although their relations with China, the home of their ancestors, in many instances have been ambivalent. Ethnic Chinese, who for over two centuries have migrated to Southeast Asia from southern China with little apparent acknowledgment from the Chinese government, have long dominated the economies of the region. Recent Chinese immigrants to Southeast Asia have both exploited contacts with older Chinese communities and engendered resentment within these communities as well as among indigenous peoples. Many overseas Chinese in the region have downplayed their ties to China in order to help avoid ethnic discrimination against them or to improve their economic, social, and political opportunities in their adopted countries; however, as China has gained international stature, some of the more economically and politically influential overseas Chinese have proudly proclaimed their heritage and links to China. Estimates of ethnic Chinese living in Southeast Asia range from 30 million to 40 million, or over 6% of the region's population. Although their degree of assimilation, as well as discrimination against them, has varied by country, their long-term presence has brought about a local familiarity with Chinese culture. For China, despite its successes, Southeast Asia presents an uneven and challenging landscape for soft power projection. The United States maintains alliances with the Philippines and Thailand, has a strategic agreement with Singapore, is developing military-to-military relations with Indonesia, and cooperates with Malaysia on counter-terrorism efforts. These and other countries in the region, or elements within them, continue to feel ambivalent towards China due to ongoing territorial disputes, China's past and present support for repressive regimes, and tensions between indigenous peoples and the region's ethnic Chinese communities. The United States remains ASEAN's 2 nd largest trading partner (China ranks 5 th ) and its 4 th largest source of foreign direct investment (China ranks 10 th ), although China is rapidly catching up to the United States in trade. Washington also was a major contributor to countries hit by the 2004 Indian Ocean tsunami, which affected several Southeast Asian countries. The Bush Administration pledged $305 million to affected countries compared to China's $63 million and Taiwan's $50 million. The U.S. emergency response helped to improve the image of the United States in the region, particularly in Indonesia, somewhat reversing a dramatic rise in negative public perceptions of the United States after the U.S.-led invasion of Iraq in 2003. An analysis of China's bilateral relations in Southeast Asia leads to a regional division between mainland Southeast Asian states, particularly Burma, Cambodia, and Laos, where China is more influential, and maritime Southeast Asian states (Indonesia, the Philippines, and Singapore), where Beijing wields less power. Thailand, a major non-NATO ally of the United States, appears to be more comfortable in its relationship with China than other regional states. China's historical conflicts with Vietnam, including a brief border war in 1979, and Vietnam's close economic relations with Taiwan have placed limits on rapprochement between the two neighboring countries. In the past decade, the Philippines, a major non-NATO ally, has pursued stable and friendly political and economic relations with China, while relying upon the United States and the Association of Southeast Asian Nations (ASEAN) as security and diplomatic counterweights to the PRC. Muslim states in the region (Indonesia, Malaysia) look not so much to China as they do to the rest of the Muslim world for models outside their national settings. Given that Muslims represent approximately half the population of Southeast Asia, and are concentrated in maritime Southeast Asia, this should place limits on the extent of Chinese influence there. Singapore, arguably the most strategically vulnerable and trade dependent state in the region, has promoted a balanced approach to the involvement of great powers in its region. Cultural and Educational Exchange Activities U.S. Programs U.S. cultural and educational exchange programs in region may be considered more established and varied than China's, but their impact is less visible than China's soft power activities. In contrast to PRC government-sponsored cultural and educational exchange programs, such as the Confucius Institutes, U.S. government activities in this area place more emphasis on exchanging or transferring ideas. The Department of State's Bureau of Educational and Cultural Exchange sponsors a wide range of programs in Southeast Asia that focus on academic research, facilitating an understanding of American values and culture, and English language education. In 2004-05, the United States awarded Fulbright scholarships to 280 students, scholars, and teachers in Southeast Asia, out of a total of 579 grants for the Asia-Pacific region. Among the countries with the largest numbers of recipients were the Philippines and Indonesia (71 and 69 Fulbright grants, respectively). The Department of State's Citizen Exchange Program for Professionals currently sponsors exchanges of experts on many topics, including business (United States and Vietnam); responsible citizen participation in politics (United States and the Philippines); inter-religious dialogue (United States and Thailand); journalism and English education (United States and Indonesia). Study of the U.S. Institutes bring foreign student leaders to U.S. college campuses to study and experience the principles and practices of democracy, freedom of expression, pluralism and tolerance, and volunteerism. Participating countries include Burma, Cambodia, Laos, and Vietnam. The Department of State has two Regional English Language Officers (RELOs) in Southeast Asia, posted in Bangkok and Jakarta. RELO programs include teacher training and conferences and workshops on teaching methodologies. In 2006, the U.S. government granted over 385,000 J-1 non-immigrant visas for exchange visitors (a 12% increase over 2005), of which 16,199 went to Southeast Asian applicants, the regional countries with the largest numbers were Thailand (9,648) followed by the Philippines (2,088). Foreign Students The United States, with its first-rate universities, continues to attract far more foreign students than China (600,000 in 2007), including many from the PRC. Of the ten top countries sending students to the United States, six are in Asia (India, China, South Korea, Japan, Taiwan, and Thailand), accounting for 49% of the U.S. foreign student population. Thailand, at 2% of the foreign student population, is the only Southeast Asian country among the top ten. Indian, PRC, and South Korean students constitute 14% 11%, and 10% of U.S. foreign students, respectively. There may be more Southeast Asian students enrolled in China than in the United States, however. In 2007, 195,000 foreign students reportedly were studying in China, the vast majority (72%) from Asia (South Korea, Japan, and Southeast Asia). South Korea, Japan, the United States, Vietnam, and Thailand are the five largest sources of students. The remaining foreign students come from Europe, the Americas, Africa, and Oceania (13%, 10%, 3%, and 1% of foreign students, respectively), according to recent PRC statistics. Data from 2004 show that about 15% of Asian foreign students in China were from Southeast Asia. The PRC government awarded scholarships to over 10,000 foreign students in 2007, and plans to expand its scholarship program by 3,000 additional awards each year between 2008 and 2010. China plans to enroll 300,000 foreign students by 2020. Diplomacy China has been an increasingly active player in Asian multilateral organizations—some argue that China now participates in them "more fully than Washington." Principal regional groupings that include Southeast Asian states are ASEAN, ASEAN Plus Three—ASEAN, China, Japan, and South Korea—and the East Asia Summit (EAS), which includes China, Japan, South Korea, India, Australia, and New Zealand, as well as the ASEAN states. Some analysts argue that the EAS, which excludes the United States, may increasingly rival the Asia Pacific Economic Cooperation (APEC) group, in which the United States plays a leading role, as the preeminent multilateral organization in East Asia. Others emphasize the diverse interests and lack of unity within the EAS, efforts by some members to counterbalance China's influence, and China's lack of leadership in the grouping. Since September 11 th , 2001, the United States government has become somewhat more diplomatically engaged in the region and has increased foreign aid funding, but with a focus largely limited to counter-terrorism. The perception of U.S. inattentiveness to the region has been reinforced by recent U.S. decisions. In 2007, Secretary of State Condoleezza Rice bypassed the annual ASEAN Regional Forum (ARF) gathering, as she had in 2005, and instead traveled to the Middle East, while President Bush postponed the U.S.-ASEAN summit, set for Singapore in September, and left the APEC summit a day early reportedly because of commitments related to the Iraq war, renewing "concerns about the U.S. commitment to the region." In an apparent effort to reverse this trend, Senate Resolution 110 ( S.Res. 110 ), introduced in March 2007, called for the appointment of an ambassador to ASEAN "in recognition of the growing importance of ASEAN as an institution and belief that the United States should increase its engagement and cooperation with the region." In April 2008, the Senate confirmed Deputy Assistant Secretary of State for East Asia and Pacific Affairs Scot Marciel as Ambassador to ASEAN. China's Efforts to Boost Economic Ties with ASEAN China entered into Dialogue relations with ASEAN in 1991 and obtained full ASEAN Dialogue Partner status in 1996. In 2000, Chinese officials suggested the idea of a China-ASEAN FTA. In November 2002, ASEAN and China signed the Framework Agreement on Comprehensive Economic Co-operation to create an ASEAN-China Free Trade Area (ACFTA) within 10 years. In November 2004, the two sides signed the Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Co-operation between the Association of Southeast Asian Nations and the People ' s Republic of China, which included a schedule of tariff reductions and eventual elimination for most tariff lines (beginning in 2005) between the two sides. ASEAN—China cooperation covers a variety of areas, including agriculture, information and communication technology, human resource development, two-way investment, Mekong Basin development, transportation, energy, culture, tourism and public health." In January 2007, China and ASEAN signed the Agreement on Trade in Services of China-ASEAN Free Trade Area which is intended to liberalize rules on trade in services. U.S. Efforts to Bolster Trade with ASEAN In October 2002, the Bush Administration launched the Enterprise for ASEAN Initiative (EAI), with a stated goal of seeking closer economic ties with ASEAN countries, including the possibility of bilateral free trade agreements with countries that are committed to economic reforms and openness. A potential FTA partner would need to be a member of the World Trade Organization (WTO) and have concluded a Trade and Investment Framework Agreement (TIFA) with the United States. The United States has signed TIFA agreements with Brunei, Cambodia, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. It has an FTA with Singapore (effective 2004) and has held negotiations with Malaysia and Thailand on reaching FTAs, although these talks have failed to reach agreements. On August 25, 2007 USTR Susan Schwab signed a TIFA agreement with ASEAN. In September 2007, President Bush met with seven ASEAN leaders attending the APEC summit in Australia. High-Level Visits In the past several years, China, aided by its proximity, has pursued a very active diplomatic agenda in the region, reportedly sending and receiving many more—twice as many according to some experts—official, high level delegations than the United States to some countries. These efforts may have a particularly large impact on smaller, poorer states in Southeast Asia, whose own delegations also have received lavish receptions in Beijing. In the past year, for example, China's Foreign Minister as well as Chinese Communist Party delegations visited both Cambodia and Laos, while the Cambodian National Assembly President, Lao Prime Minister, and Lao Deputy Prime Minister visited Beijing. When all delegations are counted (national and provincial), those of the PRC reportedly far surpass those of the United States. These meetings may generate positive impressions that far exceed their costs. Foreign Assistance China's Foreign Assistance Many reports of Chinese foreign assistance to Southeast Asia refer to loans, infrastructure projects, and natural resource development rather than development aid. By some accounts, China has become one of the largest providers of economic assistance in the region; however, it is not a major provider of official development assistance (ODA). According to one study that compiled a database of PRC foreign aid projects, China pledged $12.6 billion in economic assistance to Southeast Asian countries in 2002-07. Of this amount, 59% was promised for infrastructure and 38% for investment in natural resources. The remaining 3% was divided among humanitarian assistance, military assistance, high profile "gifts" such as cultural centers and sports facilities. According to data of official development assistance among member countries of the Organization for Economic Cooperation and Development (OECD), of which China is not a member, Japan is the largest bilateral aid donor in the region. Many reports of PRC aid in the region focus on Burma, Cambodia, and Laos, the poorest countries in Southeast Asia and ones that have had relatively unfriendly relations with the United States. China is considered the "primary supplier of economic and military assistance" to these countries and provides an "implicit security guarantee." In recent years, China has financed many infrastructure and energy-related projects in Burma, Cambodia, and Laos that in turn rely upon Chinese equipment, technical expertise, and labor. Often these projects may help China access raw materials and oil. There are some indications that Chinese aid in this part of the region is diversifying, including support to counter-trafficking in persons and counter-narcotics efforts, programs involving Chinese youth volunteers (Laos), elections (Cambodia), and historical preservation (Cambodia). According to some reports, China has been the largest source of economic assistance to Burma, including $1.4 billion to $2 billion in weaponry to the ruling junta since 1988 and pledges of nearly $5 billion in loans, plants and equipment, investment in mineral exploration, hydro power and oil and gas production, and agricultural projects. China has helped the Burmese to build roads, railroads, airfields, and ports. Following the imposition of U.S. trade sanctions against Burma in 2003, China reportedly announced a loan to Burma of $200 million. In 2006, China promised another $200 million loan, although some experts say that such funds were never actually provided. China may be one of the largest sources of aid to Cambodia, including loans and support for public works, infrastructure, and hydro-power projects in the kingdom. In 2007, foreign donors reportedly pledged a total of $689 million in assistance to Cambodia, including $91.5 million from China. For the 2007-2009 period, China pledged $236 million in unspecified aid compared to Japan's $337 million and the EU's $215 million. China, the second largest aid donor by some estimates, has provided Laos with critical grants, low-interest loans, high profile development projects, technical assistance, and foreign investment. Development and other forms of aid include transportation infrastructure, hydro power projects worth $178 million, and youth volunteers engaged in medical and educational programs, and agricultural training. In 2006, Chinese President Hu Jintao visited Vientiane and offered $45 million in economic and technical cooperation and debt forgiveness. According to some reports, China may be the second largest source of foreign aid to Vietnam. In 2005, the PRC reportedly offered nearly $200 million in grants and loans. Beijing has provided loans to Vietnam for railways, hydro-power development, and ship building facilities. In 2006, Beijing reportedly pressured the Vietnamese government to exclude Taiwan from the APEC summit in Hanoi. After Hanoi refused to do so, Beijing temporarily halted aid to Vietnam. The PRC provides roughly four times as much foreign aid to the Philippines and twice as much to Indonesia compared to the United States, according to some experts. The PRC has become a major source of financing for development projects in the Philippines. In January 2007, PRC Premier Wen Jiabao and Philippines President Gloria Macapagal-Arroyo signed 20 economic agreements, including a contract for a Chinese company to build and renovate railroads, investment in agriculture, and loans for rural development. China reportedly also has begun to provide non-lethal military assistance to the Philippines, including training and equipment. In 2005, PRC President Hu Jintao and Indonesian President Susilo Bambang Yudhoyono signed a declaration proclaiming a "strategic partnership" that was accompanied by a promise of preferential loans worth $300 million. According to some analysts, despite much greater military assistance provided by the United States in terms of cost and substance, the United States may not have been sufficiently attentive to the security needs of its friends and allies in Southeast Asia, as perceived by regional leaders. In some cases, U.S. long-term strategic objectives may conflict with the goals of helping to foster democracy. After the United States government imposed sanctions on military and security-related assistance to Thailand worth approximately $29 million following the September 2006 military coup, China reportedly offered $49 million to Thailand in military aid and training. Many observers fear that China's unconditional and non-transparent aid efforts and growing economic integration in Southeast Asia may negate efforts by western nations to promote political and economic reform, reduce corruption, and protect the environment in mainland Southeast Asia. Others counter that, on balance, Chinese aid promotes development in Southeast Asia and that it does not exclude other countries' aid programs and objectives. Furthermore, in many cases, China reportedly takes on aid projects that other donor countries have avoided due to difficulty or hardship. U.S. Foreign Assistance U.S. aid to Southeast Asia has grown dramatically since 2001, largely reflecting increased aid to Indonesia and the Philippines as part of the Bush Administration's regional counter-terrorism goals. The United States is the second largest provider of ODA, after Japan, to Cambodia and the Philippines. Aid to Southeast Asia constitutes 85% of U.S. assistance to East Asia and the Pacific ($452 million out of $533 million in FY2007). Among program areas, U.S. spending on infrastructure assistance—a major form of Chinese aid—represented only 5% of total funding in the EAP region compared to peace and security programs (20%). The United States Peace Corps operates in Cambodia, the Philippines, and Thailand. See Table 4 . U.S. Foreign Aid Sanctions Conditions on aid, which many U.S. policy makers consider to be an integral part of U.S. foreign aid goals, are viewed by some analysts as sacrificing other foreign policy objectives and creating a window for Chinese engagement around the world. Unlike China's "unconditional" aid approach, the United States government often imposes criteria related to democracy and human rights on non-humanitarian aid. Despite widespread support for this approach, some policy analysts have argued that it is ineffectual at best and counterproductive at worst, denying aid resources for development and security objectives and making China an attractive aid provider. In the past several years, restrictions or sanctions have been imposed or considered toward most Southeast Asian countries, including Burma, Cambodia, Indonesia, Thailand, and Vietnam. The United States provides no direct aid to the Burmese government in response to the Burmese military junta's repression of the National League for Democracy and harassment of its leader, Aung San Suu Kyi and rejection of the voters' mandate in 1990. In 2003, the 108 th Congress passed the Burmese Freedom and Democracy Act of 2003 ( P.L. 108-61 ), which bans imports from Burma unless democracy is restored. Additional foreign aid sanctions against Burma include opposition to international bank loans to Burma and a ban on debt restructuring assistance. In addition, since 2001, when the Office to Monitor and Combat Trafficking in Persons was established by the U.S. State Department, Burma has received a "Tier 3" assessment annually by the Office for failing to make significant efforts to bring itself into compliance with the minimum standards for the elimination of trafficking in persons. The Tier 3 ranking could serve as a basis for withholding non-humanitarian aid. In February 2007, the United States government lifted a decade-long ban on direct bilateral aid to Cambodia (the last major aid donor to drop restrictions). The U.S. government had imposed restrictions on foreign assistance to Cambodia following Prime Minister Hun Sen's unlawful seizure of power in 1997 and in response to other abuses of power under his rule. U.S. assistance was permitted only to Cambodian and foreign NGOs and to local governments, with some exceptions. U.S. assistance to Laos ($4.8 million in FY2007), remains limited largely due to human rights concerns and strained relations between the two countries. Between 1993 and 2005, Indonesia faced sanctions on military assistance largely due to U.S. congressional concerns about human rights violations, particularly those committed by Indonesian military forces (TNI). In February 2005, Secretary of State Condoleezza Rice determined that the Indonesian government and armed forces (TNI) had satisfied legislative conditions and certified the resumption of full IMET for Indonesia. In November 2005, the Secretary of State waived restrictions on FMF to Indonesia on national security grounds. In response to the September 19, 2006, military coup in Thailand, the Bush Administration suspended military and peacekeeping assistance pursuant to Section 508 of the Foreign Operations Appropriations Act, which provides that such funds shall not be made available to any country whose duly elected head of government was deposed by military coup. The U.S. government also suspended funding for counter-terrorism assistance provided under Section 1206 of the National Defense Authorization Act for FY2006. In February 2008, the United States resumed security and military assistance to Thailand following the holding of democratic elections. The proposed Vietnam Human Rights Act of 2007 ( H.R. 3096 ) would prohibit U.S. non-humanitarian assistance to the government of Vietnam for FY2008 in excess of FY2007 levels unless the President certifies to Congress that the government of Vietnam has made substantial progress respecting: (1) the release of political and religious prisoners; (2) the right of religious freedom, including the return of church properties; (3) the rights of ethnic minorities; and (4) access to U.S. refugee programs by Vietnamese nationals. Public Opinion China has made some gains relative to the United States in the areas of cultural and political soft power in some Southeast Asian countries. A 2007 Pew Research poll found that only 29% of Indonesians and 27% of Malaysians had a favorable view of the United States as opposed to 83% of Malaysians and 65% of Indonesians who had favorable views of China. The rating for Indonesia is up slightly from a favorable view of only 15% in 2003 but remains well below the 75% favorable view of the United States in 2000. One striking exception to this trend is the Philippines, which ranks first in the world in trusting the United States to act responsibly in global affairs, according to a 2007 survey. In this survey, 64% of Indonesians and 56% of Thais did not trust the United States to act responsibly. Despite these negative views toward the United States, another poll suggests that the United States is still viewed as the predominant soft power influence in Asia. Although Southeast Asian views of the United States have reached new lows in the past decade, tensions with a potentially arrogant or uncompromising China are never far from the surface, and historical memories add to recurring wariness. In 2007, for example, as concerns rose throughout many parts of the world regarding the safety of Chinese products, officials in Indonesia, Malaysia, and the Philippines reportedly complained that the PRC government was pressuring them not to raise the issue, even when such imported goods were found to be dangerous. When they banned the sale of unsafe items from China, the PRC government reportedly threatened and/or imposed retaliatory actions, causing consternation among many Southeast Asian leaders. Some of the main beneficiaries of China's largesse in Southeast Asia remain wary of PRC power or seek to dampen its growing influence in the region. For example, many Cambodians, mindful of China's former support of the Khmer Rouge, reportedly feel resentful towards China. Vietnamese leaders reportedly began to place greater importance on relations with the United States in 2003, after concluding that China's ties to neighboring countries were growing too deep. Vietnamese citizens held anti-China demonstrations, likely with the tacit acceptance, if not encouragement, of the Vietnamese government, in Hanoi and Ho Chi Minh City in December 2007, to protest Chinese military exercises simulating invasions of the disputed Spratly Islands in the South China Sea and the creation of a new PRC administrative unit that would include the islands. Central Asia199 Compared to other regions, China's main interests in Central Asia, which is situated along its western border, involve not only trade, but also considerations related to both external and internal security. The region, encompassing the former Soviet republics of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, remains under the strong Russian strategic and economic influence. Since the end of the Cold War but especially since 2001, the United States has been actively engaged in the region. As "front-line" states in the war on terrorism, Central Asian states have hosted U.S. and NATO military personnel and have received substantial U.S. foreign assistance. Despite these constraints on Chinese influence, Beijing has become a major diplomatic and economic presence in Central Asia. The United States wields somewhat more influence than does China in a few non-military cultural, diplomatic, and economic areas of "soft power" in the region. These include the amount of foreign assistance and perhaps the number of mid- and lower-level official visits and presence in the regional states. In other areas, China has more regional influence than the United States, including in trade and the number of its citizens visiting the region. The Chinese-led Shanghai Cooperation Organization (SCO)—which includes Russia and all of the Central Asian states except Turkmenistan and pursues economic and security cooperation—has no equivalent U.S. counterpart. However, the United States wields influence through its membership in the Organization for Security and Cooperation in Europe (OSCE) and NATO, which are active in the region. Cross-border migration between China and Central Asia has facilitated stronger economic ties but also has contributed to more complicated diplomatic relations. There reportedly are over one million ethnic Kazakhs in China, with most residing in the Xinjiang Uighur Autonomous Region. Several tens of thousands have moved to Kazakhstan in recent years. These ethnic Kazakhs bring Chinese language skills and cultural awareness that have facilitated Kazakhstan-Chinese ties, particularly in trade. However, some ethnic Kazakh migrants also bring critical memories of perceived prejudice against Muslims in Xinjiang, which may negatively influence the views of other Kazakhs and conceivably affect Kazakhstan-Chinese relations. About 9 million ethnic Uighurs (a Turkic people) reside in China, mostly in Xinjiang, 300,000 reside in Kazakhstan, and 50,000 in Kyrgyzstan. In the early 1990s, Kazakhstan tolerated advocacy by its resident ethnic Uighurs for greater respect for human rights and autonomy for their cohorts in Xinjiang. In the later 1990s, however, Kazakhstan cracked down on such activism at China's behest. Nonetheless, Kazakhstan allegedly has remained the base for clandestine Uighur groups advocating independence for "East Turkestan," or otherwise continuing to criticize China, which may influence the views of other Kazakhs. In Kyrgyzstan, ethnic Uighurs were implicated in the murder of a Chinese diplomat in June 2002 and the bombing of a bus in March 2003 that killed nineteen Chinese visitors, leading Kyrgyzstan to ban the Eastern Turkestan Islamic Party and the Eastern Turkistan Liberation Organization. Estimates of ethnic Chinese migrants in Central Asia are unreliable, but some observers have speculated that up to a few hundred thousand legal and illegal Chinese migrants are in the region either on a temporary or indefinite basis. The number of U.S. citizens residing in Central Asia is far less. There have been complaints by some officials in Central Asian states about increasing numbers of illegal migrants from China. The Kyrgyz State Committee on Migration and Employment reported in early 2008 that there were about 8,000 Chinese illegal immigrants in Kyrgyzstan. In Kazakhstan, President Nazarbayev raised concerns in 2006 that Chinese energy companies operating in the country were employing illegal Chinese workers, and Kazakh legislators alleged that these illegal immigrants numbered about 100,000 by late 2007. Kazakh analyst Elena Sadovskaya reported that, in addition, about 40,000 legal migrants were ethnic Kazakhs who had moved from China and that about 5,000 were Chinese citizens who were legitimately in the country under approved travel documents. An opinion poll she carried out indicated that while some Kazakhs perceived that Chinese migration was rising and was harmful to the country, most Kazakhs had "indifferent" attitudes toward Chinese migrants. Kyrgyzstan and Tajikistan are not that attractive to potential Chinese migrants, according to some observers, because their under-performing economies have contributed to the exodus of many of their workers to Kazakhstan, Russia, and elsewhere. Cultural and Educational Exchange Activities U.S. Government-Sponsored Exchange and Training For FY2006, the latest year available, 14 Cabinet-level departments and 49 independent agencies/commissions reported 243 international exchange and training programs to the Interagency Working Group on U.S. Government-Sponsored International Exchanges and Training. These include such programs as the Peace Corps Volunteer Service, International Military Education and Training, Edmund Muskie Graduate Fellowships, various Fulbright programs, Eurasia/South Asia Teaching Excellence and Achievement Program, International Visitor Leadership Program, Hubert Humphrey Fellowships, and Benjamin Gilman Program, among others. Table 5 provides statistics on such training and exchanges involving Central Asia. The Central Asian governments also are facilitating study abroad. In 1993, Kazakhstan launched the "Bolashak" (Future) program of scholarships for college study aboard. Kazakh President Nursultan Nazarbayev in 2005 announced the enlargement of the program to up to 3,000 annual scholarships, and he reportedly urged that students attend U.S. universities to receive not only the latest professional knowledge, but also to be imbued with democratic and civic norms. The United States has received the largest cumulative number of students, amounting to over one thousand. One U.S. government program with some slight similarities to the activities of China's Confucius Institutes (language and cultural offices established worldwide; see below) is the Peace Corps, which sends volunteers to Kazakhstan, Kyrgyzstan, and Turkmenistan. (See Table 5 ) Estimated budgeted funding for the Peace Corps was $6.9 million for the Central Asian countries in FY2008. About $7.1 million was requested for FY2009. Many Peace Corps volunteers are engaged in English-language training in the Central Asian states, with most working in rural secondary schools, which may somewhat parallel the efforts of the Confucius Institutes. However, Peace Corps volunteers also work with governments and NGOs on HIV/AIDS and other healthcare, youth, environment, women, and economic development issues. Chinese Programs Chinese educational and cultural exchanges have been stepped up, both bilaterally and under the aegis of the Shanghai Cooperation Organization. Confucius Institutes have been set up and funded in Kazakhstan (two institutes), Kyrgyzstan, and Uzbekistan to foster Chinese language and culture. The pilot program for the worldwide network of institutes was launched in 2004 in Uzbekistan. The Confucius Institutes usually are affiliated with higher educational institutions in their host countries and provide materials for students and training for teachers in secondary schools. According to various reports, they receive yearly funding of up to $100,000 or more, and at least some staffing from Chinese volunteer language teachers sponsored by the Office of the Chinese Language Council International (abbreviated as Hanban). According to one report, Hanban expects the institutes to become self-funding after three years, which some observers suggest may be optimistic. Russia and China seemed to compete at the August 2007 SCO summit in offering educational exchanges, with China offering to boost the number of exchanges and President Putin perhaps countering by calling for setting up an SCO University. At the summit, Chinese President Hu Jintao called for bolstering scientific, cultural, educational, sports, and healthcare exchanges and cooperation, and announced that China would offer 20 college scholarships per year to SCO members. He called on SCO members to start short-term student exchanges and announced that China would invite 50 college and high school students. In September 2007, Turkmen President Berdimuhamedow praised China for greatly boosting the number of Turkmen students admitted to study at leading Chinese universities. China's ability to host foreign students in its higher educational institutions is limited, in part because the schools are an "elite" educational system able to accommodate only a small fraction of the college-age cohort. Many more Chinese study abroad than foreigners study in China. The Central Asian states are not among the top ten countries sending students to China. Many more Chinese than American citizens travel to the Central Asian countries, many to engage in small- to medium-scale trade (the so-called "shuttle" or "suitcase" traders). In early 2008, the Kyrgyz Interior (police) Ministry reported that over 49,000 foreigners from 110 countries had visited Kyrgyzstan in 2007, and that the greatest number, over 12%, were from China. In Kazakhstan, the State Statistics Agency reported in 2005 that the United States was among the top seven countries of origin for inbound tourists (over 19,500), although Russia remained first with 1.7 million inbound tourists, followed by China with over 76,800. Russia was the top country of destination for citizens of Kazakhstan (with 1.65 million visitors), followed by China (nearly 85,000). The United States was not among the top eight destinations. Diplomacy U.S. Bilateral and Multilateral Relations Unlike Chinese diplomacy, which adheres to the principle that the domestic affairs of a country should not be subject to international interference, U.S. diplomacy advocates democratization and respect for human rights in the Central Asian states. Kazakh and Uzbek government officials have raised concerns about U.S. funding for NGOs in their countries that advocate democratization and respect for human rights, and both countries have moved in recent years to restrict or close down the activities of many of these NGOs. All of the governments of the region have objected to their treatment in the State Department's annual human rights reports. According to some reports, the U.S. Administration's protests over the Uzbek government's crackdown in the town of Andijon in May 2005, which resulted in many civilian deaths, contributed to the Uzbek decision to abrogate U.S. military access to the Karshi-Khanabad (K2) base two months later. Uzbekistan also cut back its diplomatic ties with the United States. Russia and China defended the "counter-terrorism" actions of the Uzbek government, and Uzbekistan subsequently enhanced its diplomatic ties with both countries. High-Level Visits Before the terrorist attacks of September 11, 2001, the highest level U.S. visit to Central Asia was by then-Vice President Al Gore to Kyrgyzstan and Kazakhstan in December 1993. In the latter country, he signed an agreement on the provision of Cooperative Threat Reduction aid for de-nuclearization efforts. After the terrorist attacks of September 11, 2001, several high-level U.S. officials visited the region to secure transit and basing access to support operations in Afghanistan. Among high-level visits, former Secretary of State Colin Powell visited Kazakhstan and Uzbekistan in November 2001, just after a military basing agreement had been concluded with Uzbekistan. Former Defense Secretary Donald Rumsfeld visited Kyrgyzstan in April 2002 (just after a U.S. base was opened), in April 2005 (just after a revolt resulted in the seating of a new Kyrgyz president, and the two sides discussed continued U.S. basing access), and in July 2005 (just after the SCO had issued a communique—see below—questioning the continued presence of U.S. bases in the region). Secretary of State Rice visited Kazakhstan, Kyrgyzstan, and Tajikistan in October 2005. The highest-level U.S. visit to the region occurred in May 2006, when Vice President Richard Cheney led a delegation to Kazakhstan. In July 2006, Secretary Rumsfeld visited Tajikistan to discuss assistance in combating drug-trafficking and U.S.-Tajik cooperation in Afghanistan, and in June 2007, Defense Secretary Robert Gates visited Kyrgyzstan to reaffirm U.S. interest in continued basing access. Recent high-level visits by U.S. and Chinese officials to Central Asia during the period from June 2007 to early April 2008 are listed in the boxes ( Selected U.S. Official Visits to Central Asia and PRC Official Visits to Central Asia ). It appears from these visits that China places a higher priority on top-level contacts than does the United States, as reflected in visits by the Chinese premier, president, and foreign minister to several Central Asian countries. Premier Wen Jiabao, President Hu Jintao, and foreign minister Yang Jiechi attended SCO meetings but also met with regional leaders. The highest-level U.S. visitors to the region during the time period were Defense Secretary Robert Gates, Commerce Secretary Carlos Gutierrez, Energy Secretary Samuel Bodman, and several Members of Congress. However, visits by several medium-to-high-ranking State Department and other executive branch officials appear to indicate a broad range of U.S. official interest in the region. Except in Kazakhstan, U.S. embassies and consulates also appear to have larger staffs than Chinese embassies, including diplomats and other U.S. government personnel. In Kazakhstan, the Chinese diplomatic presence may approach or exceed that of the United States. China's National People's Congress has inter-parliamentary exchanges with Kazakhstan, Kyrgyzstan, and Uzbekistan. Also, the SCO summit in August 2007 called for enhanced inter-parliamentary cooperation. The U.S. Congress does not have regularized exchange relations with the Central Asian states, although several congressional delegations have visited the region in recent years, and several legislative delegations from the regional states—some federally funded through the U.S. Open World Leadership Center and other exchange programs—have visited the United States. U.S. Diplomacy on Trade and Investment The Administration and others stress that U.S. support for free market reforms directly serves U.S. national interests by opening new markets for U.S. goods and services and sources of energy and minerals. Most U.S. private investment has been in Kazakhstan's energy sector and has amounted to about $12.6 billion as of 2006, compared to China's reported $8 billion in investment as of 2007. U.S. trade agreements have been signed and entered into force with all the Central Asian states, but bilateral investment treaties are in force only with Kazakhstan and Kyrgyzstan. In line with Kyrgyzstan's accession to the World Trade Organization, the United States established permanent normal trade relations with Kyrgyzstan by law in June 2000, so that "Jackson-Vanik" trade provisions that call for presidential reports and waivers concerning freedom of emigration no longer apply. The U.S.-Central Asia Council on Trade and Investment . In June 2004, The U.S. Trade Representative signed a Trade and Investment Framework Agreement (TIFA) with ambassadors of the regional states to establish a U.S.-Central Asia Council on Trade and Investment. The Council represents the main U.S.-backed multilateral regional organization. It meets yearly to address intellectual property, labor, environmental protection, and other issues that impede trade and private investment flows between the United States and Central Asia. The Bush Administration at the annual meetings also has called for greater intra-regional cooperation on trade and encouraged the development of regional trade and transport ties with Afghanistan and South Asia. As stated by Secretary Rice, these Administration efforts support a "new Silk Road, a great corridor of reform" extending from Europe southward to Afghanistan and the Indian Ocean. According to Evan Feigenbaum, Deputy Assistant Secretary of State for South and Central Asia, "we are ... promoting options and opportunities omni-directionally but increasingly to the south—the least developed direction." The reorganization of the State Department in 2006 to create the Bureau of South and Central Asian Affairs facilitated this emphasis. In 2006, Robert Deutsch was appointed Senior Advisor on Regional Integration in the Bureau of South and Central Asian Affairs with a mandate to work on such linkages between Central and South Asia. On the other hand, Congress in late 2007 ( P.L. 110-140 ) directed the creation of the post of energy advisor to the Secretary of State to facilitate interagency cooperation within the U.S. government, and it was expected that efforts to encourage the transport of Caspian energy to European markets would be of major concern. At the third annual meeting of the Council on Trade and Investment in mid-July 2007, Assistant Secretary of State Boucher and Deputy Assistant Secretary Feigenbaum stressed transport, electricity, and other links between South and Central Asia as well as U.S. private investment in the region. Foreign Operations Appropriations for FY2003 ( P.L. 108-7 ) and subsequent years consolidated several programs under a new funding category, trade capacity building (TCB), "aimed at helping countries build the physical, human, and institutional capacity to participate in global trade. It includes assistance to negotiate, implement, and benefit from trade agreements, such as agreements within the World Trade Organization (WTO), and regional and bilateral free trade agreements." In Central Asia, TCB funds have been devoted to improving export controls (modernizing customs offices and other border security), supporting business information technology and business associations, bolstering business skills, developing agribusiness, and increasing government transparency and inter-agency coordination. Multilateral, region-wide programs also have been implemented. (See Table 7 ) It appears that the United States has placed more emphasis on systems building and less emphasis on physical infrastructure development—the latter including the construction of telecommunications, power, and water systems, ports, airports, roads, and industrial zones—than China has in the Central Asian region. However, as noted below, the United States has supported some important energy and other infrastructure development projects in Central Asia and between Central and South Asia. Among some specific TCB-related efforts in Central Asia, in October 2005, the U.S. Trade and Development Agency (TDA) announced the launch of a $1 million "U.S. Infrastructure Integration Initiative in Central Asia," which includes the countries of Afghanistan, Kazakhstan, Kyrgyzstan, and Tajikistan. The program focuses on regional energy, transport, and communications infrastructure development. Technical teams visited the countries in early 2006 and recommended projects. To facilitate regional transportation, the TDA supports building a 1,860 mile "North-South Silk Road" from Almaty, Kazakhstan, through Kyrgyzstan, Tajikistan, and Afghanistan to Karachi, Pakistan. As part of this route, the United States completed construction of a $30 million bridge connecting Afghanistan and Tajikistan. The United States also has provided assistance for border and customs posts, such as $600,000 for a truck inspection facility at the border between Kazakhstan and Kyrgyzstan. TDA hosted an April 2007 conference to support reforming Central and South Asia's telecommunications regulations. In the energy sector, USAID in 2006 launched a three-year, $3.3 million "Regional Electricity Marketing Assistance Program" (REMAP; implementor is the U.S. Energy Association) that encourages the development of electrical power infrastructure and power sharing between Central Asia and Afghanistan, Pakistan, and India. In October 2006, a U.S.-facilitated memorandum of understanding was signed between Afghanistan, Kyrgyzstan, Pakistan, and Tajikistan envisaging the supply of 1,000 megawatts of electricity from Tajikistan and Kyrgyzstan to Pakistan via Afghanistan. REMAP also facilitated agreements between Kazakhstan and Tajikistan and between Kazakhstan and Kyrgyzstan on electricity sales. USAID launched a $400,000 "U.S.-Central Asia Trade Facilitation Initiative" in 2005 that focused on customs reform. Technical teams visited Central Asia and Afghanistan to identify impediments to regional trade, and the United States and Kazakhstan hosted a meeting of regional states, donors, and the private sector to develop plans to facilitate trade. The Millennium Challenge Corporation (MCC), created in 2004 to provide U.S. aid to countries with promising development records, announced in late 2005 that Kyrgyzstan was eligible to apply for assistance as a country on the "threshold" of meeting the criteria for full-scale development aid. On March 14, 2008, the MCC signed an agreement with Kyrgyzstan to provide $16 million over the next two years to help the country combat corruption and bolster the rule of law. One early TCB-related project will be $1 million in technical assistance to the judiciary and other actors to improve the processing of commercial cases and the enforcement of judgments. Other U.S. Multilateral Ties with Central Asia Besides its leading role in the regional Council on Trade and Investment (discussed above), the United States plays a prominent role in the regional activities of the OSCE and NATO. Role of the OSCE . All the Central Asian states were admitted soon after their independence to membership in the OSCE as successor states of the Soviet Union. Perhaps the most controversial type of "soft power" wielded by the OSCE in the region has been its encouragement of democratization and respect for human rights, including through its monitoring of legislative and presidential elections. At OSCE meetings, U.S. diplomats have raised regular concerns about democratization and human rights problems in the region. The Central Asian states and Russia increasingly in recent years have accused the OSCE of interfering in domestic affairs and of fomenting "colored revolutions" to overthrow the sitting governments. After long raising concerns that democratization and human rights problems in Kazakhstan needed to be addressed before the country could hold the presidency of the OSCE, the United States and other member-states in late 2007 accepted Kazakhstan's promises to accelerate reforms and agreed that it could hold the presidency in 2010. Role of NATO ' s Partnership for Peace (PFP) . All the Central Asian states except Tajikistan joined NATO's PFP by mid-1994 (Tajikistan joined in 2002). Central Asian troops have participated in periodic PFP (or "PFP-style") exercises in the United States since 1995, and U.S. troops have participated in exercises in Central Asia since 1997. A June 2004 NATO summit communique pledged enhanced Alliance attention to the countries of the South Caucasus and Central Asia. Uzbekistan sharply reduced its participation in PFP after NATO raised concerns that Uzbek security forces had used excessive and disproportionate force in Andijon. In contrast to Uzbekistan's participation, Kazakhstan's progress in military reform enabled NATO in January 2006 to elevate it to participation in an Individual Partnership Action Plan. Among its objectives, PFP aims to encourage transparency and accountability in military budgeting, civilian control over the military, and other elements of "soft power." The United States and the SCO U.S. officials appear to view the Russia- and China-dominated SCO with caution. In his testimony at a hearing in September 2006, Assistant Secretary of State Richard Boucher stated that the United States had not asked to participate in the SCO, and that "in terms of our cooperation with the region, we don't think this is a particularly helpful organization. It's certainly not one that we would want to back, or sponsor, or promote in any way. We think our money, our energy, our time is better invested in working with the individual countries and working with the organizations that take a broader view, the NATO, the OSCE, the European Union, other partners, Japan, working with them in the region, people who are interested in all aspects of cooperation in that region." Deputy Assistant Secretary of State Feigenbaum appeared to take a more equivocal position about the role of the SCO in a talk in September 2007, where he stated that "we in the United States are still struggling to sort fact from fiction, to distinguish statements from actions, and to differentiate what is 'good' for our interests from what might be rather less productive." He discounted speculation that the SCO is a "new Warsaw Pact" (a former Soviet-East European security alliance), because the Central Asian states cooperate militarily with the United States and participate in NATO's Partnership for Peace initiative. He also stressed that the United States has bilateral and multilateral trade and investment ties with the Central Asian states. He stated that the United States hopes that China and Russia as members of the SCO are not colluding against a U.S. presence in Central Asia. Instead, he called for SCO members to help Afghanistan develop economically and to embrace an "open, market-based approach to global energy supply and security," rather than attempting to form an energy cartel. In testimony in April 2008, Assistant Secretary of State Boucher indicated some reassessment of the SCO's role in Central Asia. For awhile, it seemed that the SCO was becoming a means "for big countries to push little countries around," he averred, and the United States objected to such efforts, but recently the SCO seems to have stressed "border security, cross-border cooperation, [and] common efforts against terrorism. And to that extent, you know, when it does that, we think it makes a contribution to the region." Nonetheless, he did not envisage that the United States would seek to cooperate with the SCO. China's Bilateral and Multilateral Relations China has pursued both bilateral ties with each Central Asian state as well as multilateral ties through the Shanghai Cooperation Organization (SCO), whose members include China, Russia, and all the Central Asian countries except Turkmenistan, which claims to be nonaligned. China's growing bilateral and multilateral ties with Central Asia are the major impetus to political and economic integration in the region, according to some observers. China's Bilateral Ties with Central Asian States China has concluded Friendship and Cooperation Treaties with Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan that provide a framework for enhancing bilateral relations. The most recent Friendship and Cooperation Treaty was signed with Tajikistan in January 2007 and contains features common to all the treaties. Both sides foreswear forming alliances with or hosting troops from countries or groups that might threaten the security of the other party. Both sides agree to hold consultations if there is a situation that threatens the peace or security of either side. They pledge to create opportunities for investment and trade, and to work both bilaterally and within the SCO to crack down on terrorism, separatism, and extremism, and cross-border organized crime, illegal immigration, and arms and drug trafficking. Both sides promise to guarantee the legal rights of each other's visiting citizens. Some observers suggest that China may regard close relations with Kazakhstan as the most important to achieving its strategic goals. China and Kazakhstan proclaimed a "strategic partnership" in 2005, and in December 2006 concluded a strategy for "deepening cooperation in the 21 st Century." This agreement proclaimed that both countries had resolved border demarcation and called for expanding trade turnover to $10 billion by 2010 and to $15 billion by 2015, building pipelines and other transport routes, and cooperating in oil and gas development. Despite these growing ties between Kazakhstan and China, many in Kazakhstan remain concerned about Chinese intentions and the spillover effects of tensions in Xinjiang. Some have raised concerns about growing numbers of Chinese traders and immigrants, and there are tensions over issues like water resources. China's crackdown on dissidents in Xinjiang creates concern in Kazakhstan, because over one million ethnic Kazakhs reside in Xinjiang and many Uighurs reside in Kazakhstan (some ethnic Kyrgyz also reside in Xinjiang). Some in Kazakhstan fear that Uighur separatism in Xinjiang could spread among Uighurs residing in Kazakhstan, who may demand an alteration of Kazakh borders to create a unified Uighur "East Turkestan." While pursuing close ties with Kazakhstan, China also has focused on bolstering the economic and security capabilities of bordering Kyrgyzstan and Tajikistan in order to prevent instability in these countries from affecting its own territory. China's interest in close relations with Uzbekistan derives in part from the country's large number of potential consumers (it is the most populous Central Asian state) as well as its role as a transit state to markets further west. Since Kazakhstan is no longer taking on new public sector foreign debt, Kyrgyzstan, Tajikistan, and Uzbekistan apparently were the targets of loans that China announced in 2004 would be made available for regional development (see below). In December 2007, China announced the formation of a China-Central Asia Friendship Society, a propaganda organization under the direction of the Chinese Communist Party. Chinese Foreign Minister Yang Jiechi hailed the society as marking "the beginning of a new development phase in our non-governmental diplomacy with Central Asian nations." He stated that the society would assist in the "implementation of the country's overall diplomatic strategy, promote our mutual understanding and traditional friendship with Central Asia nations and their peoples, and augment our good-neighborly and friendly relations of cooperation with the five Central Asian nations." The deputy foreign minister stated that "non-governmental diplomacy, as an important supplement to official diplomacy, is playing an increasingly important role" in Central Asia. China's Multilateral Ties with Central Asia China cooperates in the Central Asia Regional Economic Cooperation program (CAREC; members are China, Afghanistan, Azerbaijan, Mongolia, and all the Central Asian states except Turkmenistan), initiated by the Asian Development Bank in 1997 to improve living standards and reduce poverty in its member states through regional economic collaboration. Also participating in CAREC are the European Bank for Reconstruction and Development (EBRD), the International Monetary Fund (IMF), the Islamic Development Bank, the United Nations Development Program (UNDP), and the World Bank. For the period from 2006 to 2008, CAREC plans to provide over $2.3 billion for more than 40 projects. The Shanghai Cooperation Organization . Some observers argue that China increasingly has stressed multilateral relations with the Central Asian region through the mechanism of the SCO, in which China plays the leading role. The genesis of the organization was an April 1996 treaty among the presidents of China, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan pledging the sanctity and substantial demilitarization of the former Soviet-Chinese borders. The presidents also signed protocols that they would not harbor or support separatists, aimed at China's efforts to quash separatism in Xinjiang. In April 1997, the five presidents met again to sign a follow-on treaty demilitarizing the 4,000 mile former Soviet border with China. In May 2001, the parties admitted Uzbekistan as a member and formed the SCO. The states signed a Shanghai Convention on joint fighting against what President Jiang Zemin termed "the forces of separatism, terrorism and extremism." The SCO also agreed to set up an anti-terrorism coordinating center in the region. In theory, the treaty allows China to send troops into Central Asia at the request of one of the states. Besides security cooperation, China stressed the "huge economic and trade potential" of regional cooperation. Some observers have viewed the creation of the SCO as reflecting the common goal of Russia and China to encourage the Central Asian states to combat regime opponents of the two major powers. While cooperating on this broad goal, Russia and China have appeared to disagree on other goals of the SCO and to vie for dominance within the organization. Russia has viewed the SCO mainly as a means to further military cooperation and to limit China's influence in Central Asia, while China in recent years has viewed the SCO not only as enhancing regional security but also as an instrument to increase trade and access to oil and gas. China stressed economic initiatives at the June 2004 SCO summit when President Hu Jintao offered $900 million in export credits with a 2% interest rate for a period of 20 years to Kyrgyzstan, Tajikistan, and Uzbekistan. The summit declaration emphasized that "the cornerstone of stability and security of the Central Asian region and the adjacent countries lies in their economic progress, in meeting the essential needs of the population." Russia emphasized the security aspects of the SCO in early October 2007 when the Russia-led Collective Security Treaty Organization (CSTO; members include Russia, Armenia, Belarus, and all the Central Asian states except Turkmenistan) signed an information-sharing accord with the SCO. According to some observers, China anticipates that with its increasing economic and military power, it will gradually eclipse the influence of Russia in the region. It is possible that as China's influence grows in the region, Russia will become more alarmed and will reduce its role in the SCO (see also below, Implications for Central Asia ). For the Central Asian states, the SCO is seen as balancing Russian and Chinese influence, since the regional states also belong to the economic and security organizations that are part of the Russia-led Commonwealth of Independent States. At the same time, according to some observers, regional leaders have preferred the economic and security cooperation offered by the SCO over what they view as U.S. advocacy of democratic "color revolutions." It may also be the case that Central Asian leaders value the SCO's economic prospects more than its security prospects, given the history of the group. The regional leaders may have devalued SCO as a security organization after September 11, 2001, when U.S. and Western military activities in Afghanistan demonstrated the lack of effectiveness of the SCO in combating terrorism. SCO members did not respond collectively to U.S. requests for assistance but mainly as individual states. Further challenges to the prestige of the SCO as a collective security organization occurred in 2005, when it failed to respond to the coup in Kyrgyzstan or to civil unrest in Uzbekistan. Russia and China have not used the SCO to channel significant amounts of military training and equipment to the regional states. In the case of China, relatively small amounts of security assistance have been provided to the Central Asian states either through the SCO or bilaterally, and largely have taken the form of training in exercises. During an early July 2005 SCO summit, the presidents of China, Russia, Uzbekistan, Kyrgyzstan, and Tajikistan signed a declaration that "as large-scale military operations against terrorism have come to an end in Afghanistan, the SCO member states maintain that the relevant parties to the anti-terrorist coalition should set a deadline for the temporary use of ... infrastructure facilities of the SCO member states and for their military presence in these countries." The declaration allegedly was strongly pushed by Russia and Uzbekistan. Later that month, Uzbekistan requested that the United States vacate an airbase near the town of Karshi Khanabad, which was used for U.S.-led coalition operations in Afghanistan, for reasons that included what Uzbekistan claimed was a stabilizing security situation in Afghanistan. According to analyst Stephen Blank of the U.S. Army War College, China has fashioned "the SCO as a template of the future organization of Asia against the American alliance system." He also states that China has resisted the Russian "idea of the SCO being a military bloc." Taking a different view, analyst Martha Olcott of the Carnegie Endowment for International Peace has argued that China focuses more on fostering regional stability than on using the SCO as an anti-U.S. forum, and that Russia and the Central Asian states have resisted Chinese efforts to expand security cooperation within the SCO. The most recent SCO summit of the heads of state took place in Bishkek, Kyrgyzstan, in mid-August 2007. A Bishkek Declaration and a multilateral Friendship and Cooperation Treaty were signed. The Bishkek Declaration appeared to refer to the United States when it criticized "unilateral actions" by some countries and when it stated that "Central Asia's security and stability first relies on the efforts of various countries in this region." It called for the members to coordinate their energy security strategies. The Friendship Treaty largely reiterated provisions of the bilateral friendship treaties China has signed with regional states. Foreign Assistance U.S. Foreign Assistance The United States has been the largest bilateral aid donor to the Central Asian region since 1992, followed by the EU. U.S. foreign aid budgeted to Central Asia for FY1992 through FY2006 amounted to $4.1 billion. The EU has reported that it has provided approximately 1.39 billion euros ($2.13 billion at current exchange rates) in assistance to the region since 1991. For much of the 1990s and until September 11, 2001, the United States provided much more aid each year to Russia and Ukraine than to any Central Asian state (most such aid was funded through the Freedom Support Act (FSA) account in Foreign Operations Appropriations, but some derived from other program and agency budgets). Cumulative foreign aid budgeted to Central Asia for FY1992 through FY2006 was about 14% of the amount budgeted to all the Eurasian states, reflecting the lesser priority given to these states prior to September 11. Budgeted spending for FY2002 for Central Asia, during OEF, was greatly boosted in absolute amounts ($584 million) and as a share of total aid to Eurasia (about one-quarter of such aid). The Administration's aid requests since then have gradually declined in absolute amounts, although it has continued to stress important U.S. interests in the region. The Administration has highlighted the phase-out of economic aid to Kazakhstan (because of its "quantifiable reform progress" in the democratic, economic, and social sectors) and restrictions on aid to Uzbekistan (see below) as among the reasons for declining aid requests. Aid to Central Asia in FY2005 and thereafter has been about the same or less in absolute and percentage terms than that provided to the South Caucasian region. (See Table 8 .) Not reflected in this table, the United States also contributes to international financial institutions and international organizations that aid Central Asia. The Millennium Challenge Corporation (MCC), created in 2004 to provide U.S. aid to countries with promising development records, announced in late 2005 that Kyrgyzstan was eligible to apply for assistance as a country on the "threshold" of meeting the criteria for full-scale development aid. On March 14, 2008, the MCC signed an agreement with Kyrgyzstan to provide $16 million over the next two years to help the country combat corruption and bolster the rule of law. According to one report, the signing of the agreement had been delayed over U.S. concerns over non-transparency of the vote count in the December 2007 Kyrgyz legislative election. Congressional Conditions on Kazakh and Uzbek Aid In Congress, Omnibus Appropriations for FY2003 ( P.L. 108-7 ) forbade FREEDOM Support Act (FSA) assistance to the government of Uzbekistan unless the Secretary of State determined and reported that it was making substantial progress in meeting commitments under the Strategic Partnership Declaration to democratize and respect human rights. The act also forbade assistance to the Kazakh government unless the Secretary of State determined and reported that it significantly had improved its human rights record during the preceding six months. However, the legislation permitted the Secretary to waive the requirement on national security grounds. The Secretary reported in May 2003 that Uzbekistan was making such progress (by late 2003, the Administration decided that it could no longer make this claim). In July 2003, the Secretary reported that Kazakhstan was making progress. Some in Congress were critical of these findings. Yearly appropriations for foreign operations since FY2004 have retained these conditions, while clarifying that conditions on assistance to the government of Uzbekistan include substantial progress in respecting human rights, establishing a "genuine" multi-party system, and ensuring free and fair elections and freedom of expression and media. In July 2004, the State Department announced that, despite some "encouraging progress" in respecting human rights, up to $18 million in aid to Uzbekistan might be withheld because of "lack of progress on democratic reform and restrictions put on U.S. assistance partners on the ground" (in contrast, progress was reported regarding Kazakhstan). This determination potentially affected IMET and FMF programs as well as FREEDOM Support Act funding, since legislative provisions condition IMET and FMF on respect for human rights. The State Department reprogrammed or used notwithstanding authority (after consultation with Congress) to expend some of the funds, so that about $8.5 million was ultimately withheld. In FY2005 and subsequent years, Secretary of State Condoleezza Rice reported to Congress that Kazakhstan had failed to significantly improve its human rights record, but that she waived aid restrictions on national security grounds. She has not reported substantial progress by Uzbekistan in meeting its commitments, so aid restrictions have remained in place. China's Foreign Aid There are no official Chinese data on grant assistance to Central Asia. Most Chinese assistance to Central Asia has been in the form of concessionary loans, in most cases to governments and joint ventures to finance the purchase of Chinese equipment and services. Most observers have suggested that Chinese grant assistance to Central Asia has been greatly eclipsed by that given by the United States and other donors. In some categories, however, Chinese assistance may be notable, particularly educational exchange grants (see above). Among reports of Chinese grant assistance to Central Asia, several appear to involve security assistance. According to one U.S. analyst, these grants are indicative of China's increased military diplomacy activities in developing countries worldwide since the early 2000s. Examples in Central Asia include uniforms for the Tajik armed forces, 20 jeeps for Kyrgyzstan's Ministry of Public Security, and 40 all-terrain vehicles for the Kazakhstan military. According to a report by Agence Presse France , "Since 1993 China has given more than $30 million to [Tajikistan] in technical aid for the Tajik police and army." Turkmen media reported in July 2006 that China had provided a $2.5 million grant to the Turkmen State Customs Service for the delivery of a mobile customs inspection system. Kyrgyz Television reported in September 2006 that the Kyrgyz National Guard received a technical assistance grant in the form of cars and barracks worth about $245,000 from the Chinese People's Armed Police Force. In March 2007, the Chinese Ministry of State Security provided computers, printers, laptops, video cameras, riot gear, night vision devices, and other equipment worth $321,000 to Kyrgyzstan's Interior Ministry. In May 2007, China provided crime detection equipment and training "as a gift" to the Uzbek Ministry of Internal Affairs. Among concessional loans, China has reported that it has funded 127 projects since launching its $900 million SCO loan initiative in 2004. Although offered under the SCO framework, each country has to negotiate separately with China about specific projects. Many of the loans have focused on upgrading Central Asia's transportation and communications systems, including those linking the region with China, in order to facilitate China's trade with the region and the economic development of Xinjiang. Among the loans: Visiting Chinese Deputy Minister of Foreign Trade Zhang Xiang signed an agreement with Kyrgyzstan's then-Prime Minister Nikolay Tanayev in August 2002 for a $1.875 million loan to complete a feasibility study for building the Kashgar-Andijon rail line and for purchasing broadcasting, agricultural, and security-related equipment. In 2005, China allocated $3.75 million to repair the 16 miles of roadway between the Kyrgyz capital of Bishkek and the Manas airport. In September 2006, China provided a loan for Kyrgyzstan's purchase of automobiles worth $1.8 million. In 2005, China announced loans of $110 million (for 20 years at 2% interest with a five-year grace period) to finance Chinese construction of two highway tunnels, one connecting Dushanbe to the southern city of Kulyab and the other connecting Dushanbe to the northern city of Khujand. Construction on the Dushanbe-Kulyab tunnel project reportedly began in October 2006 and is projected to be completed in 2009. Other projects funded with Chinese loans include repaving the highway from Dushanbe through Khujand to Chanak (near the Uzbek border), modernization of the telecommunications system, and upgrading of electricity transmission lines. The repaving project is expected to be completed in 2008. In January 2007, Chinese and Tajik firms signed an agreement in Beijing for the provision of a $200 million loan (for 25 years with an annual interest of 1%) to build a 150-megawatt hydroelectric power station on the River Zarafshon in northern Tajikistan. That same month, the visiting deputy head of China's Eximbank, Li Jun, praised Tajikistan as a leading country among SCO members in taking advantage of preferential loans to carry out projects. He also announced new loans to provide 23 Chinese locomotives to the Tajik railway directorate, and to finance work on a railway from Dushanbe to the southern city of Qurghonteppa, a railway from the southern city of Kolkhozobod to the town of Panji Poyon (on the Afghan border), and a railway from the northern town of Konibodom to the Uzbek town of Bekobad. Tajikistan's state-run news agency reported in January 2008 that Tajikistan owed China $217 million, the largest amount owed to one country. In late 2006, China extended a $24.5 million low-interest loan to finance construction or revamping of fiber optic and cellular telephone networks throughout Turkmenistan. In March 2007, China provided a $24 million loan for the purchase of Chinese drilling equipment and field camps for geological work and a $36 million loan to purchase Chinese railway passenger cars. In January 2003, China's Eximbank proposed extending a $2 million loan for 15 years at 3% interest to Uzbekistan for small-scale energy projects. In June 2004, Chinese President Hu Jintao visited Tashkent to take part in the SCO summit, and announced grants and long-term loans amounting to $350 million for economic development in Uzbekistan. A Russian newspaper reported that "members of the Chinese delegation said that this is the biggest economic aid package ever granted by China to any country at one time." In July 2005, China allocated two grants worth $3.6 million for economic training and other cooperation. Africa246 China has pursued ties with sub-Saharan Africa ("Africa" hereafter) since the 1950s. Prior to China's broad economic reforms of the 1980s, its engagement in Africa was primarily defined by political factors (e.g., colonial liberation, Third World development, and the Cold War). The 1980s brought a gradual shift in Chinese foreign policy in Africa and elsewhere, as Beijing's motivations increasingly came to be dominated by pragmatic economic and trade-related considerations. This has increased in recent years with China's outward investment push and its search for new sources of energy and natural resources. China continues to support aid projects in Africa, but many of these projects are increasingly commercially driven. As with China, U.S. relations were long influenced by Cold War concerns, and by associated support for free markets, along with a desire to provide humanitarian assistance when needed and assist in Africa's socio-economic development. After the Cold War, U.S. engagement with Africa declined somewhat, but bilateral assistance levels gradually rose again starting in the early-mid 1990s. While security concerns played a role in U.S. relations in Africa during the Cold War, U.S. interest in African security issues declined for a time after the Cold War. The U.S. appetite for direct military intervention in Africa's many conflicts was limited, and this notably became the case following the killing of U.S. soldiers in Somalia in 1993 during the infamous "Blackhawk down" incident. Security concerns in Africa, however, began to gain prominence in U.S. views of the region following the 1998 Al Qaeda bombings of the U.S. embassies in Kenya and Tanzania. They have remained a prominent facet of Bush Administration policy since the Al Qaeda attacks on the United States in 2001. Along with a rise in security cooperation, U.S. bilateral assistance to Africa, most notably in the healthcare sector and in the fights against the AIDS epidemic, has grown dramatically under the Bush Administration. One potential area of concern for policymakers is China's determined political courting of and growing economic support of African governments. This may lead—and in some cases has already led—them to view China as a desirable political ally and a model for development. China's policy of non-interference in states' internal affairs, especially with respect to issues of human rights and democracy may prove attractive, particularly in contrast to Western donor governments' imposition on Africans of political conditionalities in return for credit. Some Africans see such Western approaches as paternalistic, and some African states, when subjected to sustained Western policy pressure, have already turned to China. While such realignments may not be permanent, Angola's rejection of relations with the IMF in favor of access to Chinese economic ties and Zimbabwe's ties to China have been interpreted as reflecting such views. Rapidly expanding Sino-African economic cooperation and the perceived relevance to Africa of China's rapid economic development may also lead Africans to view China as a more relevant political-economic model than Western democracies. Economic Factors Early in the present decade, China's economic boom prompted a renewed push to accelerate the development of relations with Africa. Chinese-African economic and political ties are now rapidly burgeoning and take many forms: trade agreements, commodity acquisition and production deals, and scientific, educational, technological and—in a few cases—security cooperation. China is also offering increasing amounts of development aid to Africa. The dominant factor driving such ties is trade. Sino-African ties are underpinned by China's prodigious demand for Africa's plentiful commodities, notably oil and unprocessed metals and minerals, to supply its rapidly growing economy, and by African demand for Chinese goods and services. The People's Republic of China (PRC) uses a combination of political and economic means to protect this trade and foster bilateral ties. As a result, economic relations are not carried out on a purely commercial basis. There is a substantial amount of overlap between Chinese development aid, investments, and business deals. These are often underpinned by PRC soft loans, with terms ranging from a no-cost (i.e., grant) basis to near-market rates. PRC financing and political backing are increasingly enabling Chinese firms to attain a dominant competitive position with respect to the demands of Africa's small but often rapidly growing markets, which many view as having often been neglected by developed country businesses. Political Factors China's political goals in Africa center on fostering support among African states for Beijing's political, economic and trade interests. Notable among these are long-standing efforts by China to isolate Taiwan internationally. In Africa, China has been increasingly successful in this respect; only four of 48 sub-Saharan African countries (Burkina Faso, Sao Tome, Gambia, and Swaziland) now maintain official relations with Taiwan. In large measure it pursues its international political goals by attempting to extend its influence within the United Nations (U.N.) system and other international forums, where African countries form an important potential block of allied votes. In such forums China often champions policies that it views as shared by many African countries. These include efforts to foster a more multi-polar international political system and to counter putatively disproportionate U.S. global political-economic and military influence. China also uses these forums to promote developing country interests in order to create a "new, just and rational economic order" and to influence international policy-making decisions that affect countries, such as Sudan, in which China has important interests. China is also proving attractive to many for more direct, practical purposes. With the exception of its Taiwan policy, China, unlike Western official donors, does not condition its financial offerings and political ties on improvements in governance, economic reform, or human rights conditions. Instead, it expresses strong support for state sovereignty and "non-interference" in countries' internal affairs, and stresses the mutual benefits of bilateral ties and "economic win-win cooperation." Such policies dovetail with those of many African governments, both for economic reasons and because some, like China, have periodically been targets of foreign criticism regarding undemocratic governance and human rights. Responses There have been complex and varied reactions among analysts regarding the implications of Chinese engagement in Africa. These range from enthusiasm and guarded optimism to concern over potential Chinese strategic and economic threats to western or African interests. Some observers are concerned about the state-centric, political-commercial mode of PRC engagement in Africa; its potential negative impacts on U.S. and Western public policy goals and engagement in Africa; the competitive impact of increased PRC imports of raw materials from Africa and, to a lesser extent, Chinese competition for current and future African market demand; and the implications for U.S. political interests and influence of the PRC's undertakings in Africa. Such concerns largely stem from the fact that China's African undertakings are increasingly affected by diverse international events, politics, and policy trends, with origins both in Africa and extrinsic to it, that are of interest to Western governments and polities. Examples include international responses to the conflict in Darfur, Sudan; western support for universal good governance and fiscal transparency; and globalized economic competition. China has an ostensible policy of neutrality and non-interference with respect to countries' internal affairs and does not link provision of bilateral aid and credit to apolitical or governance performance. Critics worry that this may weaken African governments' motivation to pursue democratization, good governance, and transparency reforms, and adhere to universal norms of civic and human rights and the rule of law in Africa. There are growing concerns among some observers over the prospective impact that China's efforts to gain and ensure access to African energy and mined primary commodities might have on global energy markets. Similarly, rising Chinese investment in Africa suggests to some analysts that China presents a competitive threat to developed country investment on the continent. Many African and foreign observers are also concerned about growing PRC political clout in Africa. Sino-African bilateral investment agreements are the focus of criticism because they often fuse business, political, aid, and sometimes military considerations. These allow China to offer integrated "package" deals. These may be more attractive to African governments than those offered by western country governments, which exercise much less control over their private sectors than the PRC, and often operationally separate their aid, military, and diplomatic initiatives. In some cases, according to critics, PRC-African deals contain provisions that may conflict with international human rights, transparency, or environmental norms, or promote economic activities that do little to develop the African private sector. Other analysts, however, point to potential benefits to Africa resulting from China's involvement on the continent, which Bush Administration officials have in some cases pointed to as a positive outcome of Sino-African engagement. Many also view China's engagement in Africa as a reflection of China's legitimate pursuit of political and economic self interest. Among the most often cited positive outcomes for Africa are rising levels of Chinese investment in Africa, particularly in infrastructure; increases in African exports to China; and Chinese fulfillment of unmet African consumer demand. China is also seen as providing African countries with a new source of private credit and finance, and as spurring global commercial interest in African resources and markets. Implications for U.S. Policy Analysts are divided over the implications Chinese engagement in Africa may have for U.S. policy, but with some exceptions, few see a trend toward direct U.S.-Chinese "soft power" competition in Africa. But some observers see emerging economic and/or political competition between the two countries. Bush Administration officials, including the President, have repeatedly stated that they do not view Chinese engagement in Africa as a threat to U.S. interests in the region. Administration officials are, however, actively monitoring China's activities in Africa, since it is widely accepted that the breadth and diversity of these endeavors may present numerous potential issues for consideration by U.S. policy makers. One area for consideration is the impact of Chinese engagement on African governments' willingness to pursue democratization, good governance, and transparency reforms, and their adherence to universal civic and human rights norms and the rule of law. Another concern may include the potential for a renewed rise in African financial indebtedness to China, fast on the heels of recent substantial U.S. and Western government write-downs of past unsustainable African debt. The prospect of increased U.S.-Chinese economic competition in Africa, notably in the oil sector and strategic metals and minerals trade, also presents national energy security policy questions. Some are concerned that China's rising textile production and export of goods to Africa are negating U.S. efforts to strengthen Africa's apparel and other manufacturing sectors through the African Growth and Opportunity Act program (AGOA), which seeks to bolster African production by providing duty-free access for diverse U.S. imports from Africa. The potential for the growth of a pro-China voting block within United Nations agencies and other multilateral organizations is also a concern for some. Cultural and Educational Cooperation Chinese Education Cooperation Africans in China make up a small proportion of all foreign students in China, and number considerably fewer than Africans studying in the U.S. But the number of African students in China is rising. By 2007, the total number of foreign students in the PRC was 195,503, of which about 5,900 (3%) were Africans. This rise reflects a PRC pledge to increase the number of and support for African students in China from 2006 onwards, specifically a pledge to increase the number of African students receiving PRC government scholarships. Most African students in China are undergraduates and masters-level students, not Ph.D. candidates, and most primarily seek education in technology and engineering, medical science, and language training. The education of most African students in China is funded by the PRC. Between 2000 and 2006, an average of about 1,200 Africans received Chinese government scholarships to study in China each year. In November 2006 during the Forum on China-Africa Cooperation (FOCAC) summit, Chinese officials pledged to double the number of such scholarships by 2011. Such a rise would substantially increase the number of African students receiving such scholarships, which totaled nearly 19,000 between the early 1950s, when China began to provide them, and 2006. Meanwhile, between 2003 and 2005, 2,808 "self-supporting" or non-PRC-financed African students were enrolled in Chinese higher education institutions. The number of "self-supporting" African students rose during the 1990s, as did the number of African students seeking postgraduate education. Two factors are seen as giving rise to this increase: increasing university development cooperation between Africa and China and the relatively low cost of living and studying in China, as compared to the West. China has educational exchange and cooperation relations with 50 African countries, and provides education capacity-building assistance to African countries. Such development activities are the focus of an ongoing FOCAC "follow-up activity" called the Sino-African Education Minister's Forum. China has reportedly deployed over 700 professional teachers to 33 African countries to aid development of higher and secondary school education since the 1950s. Such cooperation nearly doubled during the 1990s. Teachers being sent to Africa are now increasingly deployed by Chinese universities in support of university-designed training, exchange, and cooperation programs, using grant funding from the PRC's Ministry of Education and African Human Resources Development Foundation, rather than being deployed by the central government. Such programs typically support higher education instructional or management training to vocational and grade-school teacher training. Separately, China sponsored 60 or so assistance programs between the 1950s and 2006 aimed at helping develop "disadvantaged" disciplines and boosting science, technology, teaching, and research capacities in 25 African countries. Some Chinese assistance is provided for basic education; in 2006, president Hu Jintao pledged that China would build 100 rural schools in Africa by 2009. A small number of Chinese students study in Africa. Training Since 2000 under FOCAC, China has increased its support for vocational education in Africa, as well as for Chinese language training and short to medium term professional and applied technology training courses, both in China and Africa. This training focuses on such diverse topics as diplomacy, journalism, malaria and healthcare, solar energy, and agriculture. These activities are increasingly funded by the PRC African Human Resources Development Fund, which China set up after the adoption of the FOFAC Program for China-Africa Cooperation in Economic and Social Development in 2000. At the second FOCAC gathering in Ethiopia in 2003, China offered to train 10,000 African personnel over three years, beginning in 2004 under the aegis of the African Human Resources Development Fund. It also offered to increase scholarships for African exchange students in China. In 2004, China's ambassador to South Africa stated that China had trained 6,000 Africans in agriculture, diplomacy, medicine and other fields from 2000 through 2003 and sent over 500 experts and teachers to offer short term courses. Prior to the 2006 FOCAC Summit in Beijing, he stated that China had more than fulfilled its commitment to train10,000 African personnel, having trained 14,600. He also stated that China had deployed a youth volunteer team to work in Ethiopia, the first of several planned for various African countries, and that in 2005, China had sponsored the attendance of 4,600 Africans from 50 countries at 139 workshops held in China. At the 2006 FOCAC summit, PRC President Hu pledged that by 2009 China would deploy 100 top Chinese agricultural experts to Africa; establish 10 agricultural technology centers; build 30 hospitals; provide about $40 million in grants for anti-malaria drugs, prevention, and the construction of model treatment centers; build 100 rural schools in Africa; train 15,000 African professionals; and double the number of PRC government scholarships for African students from 2,000 per year to 4,000 per year. China has also contributed to the IMF-sponsored African Capacity Building Foundation, which supports technical aid projects and vocational courses in Africa under the Technical Cooperation Among Developing Countries (TCDC) framework of the United Nations-hosted Special Unit for South-South Cooperation. China ' s Africa Policy , a formal strategy document issued in 2006, also envisions increasing support for distance learning in Africa. Confucius Institutes in Africa China actively promotes the teaching of Chinese language and culture. There are 12 existing or soon to be completed Confucius Institutes in sub-Saharan Africa. China has also assisted several universities to create Chinese language learning centers, some dubbed "Confucius Classrooms." As of 2005, there were reportedly nearly 120 schools in 16 African countries that offered Chinese language courses, and over 8,000 African students learning Chinese. Such programs are assisted by 200 or more Chinese language teachers from China. Other Exchanges Officials of the Chinese Communist Party, a variety of ministries, and export promotion and finance agencies regularly host guests from Africa, ranging from state leaders and government ministers to mid-level African party officials and state functionaries, and they regularly participate in exchange visits to Africa. PRC Youth Volunteers in Africa China has initiated a program called the Overseas Youth Volunteer Program, which has been compared to a nascent PRC "Peace Corps," and this is expected to increase in size. In 2006, President Hu committed to deploy 300 PRC program volunteers to Africa by 2009. Volunteers reportedly are vetted under a very competitive screening process and are currently deployed in Ethiopia, Seychelles, and Zimbabwe. PRC Media The PRC is paying increasing attention to shaping the media landscape relating to Chinese-Africa relations. In December 2007, the Xinhua News Agency launched a China African News Service (CAFS). CAFS seeks to expand coverage of Chinese and African news of mutual interest to Chinese and African audiences. The PRC State Council Information Office, in coordination with other state ministries and agencies, has held annual two-week seminars in China for African journalists since 2004. These highlight Chinese views and policies relating to Africa, teaching African participants about the Chinese media system and promoting "China-Africa exchanges and cooperation in the field of journalism" in support of "friendly cooperative" Sino-African ties. The last seminar was reportedly attended by over 40 press officers from 30 African countries. Such exchanges are a goal of China ' s Africa Policy , which proposes to facilitate ties between state agencies in China and Africa centered on exchanging strategies on ways to handle relations with domestic and foreign media. PRC Health Diplomacy China has long deployed medical teams to Africa as part of what it calls "health diplomacy," which China views as an essential way of building citizen-to-citizen relations. China supplies drugs, medical materials and diverse other healthcare development aid for Africa. In 2006, China's envoy to South Africa stated that from 1963 to 2005, 16,000 Chinese doctors had worked in 47 African states, treating almost 240 million medical cases; that large quantities of drugs and medical equipment had been donated; and that 30 hospitals in Africa had been built with PRC assistance. In 2004, he stated that 35 PRC medical teams comprised of 880 doctors were working in 34 African countries. In late 2006, President Hu pledged that by 2009, China would build 30 hospitals; provide about $40 million in grants for anti-malaria drugs, prevention, and construction of model treatment centers in Africa. PRC medical teams reportedly deploy for two-year stints, and China's civilian medical cooperation is administered by PRC provincial health bureaus. These provincial bodies reportedly offset many program costs, such as team airfares, living stipends, and some medical supplies used by the teams. Such programs reportedly may face long-term pressures associated with declining provincial tax revenues, the health demands of PRC citizens, and the increasingly profit-based character of Chinese healthcare, which deprives the public sector of doctors willing to serve overseas. China has also sponsored various tropical disease and HIV/AIDS training sessions, such as those sponsored by the Jiangsu Institute of Parasitic Diseases. In 2007, China also offered such assistance on a multilateral basis by giving $8 million to the World Health Organization designated for Africa. U.S. Educational and Cultural Cooperation The United States hosts a large number of foreign students and visitors each year, including a considerable number of Africans. Of the 582,984 international students studying in the United States in 2006/2007, 32,102 were African, representing 5.5% of the total. Of these, 61.7% were undergraduates. Diverse U.S. government agencies support and facilitate a wide variety of visits to the United States by African students, scholars, and professionals for purposes of study, research, cultural exchange, applied training, and teaching. In 2006, the total number of such visitors from Africa totaled 68,973, or 7.8% of the global total. Approximately 100 sister city relationships between African and U.S. cities and towns also support U.S.-African cultural and civic exchanges. Fulbright Programs Many U.S. publicly funded exchange activities are education-focused. One of the major vehicles for advancing educational cooperation with foreign countries is the Fulbright family of grant programs. Some Fulbright programs study abroad by U.S. graduate students, while others fund study and research by foreigners in the United States and help to develop foreign institutional capacities. In academic year 2006-2007, 246 grants, or 6.1% of the global total, went to African students, academics and professionals. (See Table 9 ) For the entire history of the Fulbright program (1949-2006), the number of grants made to Africans totaled 9,462, or 4.7% of the total. A large percentage of these were Humphrey Fellows, i.e., professionals undergoing advanced U.S. training. Another major U.S. program to provide Africans with U.S. higher education degrees was the now defunct African Graduate Fellowship Program (AFGRAD; 1963-1990), and its successor, the Advanced Training for Leadership and Skills program (ATLAS; 1991-2003). These USAID-administered programs trained over 3,200 African professionals in U.S. PhD and masters degree programs in key developmental fields and cost $366 million in 2004 dollars. Higher Education Assistance to Africa In addition to promoting educational cooperation through exchange programs, the United States also provides support for higher education development in Africa. Such aid may grow. In April 2008, the Bush Administration sponsored a conference, the Higher Education Summit for Global Development, which was designed to act as a springboard for strengthening higher education institutions in developing countries, including in Africa. Several Africa-focused higher education programs are administered by USAID. A primary one is the Higher Education for Development (HED) Program of the USAID Economic Growth, Agriculture and Trade Bureau's (EGAT) Office of Education (ED). HED supports partnerships between U.S. higher education institutions and foreign ones by linking U.S. colleges or universities with developing country counterparts. Its goal is to foster the role of higher education in international development, with a focus on human and institutional capacity building. HED assistance is provided through a grant competition process. There are current or recent HED programs in 21 African countries, as well as several regional projects. Other USAID bureaus, country missions, and USAID-backed public-private alliances also administer programs that promote higher education development or do so indirectly as part of larger efforts to advance health, agricultural, or ICT development. Notable among USAID programs that aid tertiary education in Africa are several backed by the EGAT Agriculture Office (AG). It supports higher education partnerships, innovative pilot programs in collaboration with the Board for International Food and Agricultural Development (BIFAD), which advises USAID on agricultural development issues and monitors program activities. EGAT/AG also implements Collaborative Research Support Programs (CRSPs). These draw on the capacities of U.S. land grant universities and foster numerous agricultural research and development projects in Africa. EGAT/AG also sponsors the Collaborative Agricultural Biotechnology Initiative (CABIO) and the Consultative Group on International Agricultural Research (CGIAR). In addition to its dedicated assistance to higher education in Africa, since 2003 USAID has supported short and long-term training for over 680,000 Africans, including in-country, in third-countries, and in the United States. Other Outreach, Public Diplomacy, and Cooperative Efforts The United States supports public diplomacy and information outreach efforts in or targeting Africa in the form of American Corners, Virtual Presence Posts, Information Resource Centers, and through the broadcast and Internet presence of the Voice of America (VOA). American Corners, of which there are 77 in Africa, provide access to information about the United States in the form of published and digital media, exhibits, speakers, and the like. They are hosted by national institutions under contract with the State Department, and are often located outside of capital cities. They tend to reach younger audiences with little exposure to U.S. culture or ideals. "Virtual Presence Posts" (VPPs) are Internet sites that substitute for a U.S. government physical presence where insecure environments or funding constraints preclude them. There are three in Africa, serving northern Uganda, Somalia, and the Seychelles. Thirty-seven U.S. embassies in Africa maintain Public Diplomacy Information Resource Centers (IRCs). These are designed to provide direct, timely, authoritative information to foreign audiences in support of U.S. policy goals and to provide a point of contact between local nationals and U.S. embassy personnel. They function essentially as Internet-capable libraries, and host speakers and educational presentations. VOA broadcasts to Africa in 10 indigenous African languages as well as in English, Portuguese, and French. There are also two Regional English Language Offices in Africa, serving Southern and West Africa respectively. Peace Corps programs in 26 African countries promote both development and cultural exchanges and personal linkages. Peace Corps programs appear to foster long-term U.S. African ties. Anecdotal information suggests that a substantial number of U.S. government personnel who work on African affairs or development issues are former Peace Corps volunteers. Diplomacy China's African Policy China's political-economic goals and relations in Africa are defined in a formal document released in early 2006, entitled China ' s African Policy . It lays out a PRC goal of creating "a new type of strategic partnership with Africa" consisting of multifaceted cooperation grounded in long-standing "guiding" Chinese foreign policy principles. It explicitly conditions official relations with African governments on their adherence to the PRC's "one-China principle" vis-a-vis Taiwan, but makes no other political demands. It seeks to increase reciprocal official leadership visits and diverse lower level cooperative exchanges, and pledges PRC-African cooperation in international forums. It also seeks increased Sino-African trade, offering PRC duty-free treatment for some African exports, seeking free trade agreements in the region, and providing access to export credits for PRC investment and business activities in Africa, notably in infrastructure. It advocates enhanced trade dispute settlement, investment protection, and double taxation accords, and seeks enhanced joint business promotion efforts. It pledges PRC support for African development, especially in agriculture, raises the possibility of PRC debt cancellation for some African countries, and urges increased international debt relief and unconditional economic aid for Africa. It also seeks increased science and technology, cultural, and environmental cooperation, and offers increased Chinese human resource training and PRC scholarships for Africans, among other education support efforts. It also pledges increased medical assistance, including the dispatch of PRC medical teams to Africa (a long-standing, largely successful PRC "health diplomacy" tradition). Media, civil service, and disaster relief training are also planned. FOCAC China is pursuing its policy goals in Africa both bilaterally and through the Forum on China-Africa Cooperation (FOCAC). Created in Beijing in 2000 during a summit of PRC and 43 African country leaders, FOCAC is a comprehensive effort initiated by China to build mutually beneficial economic development, trade, and political relations with Africa rooted in principles of "South-South Cooperation." Each FOCAC summit or major meeting has produced a concrete action plan for Sino-African cooperation. The PRC also uses these gatherings to offer African countries debt relief and diverse development assistance, and to sign multiple business, trade, and cooperation agreements with them. It also highlights China's record of fulfilling its past assistance pledges. The most recent FOCAC Summit took place in Beijing in November 2006. It was reportedly the largest international event ever held in China; it drew China's top leaders and 48 high-level African government delegations, including 41 heads of state. At the summit, PRC President Hu Jintao announced eight major new PRC efforts to strengthen the Sino-African "strategic partnership" under FOCAC, pledging that China would: Double its level of year 2006 assistance to Africa by 2009. Provide $3 billion in "preferential loans" and $2 billion in "preferential buyers' credits" targeted at poor African countries by 2009. Establish a China-Africa Development Fund worth an eventual $5 billion to encourage Chinese companies to invest in Africa and provide support to them. Build a headquarters for the African Union in aid of African unity and integration. Cancel all the interest-free government loans due at the end of 2005 owed by poor African countries maintaining diplomatic relations with China. Increase the number of items subject to Chinese duty-free treatment exported by poor Africa countries with diplomatic ties with China from 190 to 440. Create three to five trade and economic cooperation zones in Africa by 2009. By 2009 deploy 100 top Chinese agricultural experts to Africa; establish 10 agricultural technology centers; build 30 hospitals; provide about $40 million in grants for anti-malaria drugs, prevention, and construction of model treatment centers; deploy 300 PRC Peace Corps-like volunteers to Africa; build 100 rural schools in Africa; train 15,000 African professionals; and double the number of PRC government scholarships for African students from 2,000 to 4,000 per year. Vehicles for PRC Diplomacy China maintains an extensive network of diplomats in Africa, many conversant in local languages. There are PRC embassies in all but the four African countries with which Taiwan has ties (apart from Somalia, where its embassy is closed for security concerns). It also has commercial counselor offices in 40 African countries and seven consulates-general in five of them. Frequent leadership exchange visits, notably including multiple trips to Africa by top PRC officials such as President Hu Jintao and Premier Wen Jiabao, bolster its diplomatic presence. China's foreign ministers have visited Africa annually since 1990. Visiting PRC political VIPs, often accompanied by large business and ministerial delegations, sign major bilateral cooperation agreements and announce large, often PRC state-financed business deals. Top African leaders make frequent reciprocal visits. Diverse lower-level exchange visits also occur, and often include training for African officials including diplomats, economic officials, business professionals, journalists, and other key decision and opinion makers. There are also exchanges between legislatures, the PRC Communist Party and African political parties, and local governments, to which China periodically provides in-kind material assistance. Regional Ties China is also reaching out to Africa at the continental level. China is a small contributor to the African Development Bank (AfDB), but in May 2007 it hosted the bank's annual meeting. The event, attended by Premier Wen Jiabao, featured various events highlighting PRC investment and development relations with Africa, including: China's approval of an initial $1 billion capitalization of the China Development Bank (CDB)-administered China-Africa Development Fund, which is slated to be expanded to $5 billion in total and is designed to fund PRC firm equity investments and business deals in Africa related to commodities, infrastructure, agriculture, manufacturing and industry. A pledge by China's Export-Import (ExIm) Bank to provide $20 billion in loan funding for diverse projects in Africa from 2007 through 2009. China's membership in the West African Development Bank and the CDB's signing of cooperative "framework agreements" with the East African Development Bank and the Eastern and Southern African Trade and Development Bank, among others. African Union China has stepped up ties with the African Union (AU), attending key AU summits in 2006 and 2007. It is an observer in several African sub-regional organizations. In May 2007, after appointing its first Special Representative on African Affairs and Darfur, Liu Guijin (China's former ambassador to South Africa and Zimbabwe, and the former head of the PRC Foreign Ministry's African Affairs Department) China agreed to finance the construction of a $100-$150 million AU headquarters, fulfilling President Hu's 2006 FOCAC summit pledge. The PRC has also provided funding for the AU peacekeeping missions in Sudan's Darfur region and in Somalia, and occasionally provides some humanitarian assistance in Darfur and elsewhere. Military and Security Issues Beijing provides training in China for African military officers, technical aid related to its sale of military equipment in Africa, and other capacity-building help for African militaries, but public information on the scope and content of such activities is lacking. There are PRC military-to-military exchange accords with a reported 25 African countries. Only nine of a global total of 107 Chinese military attaché offices are located in Sub-Saharan Africa, however, and no African states have to date participated in joint military exercises with the PRC. In its China ' s African Policy paper, the PRC pledged to boost military aid and help Africa fight crime by offering judicial and police training and cooperation, and by setting up a channel for intelligence exchange targeting" non-traditional security threats," including terrorism, small arms smuggling, drug trafficking, and transnational economic crime. International peacekeeping is an emerging area of Chinese engagement in Africa. Chinese military or police personnel have been seconded to all but one of the current U.N. peacekeeping operations (PKO) in Africa. China has deployed a unit to the U.N. PKO in Darfur, Sudan. Most PRC PKO contingents are made up of military observers or functional units (e.g., engineering, transport and logistics, and medical groups). China has also donated equipment for peacekeeping purposes to the Economic Community of West African States and has aided the African Union Mission in Sudan. China has long sold arms to Africa. Apart from small arms, these exports have consisted mostly of artillery, armored personnel vehicles, naval boats, and aircraft. In recent years, arms deals with Sudan, Nigeria, countries in the Horn of Africa, and Zimbabwe, some involving military aircraft transfers, have drawn attention. From 2003-2006, China is estimated to have been the third largest exporter of arms to Africa, after Germany and Russia, having provided about 15.4% ($500 million) of a $3.3 billion total in global sales to the region. PRC military vehicles and equipment tend to be simple and rugged, making them attractive in African markets. China is reportedly a key supplier of a variety of cheap small arms in Africa, notably including generic AK-47-type assault rifles and police equipment. U.S. Relations The United States has diplomatic relations with each of the 48 countries in sub-Saharan Africa, and maintains embassies in 43 of them. It has also recently established diplomatic ties with the African Union; the AU and the United States both maintain ambassadors who are entirely devoted to supporting their mutual relations. African countries without U.S. embassies (Comoros, Guinea-Bissau, Seychelles, Sao Tome, and Somalia) are served by U.S. embassies in neighboring countries. African countries also host regular bilateral visits by U.S. officials, but top U.S. officials tend to visit Africa less frequently than do their Chinese counterparts. However, the Assistant Secretary of State for Africa, Jendayi Frazer, and other officials of the State Department's African Affairs Bureau, travel frequently to Africa, and are extensively engaged in U.S. diplomacy aimed at conflict mediation, democracy promotion and other issues. Under both Republican and Democratic administrations, U.S. policy toward Africa has generally emphasized five policy areas: democracy-building and adherence to human rights, including conflict mitigation; socioeconomic development; trade promotion; investment; and, to a lesser extent, environmental protection and management. Since early 2006, these objectives have been integrated into the U.S. Foreign Assistance Framework, which defines the goals of U.S. engagement with Africa, as well as other world regions. It is a part of the Bush Administration's "Transformational Diplomacy" policy agenda, which endeavors to use U.S. "diplomatic power to help foreign citizens better their own lives, build their own nations, and transform their own future." Efforts to combat Africa's HIV/AIDS epidemic, authorized by the 2003 President's Emergency Plan for AIDS Relief (PEPFAR), have been a large priority as well. The United States, together with other leading western donor governments, has also prioritized African development within the context of the G8 Group of countries, which have formed an entity called the Africa Partnership Forum (APF). It is made up of key donor governments, representatives of the African Union, Africa's eight regional economic communities, and a variety of multilateral intergovernmental organizations. It monitors how effectively policy and financial commitments to African developmental goals by donor and African governments and governmental organizations are being pursued. It also looks for ways to improve or better coordinate such efforts, many of which revolved around meeting the U.N. Millennium Development Goals. Unlike China's putative policy of "non-interference" in countries' internal affairs, under the Clinton and Bush administrations, U.S. policy in Africa has increasingly tied U.S. assistance to recipient countries' performance in meeting criteria relating to economic, governance, and human and political rights benchmarks. In Africa, as elsewhere, with some exceptions, U.S. non-humanitarian bilateral assistance is suspended automatically when undemocratic changes of government take place or when countries substantially fail to repay U.S. loans. Most recent U.S. administrations, including the present one, have also emphasized the key role that trade and investment play in increasing Africa's long-term economic growth and development; reducing its need for foreign aid; and spurring democratization by empowering its people economically. U.S. trade with Africa is small, comprising in the range of 1-2% of U.S. global trade in most years, but is growing. Trade volumes are dominated by U.S. imports from Africa, but U.S. exports to Africa are also steadily growing. Just over 18% of U.S. oil comes from Africa, and oil makes up over 76% of the value of all imports from Africa. A primary vehicle for fostering trade is the African Growth and Opportunity Act (AGOA), enacted in 2000 and amended several times since. It provides duty-free treatment for most imports, and certain other trade capacity-building benefits. AGOA seeks to boost bilateral U.S.-African trade, spur African manufacturing export growth, and help integrate Africa into the global economy. It also seeks to foster African economic reform efforts, provide improved access to U.S. credit and technical expertise, and maintain a biennial high-level dialogue on trade and investment, the U.S.-sub-Saharan Africa Trade and Economic Forum. Forty African countries are AGOA-eligible. A variety of other programs also fund trade capacity building in Africa and the promotion of U.S. exports to Africa. Following the September 2001 terrorist attacks upon the United States, security and military relations began to play an increasingly important role in U.S.-Africa official relations, particularly in the areas of regional and international peacekeeping mission assistance, peacekeeper training, and bilateral counter-terrorism (CT) cooperation. This increase followed a post-Cold War decline in arms sales and security cooperation. The United States has helped mediate ends to multiple African civil wars and crises. It has assisted in the deployment of multiple regional peacekeeping missions, and it substantially funds U.N. peacekeeping missions that have in most cases been subsequently deployed. The creation and dialogue over possible modes of regional deployment of the new U.S. military Africa Command (AFRICOM) has recently played a high-profile role in U.S.-African diplomatic relations. AFRICOM is being designed to include a significant State Department and USAID component, and to foster increased coordination between U.S. military and civilian foreign policy goals, though such ends have been the focus of some criticism. AFRICOM is being designed primarily to support U.S. strategic objectives by working with African states and regional organizations to strengthen regional stability and security through military professionalization and capacity building. CT programs and an emergent set of counter-narcotics programs will also be integrated into AFRICOM's mission. Foreign Assistance Chinese Assistance China is providing an increasing amount of official development assistance (ODA, i.e., aid that is at least 25% gratis ) to Africa, but the vast majority of Chinese "assistance" to Africa consists of a large and growing amount of state-backed commercial and bilateral credit that bolsters Sino-African trade and investment ties. This makes comparisons with U.S. development assistance difficult. Much Chinese credit is "tied"—that is, its recipients must agree to use such assistance to buy or accept goods, services, or credit from China. Tied aid was long a common feature of U.S. and European aid to Africa, but with some exceptions, in recent years many Western donor governments have begun to provide most of their assistance to Africa as grants. Levels of Chinese ODA are reportedly significantly lower than those of major developed country donor governments, but this is in part due to the manner in which China offers assistance. The PRC describes a variety of grants, interest-free bilateral state loans, and concessional, low-interest and market rate loans to and from state or state-owned enterprises (SOEs) that benefit or relate to Africa as "assistance," and these resources are often merged conceptually and in practice. In addition, there is a lack of public data about them. They are therefore difficult to reliably measure and disaggregate, reportedly even for the Chinese government. There are some reports that China may develop a unified official aid structure, which would allow China to more effectively measure and assess the amounts and effectiveness of its aid. Aid Structure Key sources of PRC "assistance" in Africa include the state-owned Export-Import (ExIm) Bank of China, which provides official PRC bilateral concessional loans, export credits, and international loan guarantees. The Aid to Foreign Countries Department of the Ministry of Commerce (MOC) manages and executes PRC bilateral foreign aid policy, budgeting, and project activities by controlling the bidding and vetting processes for projects undertaken by PRC firms using soft loans. It also loosely regulates and aids these firms in Africa. The China Development Bank (CDB), a "development-oriented financial institution"supervised by the PRC State Council, the PRC's supreme administrative decision-making organ, administers the new China-Africa Development Fund. Functional ministries (e.g., Health, Education, Agriculture) deploy technical advisory and training teams to Africa. A variety of other finance and export agencies and provincial or urban organizations, such as chambers of commerce, and export promotion and foreign training entities, also play a role in Chinese assistance to Africa. Ministry of Foreign Affairs (MOFA) and MOC officials advise top decision-makers on African assistance policy and vet other agencies' projects. Aid policy guidance is provided by the State Council in coordination with the Communist Party's foreign affairs unit and the State Development and Planning Commission, which sets out PRC economic goals. About 30% of China's bilateral treaties signed in 2005 and 2006 were with Africa. Most relate to economic, medical, and technical cooperation, or the provision of PRC loans or aid, but others pertain to legal, tax, and diplomatic ties. China's aid programs are designed to support goals of PRC foreign policy. Large projects often consist of integrated packages of bilateral, commercial, and military aid and/or political agreements. However, aid projects reportedly also tend to be designed and managed on a country-by-country basis, largely in the absence of a common defining functional or regional policy. This somewhat piecemeal approach appears driven by the large, operationally autonomous, and sometimes rival nature of the ministries and firms that execute PRC assistance projects, and by tensions between PRC foreign policy goals and the profit-driven incentive structure of the many Chinese firms that execute many PRC bilateral projects in Africa. PRC business activities that may conflict with or undermine PRC foreign policy goals in Africa pertain to working conditions; worker safety; pay levels; competition with African firms; environmental abuses; and alleged poor quality workmanship. The PRC is making some efforts to regulate Chinese firms in Africa and avoid such practices, but these are reportedly limited by bureaucratic barriers, conflicting chains of authority, and political rivalries among PRC institutions. While PRC business and foreign policy goals may in some cases clash, in others they dovetail. PRC subsidies for SOEs, for instance, may prompt them to pursue projects that are economically inefficient, but accomplish long-term strategic PRC investment and commodity access goals. Such subsidies may allow commodity purchases at above market prices in order to guarantee supply, or foster unprofitable bids for projects that seek to curry favor for future contracts or better bilateral ties. PRC African Aid Levels Accurate, uniform data on PRC aid flows to Africa are not available. Educated guesses as to the total annual level of these flows range widely, in part because some try to break out ODA and non-ODA components, while others do not. Africanist scholar Deborah Brautigam reports that PRC foreign aid to Africa totaled $1.4 billion for 2007, up from about $450 million a year a decade earlier, and that in the beginning of the present decade, 44% of that aid went to Africa. She uses that figure to estimate PRC ODA for Africa at $462 million in 2006 and $625 million in 2007. She notes that President Hu's 2006 FOCAC pledge to double the PRC's year 2006 level of assistance to Africa by 2009 would raise China's grant aid to Africa to the level of $1 billion per year. However, as previously noted, much of China's assistance for Africa takes the form not of ODA but of a variety of cheap loans. Total outstanding Ex-Im loans to Africa, both concessional and non-concessional, in the infrastructure sector alone reportedly totaled $12.5 billion as of mid-2006, and have grown rapidly in recent years. Of these, a reported 80% went to Angola, Nigeria, Mozambique, Sudan, and Zimbabwe, and were heavily weighted toward infrastructure construction. In May 2007, China's State Council approved the China Development Bank's (CDB) initial $1 billion capitalization of the eventual non-ODA $5 billion China-Africa Development Fund. In early 2007, the CDB had $1 billion in current loans outstanding in Africa and was considering funding up to 30 projects in Africa, mostly in agriculture, manufacture, and infrastructure, worth about $3 billion. PRC ODA to Africa currently cannot be compared directly to ODA flows to Africa from other donors due to lack of data and because it is counted differently; China reportedly only counts subsidized bilateral loan interest, for instance, while Western donors count such loans' full face value. U.S. Assistance Direct U.S. bilateral and regional assistance to Africa has steadily risen under the Bush Administration. The United States also provides assistance to Africa indirectly, through international aid and development organizations. Bilateral assistance supports the goals and program areas outlined under the Foreign Assistance Framework (see above under section on " U.S. Relations " with Africa). The allocation of such funding by account (funding levels) and by objective and program area (percentage share) is shown in Tables 10 and 11 , below. In comparison to China, the United States provides most of its assistance to Africa in the form of conventional Official Development Assistance (ODA), rather than trade finance, export promotion or trade capacity building assistance. U.S. funding for such efforts is significantly lower than that from China, and is also much smaller than that for other types of U.S. development aid provided to Africa. Trade promotion and capacity building assistance has, however, grown steadily, from $80.8 million in 1999 to $504.8 million in 2007. Most conventional U.S. development assistance to Africa is provided by USAID, as shown in the tables below. The Bush Administration, however, has provided an increasing amount of such aid under novel foreign aid mechanisms. Two signature, multibillion dollar bilateral assistance programs proposed by the Bush Administration and authorized and funded by Congress that have had a major impact in Africa are the President's Emergency Plan for AIDS Relief (PEPFAR) and Millennium Challenge Corporation projects. PEPFAR PEPFAR was enacted into law in 2003 as an initiative to provide $15 billion dollars over five years to combat HIV/AIDS, tuberculosis (TB), and malaria, with the majority of funding supporting AIDS programs. PEPFAR substantially benefits Africa, the global region most severely affected by AIDS, and thus represents a very large U.S. commitment to assist Africa in the areas of disease prevention, treatment, and care. From 2004 through 2008, the Congress appropriated approximately $17.4 billion for programs coordinated under PEPFAR, the largest single bilateral healthcare assistance effort globally. Of this amount, roughly $9.7 billion supports AIDS programs in sub-Saharan Africa. A high proportion of PEPFAR AIDS funding is channeled to 15 "Focus Countries" where the AIDS disease burden is very high, and 12 of these countries are in Africa. Over 90% of PEPFAR funding in Africa goes to them. The United States also provides AIDS funding to Africa through multilateral organizations, notably the Global Fund to Fight AIDS, Tuberculosis, and Malaria. MCC The Millennium Challenge Account (MCA), proposed by President Bush in 2002 and authorized by Congress in 2004, is managed by the Millennium Challenge Corporation (MCC). It provides assistance to developing nations that must meet eligibility requirements related to governance, investments in people, and the fostering of entrepreneurship and free markets. There are two kinds of MCC programs: compacts, which are multifaceted, benchmarked development agreements that a recipient country agrees to carry out using MCC funding; and threshold programs, which support the efforts of qualifying prospective compact countries to formulate compact proposals. Currently, the full amount of assistance to be provided in support of a multi-year compact is obligated when the compact is signed. Compacts worth a total of $3.1 billion and ranging from $109.8 million to $698.1 million each have been signed with Benin, Cape Verde, Ghana, Lesotho, Madagascar, Mali, Mozambique, and Tanzania. There are also threshold programs with Tanzania, Zambia, Kenya, Uganda, Niger, and São Tomé and Príncipe worth a total of $111.26 million. The MCC also funded threshold programs for several countries that now have compacts. In addition, Mauritania and Rwanda are threshold program-eligible, and Namibia and Senegal are compact assistance-eligible, but none of these countries have signed MCC assistance agreements. Public Opinion The United States is viewed favorably in much of Africa, according to a 2007 Pew global opinion poll and other polls. Indeed, the United States is more popular in most African countries than in most other world regions. According to the same Pew poll, however, many Africans hold highly positive views of China and of the manner in which it is spreading its influence and engaging in Africa. In most countries, respondents viewed both Chinese and U.S. influence in their countries as substantial, but in many countries, they saw that of China as growing more rapidly than that of the United States. On average among all surveyed countries, 70% saw China's influence as growing more rapidly than that of the United States. In the 2002 Pew Global Attitudes Survey, conducted in seven nations, the United States was favorably viewed by 74% of respondents. Five years later, in a 2007 survey of those same countries plus three others, it garnered a 72% favorable rating. Levels of support were divided along religious lines, with support measured in the mid-90 th percentile among Christians but with favorable/unfavorable ratings roughly evenly divided among Muslims in Nigeria and Ethiopia, Africa's two most populous countries with sizable adherents of both religions. Tanzania's large Muslim and Christian populations were divided by only 8% on this measure, and both groups generally held less favorable views of the United States than respondents in many other countries. "American ways of doing business" were viewed more favorably in Africa than in any other world region, in several cases in the range of 74% or higher. In general, African Muslims viewed the United States more favorably than Muslims in other regions. Majorities in most African countries believed that U.S. foreign policy does take the interests of countries like theirs into account. In all African countries surveyed except one (Cote d'Ivoire), support for the U.S.-led war on terror waned between 2002 and 2007, in some cases substantially, although Christian populations tended to view such efforts more favorably than Muslim ones. Opinions on whether U.S. troops should be withdrawn from Afghanistan and Iraq, however, differed substantially among countries surveyed. AIDS and infectious diseases were viewed most commonly by Africans as the leading global threat, which would indicate that substantial U.S. AIDS and heath sector assistance is likely to be viewed favorably and as highly relevant in Africa. The growing gap between the rich and poor was generally named by Africans as the second most pressing global threat, which would suggest that U.S. trade and development assistance are likely to be welcomed by Africans. Across Africa, the impact of U.S. engagement in Africa is viewed positively in most countries, but substantially more respondents see the results of China's involvement in Africa as beneficial. An average of 78% of respondents in 10 African countries viewed Chinese influence as good, while 13% viewed it as bad. By comparison, 60% saw U.S. influence as good, and 27% saw it as bad. In several countries, favorable views of China were in the range of 10% to 20% higher than favorable views of the United States. Middle East298 Chinese leaders have made a concerted effort to expand diplomatic and commercial relations with the Middle East and North Africa since the mid-1990s. As in other regions, growing commercial ties facilitated the development of closer political relationships between China and many of its Middle Eastern counterparts. State-owned and private Chinese firms have signed billions of dollars of construction, infrastructure, and technology contracts with regional counterparts over the last ten years, and Chinese leaders and diplomats have carefully cultivated a wider array of political relationships based on perceived mutual interests. While the United States remains the dominant external political and military actor in the Middle East, the decline in public support for U.S. policies in many Arab states and Chinese efforts to establish broad commercial linkages across the region have strengthened China's position relative to the United States in some non-official channels. Today, observers in the Middle East, Asia, the United States and Europe are increasingly referring to renewed ties between China and the Middle East as a revival of the old Silk Road, anchored by the long-term logic of Chinese demand for energy resources and desire in the Middle East for domestic and foreign investment opportunities. A shared focus on commercial development has helped stabilize these renewed ties in spite of potential political differences; as one analyst has observed, the governments of China and many of its Arab counterparts have demonstrated an "absolute lack of interest in interfering in one another's domestic policies." China's non-interference approach has provided a stark contrast to the reform-oriented and at times interventionist policies pursued by the United States since 2001. Tang Zhichao, a researcher at the China Institute of Contemporary International Relations in Beijing, has argued that "China's development model is very popular in the Middle East and [Chinese] investment has helped lessen the region's dependence on the US." Cultural and Educational Exchanges China's Cultural Diplomacy As noted above, a long history of Chinese cultural and commercial interaction with the Middle East has given participants on both sides of the recent revival a rich selection of precedents and symbols to draw on when framing new relationships. The idea of a revival of the ancient Silk Road has proven to be the most popular of these symbols, but others, such as the 15 th century naval voyages to the Middle East by a Muslim Chinese imperial explorer named Zheng He, also have reemerged as common reference points. In order to build on these symbolic and historical linkages, Chinese and Arab leaders have incorporated cultural and educational programs into their broader commercial and diplomatic outreach efforts. The China-Arab Cooperation Forum (see below) has provided an umbrella for many of these programs, including Chinese efforts to train Arab managerial and technical personnel and a three-week Arab Cultural Festival that was held in Beijing and Nanjing in 2006. At the 2008 Forum ministerial meeting in Bahrain, China and its Arab counterparts announced plans to expand existing training programs and to alternate hosting arts festivals in the future. A series of follow-on conferences are planned through 2009. In addition to the educational training offered under the auspices of the Forum, China also has offered scholarships to hundreds of Arab students studying computer technology, agriculture, medicine, and social sciences. Arab governments have made similar efforts to strengthen cultural and educational links to China. Saudi Arabia has created Chinese language study programs to prepare Saudis to work in the Jizan Economic City, where planned Chinese investments in aluminum production and other industries will create thousands of new jobs (see below). Saudi Arabia also has offered loans to support Chinese government education projects. Arab television stations regularly feature Chinese documentaries, and prominent Arab television networks like Al Jazeera have signed cooperation agreements with China's Central Television network (CCTV) covering training and program sharing. U.S. Education Programs307 The U.S. government has long supported educational programs across the Middle East. There is no single U.S. government agency or office responsible for coordinating educational outreach in the Middle East. Instead, several agencies and initiatives both at the bilateral and multilateral levels focus on education. They include the following: The Middle East Partnership Initiative (MEPI)308 MEPI is managed by the State Department's Partnership Initiative Office (PI), which oversees MEPI grants to foundations and non-governmental organizations. MEPI spends approximately 25% of its overall budget (approx $75 million in FY2007) on education reform programs. Since FY2002, MEPI has distributed small grants to fund English language and early reading programs, women's literacy initiatives, student exchanges, and Arabic books for elementary school children. In general, MEPI programs tend to be relatively small with individual grants ranging from $500,000 to $5 million. Programs also tend to be focused on a regional scale rather than on one particular country. USAID The United States Agency for International Development (USAID) supports educational development and reform programs in Iraq, Egypt, Jordan, the West Bank and Gaza Strip, Lebanon, Morocco, and Yemen. In the education sector, USAID has identified three key challenges to educational development in the Middle East and Asia: (1) poor quality of education; (2) limited access to schooling for girls; (3) inadequate relevance of the type of content taught in many schools, specifically an over-reliance on religious education. See Table 12 . According to USAID officials, the United States has helped fund the following textbook and curriculum reform programs in the Arab world: Egypt—A book program for classroom libraries in primary schools in Alexandria will be modeled as a new National Book Program. USAID also helps sponsor the production of Alam Simsim (Sesame Street), which draws an annual audience of 3.5 million children. Jordan—USAID supports 100 public kindergartens, field-tests new curriculum, and is developing an accreditation system in partnership with the government of Jordan. Yemen—Teacher and student kits for more than 540 students and 37 teachers in grades 1-9 have been developed for dissemination. ASHA Program Through foreign operations appropriations legislation, Congress has funded the American Schools and Hospitals Abroad program (ASHA) as part of the overall Development Assistance (DA) appropriation to USAID. According to USAID, ASHA is designed to strengthen self-sustaining schools, libraries, and medical centers that best demonstrate American ideas and practices abroad. ASHA has been providing support to institutions in the Middle East since 1957, including grants to the American University of Beirut and the American University in Cairo—two of the most prestigious higher education institutions in the region. The Bureau of Education & Cultural Affairs The State Department's Bureau of Educational and Cultural Affairs, now headed by Assistant Secretary of State Goli Ameris, an Iranian American, has received additional funding in recent years for outreach programs to the Middle East. One such program, the Youth Exchange and Study (YES), was established in October 2002 to provide scholarships for secondary school students from countries with significant Muslim populations to spend up to one academic year in the United States. The Bureau also sponsors the West Bank Global Connections and Exchange Program, which assists schools in the West Bank communities of Ramallah, Bethlehem, and Hebron and brings Palestinian students to the United States to study at U.S. universities. U.S. Public Diplomacy Efforts314 Since the September 11, 2001, terrorist attacks, many experts have stated that the fight against terrorism cannot be won using force alone; it must be accompanied by a sophisticated public diplomacy effort that seeks to counter anti-American views commonly found in the Arab world and in Muslim-majority countries. The 9/11 Commission Report also stressed that while U.S. public diplomacy, trade and cultural exchange, and international assistance programs are necessary, ultimately, it is U.S. policies in the region that fuel anger and resentment. According to the report, "Right or wrong, it is simply a fact that American policy regarding the Israeli-Palestinian conflict and American actions in Iraq are dominant staples of popular commentary across the Arab and Muslim world." Increasingly, public debate over how best to win the "struggle of ideas"in the Arab and Muslim world has shifted away from the "means" (policy instruments) and toward the "ends" (overall direction of U.S. policy). Critics charge that U.S. efforts to highlight its outreach and assistance to Muslim societies has been overtaken by the negative Arab and Muslim reaction to alleged human rights abuses, such as at Abu Ghraib and Guantanamo Bay. Furthermore, many Arabs and Muslims feel that the United States continues to place its strategic regional interests above those of human rights and democracy by insufficiently protesting alleged abuses committed by friendly regional governments under the guise of the war on terror or regional stability. Evolution of U.S. Public Diplomacy Strategy in the Middle East There has been a discernible shift in Administration strategy toward communicating with overseas Arab and Muslim audiences since 2005. Whereas the Administration's initial strategy following the terrorist attacks of September 11, 2001 focused on marketing "shared values" and promoting American culture, the U.S. State Department and the Broadcasting Board Governors (BBG) have focused more recently on engaging foreign audiences in a discussion and explanation of U.S. policies. This change in the U.S. approach toward public diplomacy may reflect recommendations published in numerous government and independent reports over the past several years that have chronicled the shortfalls in previous U.S. public diplomacy strategy. Critics asserted that former U.S. initiatives, such as the now-defunct "Hi" magazine, a U.S. State Department-financed monthly Arabic-language lifestyle magazine which was geared toward readers between the ages of 18 and 35, lacked depth and focused too heavily on U.S. popular culture and education, areas that are generally appreciated and respected by millions of young people in Arab and Muslim-majority countries. As overall U.S. funding for public diplomacy has increased, policymakers have redirected U.S. efforts toward confronting pan-Arab media channels, such as the Qatari government-funded Al Jazeera, which has an admitted anti-American editorial slant to its broadcasts. In 2006, Under Secretary for Public Diplomacy and Public Affairs Karen Hughes instituted new programs, such as a Rapid Response Unit to counter negative media stories about the United States in the Middle East. Under Secretary Hughes also allowed diplomats and ambassadors to appear more frequently on stations like Al Jazeera to give interviews. In her testimony before the House Appropriations Committee in April 2007, Hughes noted that the U.S. presence on Arab media had increased by 30% since late 2006. Overall, some observers have praised the new direction in U.S. public diplomacy toward the region, while arguing that much remains to be done to overcome earlier setbacks. Others continue to highlight shortcomings and call for a redesigned policy. Diplomacy Until the late 1990s, Chinese-Arab diplomatic relations were limited in scope, and focused on China's pursuit of diplomatic recognition, Chinese attempts to purchase advanced military technology from states such as Israel, and Middle Eastern governments' purchases of various arms systems from China. China's economic growth and subsequent turn toward more active global diplomacy heralded an expansion of political relations with states across the Middle East, as in other regions. Many analysts have sought to explain the expansion of Chinese political relations in the Middle East as a function of China's growing demand for energy resources. Chinese diplomats acknowledge their interest in developing energy linkages to the Middle East, but argue that the broadening of China's political relations in the region creates mutual benefits independent of increasing trade in energy resources. China's leaders highlight their longstanding rhetorical support for Arab and Palestinian causes and the steady growth of mutual investment in non-energy related fields as indicators of their wider interest in the region. China's diplomatic engagement with the Middle East region has grown through successive gestures, initiatives, and commitments. China's rhetorical support for nationalist causes in various regions was an established feature of its Cold War era diplomacy. During the 1990s, Chinese leaders began making stronger and more clear policy statements on controversial Middle East policy questions such as Israeli-Arab peace negotiations. Chinese leaders now frequently describe their public positions on the Israeli-Palestinian issue as being based on a belief in "the Palestinian people's just cause" and the principle of "land for peace," while endorsing international benchmarks such as the Quartet Roadmap and a two-state solution to the conflict. At times, Chinese leaders have outlined regional policy differences with the United States in sharper terms, such as then Chinese President Jiang Zemin's 2002 statements in Iran that "Beijing's policy is against strategies of force and the U.S. military presence in Central Asia and the Middle East region," and that "one of the primary issues for China is to protect developing countries from the pretensions of the United States." For the most part, however, China has sought to position itself as an honest broker on most issues, while facing challenge in balancing its interests with international expectations on issues such as the international confrontation with Iran over its uranium enrichment activities. Rhetoric aside, the Chinese government created the position of special envoy to the Middle East in 2002 to provide a sustained, high-level, and agile Chinese diplomatic presence in the region. During his three years as the first Chinese special envoy, Ambassador Wang Shijie frequently visited Israel, the Arab states, and Iran. His successor, current special envoy Ambassador Sun Bigan, also frequently visits the region and has enjoyed unprecedented access to regional leaders and multilateral summits organized by the Arab League. For example, he attended the recent Arab Summit in Damascus, which issued a resolution calling for closer relations between the Arab world and China. According to Ambassador Sun, China's special envoys have worked to create a balance in which, "generally speaking, the Arab countries show support to China on the Taiwan issue, the Tibet issue and the issue of human rights" and, "China also supports the Arab countries' sovereignty, territorial integrity and legitimate national rights." Prominent Chinese Foreign Ministry figures and members of China's national leadership have visited the region in support of agendas and initiatives involving trade, cultural exchanges, and political outreach. Leaders and ministers from the Middle East also have visited China with increasing frequency. Chinese leaders have supplemented exchanges of visits by envoys and ministers with tangible commitments of Chinese military forces to regional peacekeeping operations in Lebanon and with initiatives designed to institutionalize China-Arab cooperation and consultation. A 182-member Chinese engineer battalion deployed to southern Lebanon in April 2006 in support of the long-running United Nations Interim Force in Lebanon (UNIFIL) mission. Following the summer 2006 war between Hezbollah and Israel in which one Chinese peacekeeper was killed and several were wounded, China expanded its UNIFIL deployment, which focuses on mine and unexploded ordnance removal. The China-Arab Cooperation Forum, first proposed in 2000, was established in January 2004, at a joint press conference with China's then-Foreign Minister Li Zhaoxing and Arab League Secretary General Amr Moussa in Egypt. The Forum brings together officials from China and the member states of the Arab League, who meet to discuss opportunities for cooperation in cultural, economic, and political fields. Since 2004, three biannual ministerial meetings of the China-Arab Cooperation Forum have been held, along with a number of other associated meetings. In May 2008, Chinese Foreign Minister Yang Jiechi told other attendees at the third biannual ministerial Forum meeting in Bahrain that, "China and Arab states are facing similar challenges and opportunities," and argued that, "China and Arab states should make joint efforts to push for a new partnership and achieve peaceful and sustainable development." Israel Israel recognized the People's Republic of China in 1950, but formal diplomatic relations were not established until 1992. Israeli sales of advanced military technology to China have challenged U.S.-Israeli defense relations several times, most notably with regard to Israel's attempt to sell the PHALCON early warning airborne radar system to China during the late 1990s. Israeli-Chinese defense relations developed on the basis of Israel's interest in using overseas defense sales to support domestic defense industries and China's interest in acquiring advanced military technology unavailable because of U.S. and European bans. The most recent confrontation over Israeli military sales to China involved secret sales and planned Israeli upgrades of the Harpy unmanned aerial drone system, and resulted in a serious, though now resolved, freeze in some U.S.-Israeli defense technology cooperation. Positive Chinese-Israeli defense relations have persisted in spite of harsh Chinese critiques of some Israeli policies and China's vocal support for Palestinian and Arab positions. China's overall approach to the Israeli-Palestinian conflict since the 1990s has called for Israel's security to be guaranteed and for a settlement to be reached on the basis of the principle of "land for peace." These positions are a significant departure from past policy, when China actively supported a variety of hard line Palestinian groups, including some that were involved in terrorism in the 1970s and 1980s. China invited Hamas government representatives, including then-Foreign Minister Mahmud al Zahar, to attend the second China-Arab Cooperation Forum in Beijing in 2006. Chinese officials meet regularly with Palestinian President Mahmoud Abbas. Iran Iran established relations with China in 1971 under Shah Mohammed Reza Pahlavi. Chinese energy imports and Iranian purchases of Chinese missile technology have anchored bilateral relations over the years, with the latter continuing to the chagrin of U.S. officials (see below). Iran was the second largest supplier of oil to China in April 2008, shipping an average of 523,000 barrels per day, which marked a 14% increase from April 2007 and made Iran the largest Middle Eastern oil exporter to China. Chinese firms are now engaged in a range of development projects in Iran including infrastructure construction projects involving highways, industrial plants, the Tehran metro, and airport facilities. According to Chinese statistics, China-Iran trade rose 42% in annual terms to $20.589 billion in 2007. Iran is now perhaps the most significant political sticking point between the United States and China in the Middle East, as Chinese commercial interests have clashed with U.S. efforts to isolate Iran internationally and prevent further development of its uranium enrichment technology. Chinese investment in Iran's energy industry is the most significant example of this trend, as many in Congress and the Administration believe that investment in Iran's energy sector could provide the Iranian government with additional revenue generating ability that would limit the effectiveness of international financial sanctions. Several potential Chinese investments are currently under scrutiny. China's Sinopec agreed in December 2007 to a $2 billion investment agreement to develop the Yadavaran oil field in southwestern Iran. The overall purchase agreement could be worth over $100 billion. The China National Offshore Oil Corporation (CNOOC) reportedly is close to confirming a $16 billion investment agreement to develop Iran's North Pars gas field, but reports suggest that a final deal has been delayed in part by "international sensitivity." The Bush Administration has clearly and repeatedly stated U.S. concerns about the North Pars deal. China's Foreign Ministry spokesman Liu Jinchao described the reported CNOOC deal as "nothing beyond a business deal between relevant enterprises," and argued that with regard to international nonproliferation efforts, "actions against Iran should not affect or impair normal economic and energy cooperation with Iran." Speaking in China in April 2008, Iran's Deputy Foreign Minister for Economic Affairs Mohsen Talaie argued that, "Iran and China must cooperate more closely with one another and to consider it a duty to ward off the negative effects of third country's influence in their economic relations." Chinese military cooperation with Iran also has proven to be a recurring problem in U.S.-China relations. China reportedly has provided Iran with anti-ship cruise missile and ballistic missile technology along with related technical assistance. Although China agreed to halt missile cooperation with Iran in the mid-1990s, some Chinese-Iranian military cooperation on missile programs reportedly has continued, and the Administration has sanctioned Chinese firms for supporting Iran's ballistic missile development programs in recent years. The broader implications of Chinese support for Iranian missile development have come into greater focus since 2006, when the Lebanese militia and terrorist group Hezbollah reportedly fired a Chinese manufactured C-802 anti-ship missile that struck an Israeli warship off the coast of Lebanon. The presence of similar C-802 missiles along the Iranian coast remains a source of significant concern with regard to naval and oil transport security in the Persian Gulf and around the strategic Strait of Hormuz, through which tankers carrying close to 17 million barrels of oil pass every day. Saudi Arabia China and Saudi Arabia established diplomatic relations in July 1990; previously, Saudi Arabia had recognized Taiwan. During the Cold War, Saudi wariness about engagement with communist countries and Chinese views of the Saudi monarchy as reactionary prevented the development of closer political ties. Nevertheless, limited military cooperation proved mutually beneficial, most notably in the sale of approximately 36 intermediate range CSS-2 ballistic missiles to Saudi Arabia in 1987 during the Iran-Iraq war. The sale took most observers by surprise and prompted the United States to seek guarantees from Saudi Arabia regarding the storage and deployment of the missiles. Chinese-Saudi political relations have expanded since the late 1990s in an atmosphere of growing energy and commercial cooperation. In 1999, China's then-President Jiang Zemin was the first Chinese head of state to visit Saudi Arabia. King Abdullah bin Abd Al Aziz pointedly chose China as his first overseas destination as king in January 2006; Chinese President Hu Jintao subsequently visited Saudi Arabia directly after a visit to the United States in April 2006. Some observers have suggested that Chinese leaders may see ties with Saudi Arabia as beneficial to their efforts to counter terrorism and to influence developments within the Muslim populations in China's western provinces. Mutual investment has linked the Saudi and Chinese economies in new ways: the Aluminum Corporation of China (Chalco) is a leading investor in a multi-billion dollar aluminum production project in one of the Saudi Arabia's new economic cities near Jizan; China's Sinopec has drilled for natural gas in Saudi Arabia's Empty Quarter; and Saudi Aramco also has invested in a large refinery and petrochemical facility in China's Fujian province designed specifically to use sour or high-sulfur content Saudi oil. Saudi Aramco and Sinopec signed a memorandum of understanding in 2006 that calls for Saudi Aramco to provide 1 million bpd to Sinopec and its affiliates by 2010. Nevertheless, Saudi oil shipments to China in April 2008 amounted to 434,000 barrels per day, a 31% decrease over April 2007. Iraq Iraq recognized China in 1958, and during the Saddam Hussein era, China and Iraq enjoyed close political and commercial relations, supported by Chinese imports of Iraqi oil and Chinese exports of weaponry and industrial goods. During the 1990s, China often opposed the continuation and strengthening of United Nations sanctions against Iraq, and several allegations of sanctions violations by Chinese firms created challenges for U.S.-China relations during the late 1990s and the early months of President Bush's first term in 2001. In 1997, Iraq rewarded China for its support with a $1.3 billion contract to develop the Al Ahdab oil field on a production sharing basis. Although China did not act to develop the field, the contract was seen as indicative of the quid pro quo relationships Saddam sought to build with China and other international powers. China opposed the U.S.-led war in Iraq in 2003, but has not worked to undermine U.S. policy efforts since that time. Rather, China has sought to reestablish a solid relationship with the new Iraqi government; most observers argue that China is seeking to preserve and extend its access to Iraqi oil resources under the new administration. Since 2007, Chinese officials and Iraqi Oil Ministry representatives have been negotiating terms for the reactivation of China's former Al Ahdab concession. China also has agreed to forgive a substantial, but as yet undefined portion of Iraqi debt. China reportedly holds $5.8 billion in Iraqi debt. Foreign Assistance Chinese Foreign Assistance China does not publicize the total amounts of foreign assistance it gives to individual countries. Available public reports suggest that China's foreign assistance to Middle Eastern countries remains limited, particularly in comparison with the sizeable, long-established foreign assistance programs administered by the United States. As in other regions, China has provided both grant assistance and low interest loans to regional governments to support a variety of projects. The primary beneficiaries of these programs have been countries without significant oil or gas reserves, such as Jordan, although some oil exporters such as Syria have received assistance. China's assistance activities in the region are targeted toward individual training or infrastructure investment projects rather than multi-year development or military assistance programs. The projects are usually administered according to the terms of one-time agreements signed between the recipient government and China, and appear to respond to specific needs and requirements outlined by the recipient country. For example, Egypt has accepted several small low interest loans from China to facilitate textile industry development and investment promotion facilities. Jordan has accepted grant and loan assistance for small budget projects ($1-3 million) related to water infrastructure, information technology, and school equipment. Morocco has received low interest loans for dozens of public works projects, including dam construction. As noted above, China also offers training to hundreds of professionals, academics, and government officials from the Middle East in a number of fields under the auspices of the China-Arab Cooperation Forum and other outreach initiatives. U.S. Foreign Assistance343 In contrast, the United States remains the leading provider of foreign assistance to many governments in the Middle East, including Israel, Egypt, Jordan, and the Palestinian Authority, the largest recipients of U.S. assistance in the region. U.S. assistance programs support a wide range of development initiatives, military training programs, and reform efforts in nearly every country from Morocco to the Persian Gulf. Multi-billion dollar annual assistance programs for Egypt and Israel have supported the consolidation of the Camp David Peace Treaty since 1979. See Table 13 . Public Opinion China's attempts to portray itself as an honest broker with regard to several controversial international issues in the Middle East appears to be designed in part to improve its public image in the region relative to the United States. Chinese diplomacy and rhetoric does not regularly draw specific contrasts to the United States, but seeks to position China as a defender of principles of self-determination, non-interference in domestic affairs, apolitical commerce, and solidarity with nationalist causes. To the extent that some regional interest groups and populations favor these approaches, China is likely to win supporters that are unwilling to embrace the United States. Among groups and individuals that are critical of regional governments that China enthusiastically embraces or governments to whom the United States provides assistance, China is unlikely to be able to improve its image relative to the United States. Limited polling data is available to facilitate analysis of the relative views of the United States and China across the Middle East. The data included below indicates that in some countries China enjoys a relative advantage in its public image, including in some countries where U.S. assistance programs substantially exceed those of China. Future policy choices by China and the United States, particularly with regard to the U.S. military presence in Iraq, the Israeli-Palestinian conflict, and the international confrontation with Iran will likely have significant implications for the relative public images of both powers. See Table 14 . Latin America344 While China's economic and other elements of soft power with Latin American and Caribbean countries have grown tremendously in recent years, such U.S. linkages with the region are far greater, largely because of geographic proximity and extensive historical and cultural ties. Compared to China's relations with Southeast and Central Asia, security and strategic concerns have not played a significant role in China's relations with Latin America. China is cognizant of U.S. sensitivity over China's increasing involvement in a region traditionally viewed as in the U.S. sphere of influence. As in other regions, China-Latin America relations have deepened because of economic interests on both sides, while both China and Latin America also have a shared interest in promoting the notion of a multipolar world. Moreover, as noted below, China's competition with Taiwan for diplomatic recognition, particularly in the Caribbean and Central America, has been a major driver in its interest in the region. China's growing interest in Latin America and the Caribbean is a fairly new phenomenon that has developed over the past several years. Beginning in April 2001 with President Jiang Zemin's 13-day tour of Latin America, a succession of senior Chinese officials have visited Latin American countries to court regional governments, while Latin American leaders also have been frequent visitors in Beijing. China's primary interest in the region appears to be to gain greater access to needed resources—such as various ores, soybeans, copper, iron and steel, and oil—through increased trade and investment. Beijing's additional goal is to isolate Taiwan by luring the 12 Latin American and Caribbean nations that still maintain diplomatic relations with Taiwan (half of all nations in the world that recognized Taiwan) to shift their diplomatic recognition to China. After several years of increased Chinese engagement with Latin America, most observers have concluded that China's economic involvement with the region has not posed a threat to U.S. policy or U.S. interests in the region. In terms of economic, political, and cultural linkages, the United States has remained predominant in the region. A study that examined the U.N. voting records of several major Latin American countries—Argentina, Brazil, Chile, Mexico, and Venezuela—between 1991 and 2003 concluded that the increased Chinese trade with the region in recent years has had no discernable effect on the voting behavior of these nations. U.S. trade and investment in Latin America dwarfs that of China, while the future growth potential of such Chinese economic linkages with the region is limited by the advantages conferred to the United States by its geographic proximity to Latin America. Moreover, migration patterns to the United States from the region give the United States greater cultural ties and longer-term economic importance to the region than China. For example, remittance flows to the region amounted to almost $67 billion in 2007 (with three-quarters from the United States)—a sum greater than both foreign aid and portfolio investment flows to the region, with remittances making a significant contribution to the economies of several Caribbean and Central American nations. In its policy toward Latin America, China has been careful not to antagonize the United States, and appears to understand that the United States is sensitive to Chinese involvement in its neighborhood. China has taken a low-key approach toward the region, focusing on trade and investment opportunities that help contribute to its own economic development and managing to avoid public confrontation with the United States. Even China's relations with Venezuela are focused on oil resources rather than ideological rapport. China reportedly does not want to become a pawn in a dispute between Venezuela and the United States. Moreover, China reportedly has concerns that Venezuelan President Hugo Chávez's efforts at spreading his populist agenda to other countries in the region could unleash instability and ultimately be detrimental to Chinese trade and investment interests in the region. Nevertheless, other observers contend that China poses a potential threat to U.S. influence and interests in the region. First, some maintain that by presenting an alternative political and economic model—rapid state-sponsored economic growth and modernization alongside political authoritarianism—the PRC undermines the U.S. agenda to advance political reform, human rights and free trade in the region. According to this view, the Chinese model could help strengthen anti-democratic and anti-U.S. political leaders and actors in some countries. Second, according to some analysts, China's regional presence ultimately could have significant strategic implications for the United States in the event of a possible military conflict with China. In this scenario, China could use its human and commercial infrastructure in the region to disrupt and distract the United States in the hemisphere. According to this view, China's increased presence in the region could also provide the country with new opportunities to collect intelligence data against U.S. forces operating in the region. Cultural and Educational Exchange Activities China's Activities People-to-people contact between China and Latin American and Caribbean countries has been growing in recent years, although it is sill very small compared with widespread U.S. exchanges. In 2006, China established the first Confucius Institute in the region, in Mexico City, with the goal of promoting Chinese language and culture. There is now a second Confucius Institute in Mexico, one in Colombia, and three in Peru. There are almost 100 sister-city relationships between Chinese cites or provinces with their counterparts in 15 countries in the region. Over the past five years, China has designated 17 countries in Latin America and the Caribbean as approved destinations for Chinese citizens to travel as tourists. Such agreements allow the countries to take advantage of the increase in Chinese tourist travel worldwide, which is expected to reach 100 million tourists a year by 2020. Cuba was the first country in the region to receive such status in 2003. Since 2005, 16 more countries in the region have been so designated: Mexico; the South American countries of Argentina, Brazil, Chile, Peru, and Venezuela; the Caribbean nations of Antigua and Barbuda, the Bahamas, Barbados, Dominica, Grenada, Guyana, Jamaica, Suriname, and Trinidad and Tobago; and most recently the Central America country of Costa Rica, which switched diplomatic relations from Taiwan to the PRC in 2007. While Chinese tourism to Latin America to date has not been significant, this could change given the recent tourism agreements with the region as well as the marketing campaigns undertaken by various nations in the region to attract Chinese tourists. U.S. Activities U.S.-government sponsored cultural and educational exchanges with the region have been going on for some time and are extensive. Between 1985 and 1996, the U.S. Agency for International Development (USAID) offered a scholarship program, the Caribbean and Latin American Scholarship Program, for more than 23,000 students from the region to receive academic or technical training in the United States. A second ongoing USAID program also began in 1985, the Cooperative Association of States for Scholarships, which has provided two-year scholarships to more than 5,000 disadvantage students and rural professionals from Central America, Haiti, and Mexico. The Fulbright Program provides for the exchange of scholars, students, teachers, and professionals, with several hundred scholarships awarded each year for students from Latin America and the Caribbean to study in the United States, and for U.S. scholars and professionals to study and teach in the region. The Bush Administration launched a Partnership for Latin American Youth in 2007 to bring non-elite students from the Latin America and the Caribbean to study in U.S. community colleges. The State Department sponsors an International Visitor Leadership Program that brings hundreds of professionals from the region to meet with their counterparts in the United States, as well as Citizen Exchanges, with three current projects funded in the region. U.S. cities and counties currently maintain sister-city relationships with 336 counterparts in 13 Latin American and Caribbean countries, with over 70% of these with cities in Mexico. In addition to government-sponsored exchanges, the United States remains a major destination for foreign students from Latin America and the Caribbean. Overall, almost 16% of the U.S. nonimmigrant visas for students and exchange visitor and their families in 2006 were from Latin America and the Caribbean, more than 183,000 visas. In terms of tourism, while China has approved many Latin American and Caribbean countries as approved tourist destinations, geographic proximity ensures that Latin American and Caribbean countries will continue to be the destination for millions of U.S. tourists each year. Language programs abound for U.S. students visiting the region, and many U.S. universities have accredited programs abroad for students to study in Latin American and Caribbean schools. Diplomacy China's Relations There are two main drivers in China's expansion of its relations with Latin American and Caribbean countries: competition with Taiwan for diplomatic recognition, particularly in the Caribbean and Central America; and strengthened relations with resource-rich countries in the region that could help feed China's resource needs and expanding economy. PRC diplomatic overtures in Latin America also promote China's efforts to foster relations with other developing countries worldwide and further South-South cooperation. For a number of years, China, with some success, has been trying to woo countries away from recognizing Taiwan. Of the 33 independent countries in the Latin America and Caribbean region, China currently has official diplomatic relations with 21, while the remaining 12 nations currently maintain relations with Taiwan (see Table 15 ), a disproportionately large percentage compared with other regions. For decades, Taiwan was a consistent provider of financial assistance and investment in Latin America and the Caribbean in order to nurture its remaining official relationships, a policy often referred to as checkbook or dollar diplomacy. But Taipei now is hard-pressed to compete against the growing economic and diplomatic clout of China, which in recent years has stepped up its own version of checkbook diplomacy. Since 2004, three countries in the region have switched their diplomatic recognition from Taiwan to the PRC: Dominica in March 2004, Grenada in January 2005, and most recently, Costa Rica in June 2007. In late April 2008, President-elect Fernando Lugo in Paraguay announced that his government, which takes office in August, would like to establish diplomatic relations with China. China's overtures in the Caribbean experienced a setback in May 2007, when St. Lucia switched its diplomatic recognition back to Taiwan after ten years of recognizing the PRC. The diplomatic switch was related to the ouster of Prime Minister Kenny Anthony's St. Lucia Labour Party (SLP) from power in December 2006, and the election of a new government led by the United Workers Party (UWP). Taiwan's promises of assistance to the new UWP government included support for public health, education (including the provision of computers and scholarships), and development of the agricultural sector. Over the years, China has signed a variety of bilateral partnership agreements with several countries in the region in order to strengthen relations. The most politically significant of these are known as "strategic partnership agreements." To date, China has signed such agreements with Brazil (1993), Venezuela (2001), Mexico (2003), and Argentina (2004). Additional "cooperative partnership" or "friendly and cooperative partnership" agreements have been signed with Bolivia, Chile, Colombia, Cuba, Ecuador, Jamaica, and Peru. In the 1980s, China began to augment its expertise on Latin America through agreements for Chinese officials to travel to the region to study Spanish, and through the development of think tanks such as the Institute of Latin American Studies of the Chinese Academy of Social Sciences (CASS) and the Department of Studies about Latin America of the Chinese Communist Party. The PRC's ability to develop and expand contacts in the region has been facilitated by a decision by the Organization of American States (OAS) in May 2004 to accept China as a formal permanent observer in the OAS. The OAS has 35 members, including the United States and all 12 of the region's countries currently conferring diplomatic relations on Taiwan. Some 60 countries worldwide are OAS permanent observers, but Beijing has strongly objected to Taiwan's efforts to seek observer status. In addition to the OAS, China has participated in several other regional organizations. Dating back to 1975, China has often sent its observers to the annual meetings of the Agency for the Prohibition of Nuclear Weapons in Latin America and the Caribbean (OPANAL), the organization established in the aftermath of the 1967 signing of the Tlatelolco Treaty prohibiting nuclear weapons in the region. The PRC has been an observer since 1994 to the Latin American Integration Association (ALADI), a 12-member regional organization focusing on trade integration and the goal of a common market. China is a member of the East Asia-Latin American Cooperation Forum (FOCALAE), an organization first established in 2001 that brings together ministers and officials from 33 countries from the two regions for strengthening cooperation in such areas as education, science and technology, and culture. The PRC also is a member of the Asia Pacific Economic Cooperation (APEC) forum that annually brings together leaders of 21 Pacific rim nations (including Taiwan as "Chinese Taipei") as well as the Latin American nations of Chile, Mexico, and Peru. More recently, in March 2007, China signed an agreement with the Inter-American Development Bank (IDB) to formalize talks on the PRC's request to become an IDB member. The bank has launched an internal discussion on whether to accept China as a member. If accepted, China would join Japan and Korea to become the third Asian country to join the IDB. China is already a member of the Caribbean Development Bank based in Barbados. Since Chinese President Jiang Zemin visited Latin America in 2001, high-level visits by senior Chinese officials to the region have been common as have visits by Latin American heads of state to China. Chinese President Hu Jintao's visits to the region in 2004 and 2005 prompted widespread interest in both Latin America and the United States regarding China's growing presence in Latin America. President Hu plans to visit once again in November 2008, when Peru hosts the annual APEC summit. U.S. Relations U.S. interests in Latin America and the Caribbean are diverse, and include economic, political and security concerns. Geographic proximity has ensured strong economic linkages between the United States and the region, with the United States being the major trading partner and largest source of foreign investment for most countries in the region. Free trade agreements with Mexico and Canada, Chile, Central America and the Dominican Republic (CAFTA-DR), and Peru have augmented U.S. economic linkages with the region. The region is also the largest source of migration, both legal and illegal, with geographic proximity and economic conditions in the region being major factors in the migration. Curbing the flow of illicit drugs from Mexico and South America into the United States has been a key component of U.S. relations with Latin America for almost two decades. Latin American nations, largely Venezuela and Mexico, supply the United States with over 30% of its imported crude oil. The United States maintains full diplomatic relations with 32 of the 33 independent nations in Latin America and the Caribbean. The exception is Cuba, but even here the United States and Cuba maintain Interest Sections in each other's capitals and, despite comprehensive U.S. economic sanctions on Cuba, the United States is Cuba's fourth most important import market because of the exception to the embargo that allows for the export of agricultural products to Cuba. The United States has remained engaged with Latin American and Caribbean nations since its early history when the United States proclaimed the Monroe Doctrine in 1823 warning European nations not to interfere with the newly independent nations of the Americas. The region has often been described as America's backyard, and extra-hemispheric incursions into the region have met with U.S. opposition. During the Cold War, for example, the United States confronted the Soviet Union over its attempt to install nuclear weapons in Cuba in 1962, and helped nations in the region fight Soviet and Cuban-backed insurgencies and revolutionary regimes in the 1980s. In the aftermath of the Cold War, the United States initiated a summitry process with hemispheric nations that advanced regional cooperation in a wide range of areas such as trade, energy, the environment, and anti-corruption, counternarcotics and anti-terrorism efforts. The first Summit of the Americas was held in 1994, while there have been three subsequent summits, the last in 2005 held in Argentina, and two special hemispheric summits on sustainable development and on economic, social, and political challenges facing the region. The Fifth Summit of the Americas is planned for April 2009 in Trinidad and Tobago. The OAS remains the key multilateral forum in the hemisphere, and the United States remains committed to working through the OAS to resolve regional problems and engage Latin American and Carribean nations on topic of hemispheric concerns. The United States—a key player in the OAS—contributes some 59% of regular OAS funding, and also has contributed millions for specialized OAS programs such as the Unit for the Promotion of Democracy and the Inter-American Drug Abuse Control Commission. The United States also plays a key role in international financial institutions such as the World Bank, the International Monetary Fund, and the IDB that provide considerable financial support and development financing for the region. In the aftermath of the Cold War, U.S. policy interests in Latin America and the Caribbean shifted away from security concerns and focused more on strengthened economic relations, but the September 2001 terrorist attacks in the United States resulted in security interests re-emerging as a major U.S. interest. As a result, bilateral and regional cooperation on anti-terrorism efforts have intensified. The Bush Administration has described the Caribbean region as America's third border, with events in the region having a direct impact on the homeland security of the United States. Cooperation with Mexico on border security and migration issues has also been a key component of the bilateral relationship. Despite the tensions in U.S. relations with Venezuela over the past several years, overall the United States remains fully engaged with Latin American and Caribbean nations. High-level visits are the norm between the U.S. and countries in the region. President Bush has visited the region eight times during his presidency, including six trips to Mexico and travel to nine other countries in the region. U.S. Cabinet-level and other high-levels visits to the region are common as are visits by Latin American and Caribbean heads of state and other officials to the United States. Foreign Assistance China's Foreign Aid The exact level of China's foreign assistance to Latin America and the Caribbean is uncertain, but reportedly the region receives about 10% of China's foreign aid worldwide, far behind assistance that China reportedly provides to Asia and Africa. Aid to the region appears to focus on bilateral assistance rather than through regional or multilateral institutions, with the objectives of strengthening diplomatic relations and isolating Taiwan. Particularly in the Caribbean and Central America, China has used assistance in recent years as part of its checkbook diplomacy to entice countries in the region to switch their diplomatic recognition from Taiwan, while a number of countries in the region have been adept at playing the two countries against each other in order to maximize financial benefits. Chinese assistance to Dominica and Grenada was instrumental in those countries deciding to switch diplomatic recognition. Costa Rica was also rumored to have been offered substantial assistance, although Costa Rican officials maintain the prospect of increased trade and investment was the primary rationale for the switch to China. In preparation for the Cricket World Cup 2007 played in the Caribbean, China provided assistance and workers to build cricket stadiums in Antigua and Barbuda, Grenada, Jamaica, and even St. Lucia, which subsequently switched its diplomatic recognition back to Taiwan. China also had built a cricket stadium in Dominica in 2004. China also has provided assistance for housing, education (including scholarships as well as the construction of schools), health (including the construction of hospitals), and other infrastructure such as railways and highways. In recent years, China also has provided additional types of assistance to the region, including disaster assistance, debt forgiveness, and concessional loans. In the aftermath of such natural disasters as earthquakes, floods, and hurricanes, China often has responded with assistance. For example, China provided hurricane reconstruction assistance to Grenada in the aftermath of Hurricane Ivan in 2004. In August 2007, China provided support to Peru in the aftermath of a devastating earthquake in the southern part of that country. While most of China's debt forgiveness has been for low-income African countries, China announced in July 2007 that it would write off over $15 million in debt owed by Guyana, one of the poorest countries in the hemisphere. In terms of concessional loans, China's Export-Import Bank provided a $12 million loan to Jamaica in the water sector in 2000. In addition to Jamaica, China has signed concessional loan framework agreements with three other countries in the region—Suriname, Venezuela, and Trinidad and Tobago. In September 2007, China announced that it would provide about $530 million in favorable loans over three years to Chinese companies investing in the Caribbean. In November 2007, China and Venezuela agreed to establish a joint development fund (with a $4 billion contribution from China and a $2 billion contribution from Venezuela) that would be used to finance loans for infrastructure, energy, and social projects in both nations. The Chinese contribution to the fund, made in February 2008, reportedly will be paid back by Venezuela with fuel oil. U.S. Foreign Aid While the lack of data on Chinese foreign assistance (excluding state-sponsored investments) going to the region makes it difficult to compare Chinese and U.S. assistance, it is safe to assume that U.S. assistance is far greater. Looking at 2005 statistics comparing foreign assistance levels from developed countries to Latin America and the Caribbean, the United States was by far the single largest bilateral donor to the region, accounting for 29% of the $4.6 billion in bilateral assistance. The United States maintains a variety of foreign assistance programs in Latin America and the Caribbean that are designed to achieve a variety of goals, from poverty reduction to economic growth. (See Table 16 .) Aid to the region increased during the 1960s with the Alliance for Progress, while during the 1980s aid to Central America increased as leftist insurgencies were battling governments friendly to the United States and where a leftist movement in Nicaragua had taken control of the government. Since 2000, U.S. assistance has largely focused on counternarcotics efforts, especially in the Andean region, although the Administration has requested over $1 billion in assistance for Mexico and Central America in the Mérida Initiative that would increase security cooperation to combat the threats of drug trafficking, transnational crime, and terrorism. The United States has also sponsored thousands of Peace Corps throughout Latin America and the Caribbean; there are currently some 2,300 volunteers working in 22 countries in the region. The Inter-American Foundation, an independent agency established in 1969, provides funding to nongovernmental and community-based organizations for self-help projects; currently the Foundation sponsors grassroots development project in 15 countries in the region. The Bush Administration's FY2009 foreign aid request for Latin America is for $2.05 billion, compared to an estimated $1.47 billion provided in FY2008 (not including a $550 million FY2008 supplemental request not yet acted upon) and $1.55 billion provided in FY2007. The FY2009 request reflects an increase of almost 40% over that being provided in FY2008. However, if Congress funds the $550 million FY2008 supplemental request for the Mérida Initiative for Mexico and Central America, the FY2009 request would be only slightly higher than the overall amount of $2.02 billion that would be provided in FY2008. U.S. support to counter the HIV/AIDS epidemic in the region has increased significantly in the past several years, with both Guyana and Haiti designated as focus countries under the President's Emergency Plan for AIDS Relief (PEPFAR). For FY2009, the Administration has requested $143 million in assistance to combat HIV/AIDS in the region. In addition to direct bilateral assistance, the United States also provides contributions to multilateral efforts, such as the Global Fund to Fight AIDS, Tuberculosis, and Malaria, which provides assistance to many countries in the region. Looking at the top foreign aid recipients in the region, five countries—Colombia, Mexico, Haiti, Peru, and Bolivia—account for the lion's share of U.S. assistance going to Latin America; about 73% of the FY2009 request for the region will go to these five countries (see Table 17 ). As it has been for the past eight years, Colombia is the single largest aid recipient in the region, with U.S. efforts supporting Colombia's counternarctics and counterterrorism efforts; in the FY2009 foreign aid budget request, the country would receive about $543 million or about 26% of assistance going to the region. The United States has not traditionally provided large amounts of foreign assistance to Mexico, but the FY2009 requests includes almost $501 million, accounting for about 24% of aid to the region, with almost $478 million of that under the Mérida Initiative that would increase security cooperation with Mexico to combat the threats of drug trafficking, transnational crime, and terrorism. Assistance to Haiti has increased significantly over the past several years as the United States provides support to the Préval government. The FY2009 request for Haiti is for almost $246 million, or about 12% of assistance to the region. Peru and Bolivia have received significant assistance over the past eight years under the Andean Counterdrug Initiative, now known as the Andean Counterdrug Program. In the FY2009 request, Peru would receive $103 million and Bolivia $100 million. Public Opinion As in many parts of the world, the image of the United States has declined in Latin America over the past several years. According to a 2007 study by the Pew Research Center, favorable views of the United States have declined in the region, with sharp declines in several countries. Among seven countries surveyed in 2007, Argentina had the lowest favorable view of the United States, just 16%, while in two countries, Bolivia and Brazil, less than half the population, 42% and 44% respectively, had favorable views of the United States. In four other countries surveyed, however, a majority of the populations had positive views of the United States: Chile, 55%; Mexico, 56%; Peru, 61%, and Venezuela, 56%. While it might seem strange to see Venezuela in this category given the poor state of U.S.-Venezuelan relations, the 2007 figure actually reflects a 33% drop from the year 2000. In Latin America's view (with the exception of Mexico), China's increasing presence in the region tends to be perceived as a promising trend rather than as something negative, in large part because China's expanding interest in the region appears to be moderate and nonconfrontational. According to one assessment, public opinion of China in Latin America and the Caribbean tends to be positive because Chinese leaders use such concepts such as growth, development, mutual benefits, and non-interference in national affairs when they speak about their aims and goals in the region, characteristics that are viewed positively in the region. For these reasons, the view of China in Latin America, as reflected in the Pew study, tends to be either favorable or mixed. Of the seven Latin American countries in the Pew study, three—Chile, Venezuela, and Peru—had favorable views of China (over 50%), while Brazil, Bolivia, Mexico, and Argentina had mixed views. China's growing economic power is viewed more positively than negatively in six of the seven countries surveyed, while in Mexico, China's growing economic power is viewed as negative and a threat to Mexico's economy by 55% of the population. The balance of opinion toward China and the United States in Latin America tend to be roughly comparable, according to the Pew study. Two exceptions are Argentina, where China is viewed much more favorably than the United States, and in Mexico, where the United States is viewed much more favorably than China. In all seven Latin American countries surveyed, the United States was viewed as being more influential than China in terms of local developments in their countries.

This report compares the People's Republic of China's (PRC) and U.S. projections of global influence, with an emphasis on non-coercive means or "soft power," and suggests ways to think about U.S. foreign policy options in light of China's emergence. Part One discusses U.S. foreign policy interests, China's rising influence, and its implications for the United States. Part Two compares the global public images of the two countries and describes PRC and U.S. uses of soft power tools, such as public diplomacy, state diplomacy, and foreign assistance. It also examines other forms of soft power such as military diplomacy, global trade and investment, and sovereign wealth funds. In Part Three, the report analyzes PRC and U.S. diplomatic and economic activities in five developing regions—Southeast Asia, Central Asia, Africa, the Middle East, and Latin America. China and the United States use tools of soft power in different ways and with varying effects. Since the mid-1990s, the PRC has adopted an increasingly active and pragmatic diplomatic approach around the world that emphasizes complementary economic interests. China's influence and image have been bolstered through its increasingly open and sophisticated diplomatic corps as well as through prominent PRC-funded infrastructure, public works, and economic investment projects in many developing countries. Meanwhile, some surveys have indicated marked declines in the U.S. international public image since 2002. Some foreign observers have criticized U.S. state diplomacy as being neglectful of smaller countries or of countries and regional issues that are not related to the global war on terrorism. According to some experts, U.S. diplomatic and foreign aid efforts have been hampered by organizational restructuring, inadequate staffing levels, and foreign policies that remain unpopular abroad. Despite China's growing influence, the United States retains significant strengths, including latent reserves of soft power, much of which lie beyond the scope of government. Furthermore, by some indicators, China's soft power has experienced some recent setbacks, while the U.S. image abroad has shown signs of a possible renewal. The United States exceeds the People's Republic of China (PRC) in global trade, although the PRC is catching up, and far surpasses China in GDP and foreign direct investment. It continues to be the dominant external political and military actor in the Middle East and political and economic influence in Latin America. The United States maintains formal alliances in Europe and Asia, and far outweighs the PRC in military spending and capabilities. The 110th Congress has held hearings and proposed measures that support U.S. public diplomacy, diplomatic efforts, and foreign aid. Relevant legislation includes the Implementing Recommendations of the 9/11 Commission Act of 2007 (P.L. 110-53) and the Public Diplomacy Resource Centers Act of 2007 (H.R. 2553). This report will not be updated.

Most Recent Developments Funding for Department of Transportation programs was contained in thePresident's budget submission, issued in February, 1998. For FY1999, the U.S.Department of Transportation (DOT) requested total funding of $43.3 billion, a 1%increase over the FY1998 enacted level of $42.8 billion. Hearings on the budgetrequest were held in transportation subcommittees of the House and SenateAppropriations Committees. In a related development, many of DOT's surfacetransportation programs were recently reauthorized by the Transportation EquityAct for the 21st Century, generally referred to as TEA-21 ( P.L. 105-178 , June 9,1998). Both the House ( H.Con.Res. 284 ) and the Senate( S.Con.Res. 86 ) passed their respective versions of the budgetresolution and subsequently held a conference. H.Con.Res. 284 provided the following amounts of budget authority and outlays for FY1999: $44.3billion (BA) and $42.1 billion (BO). S.Con.Res. 86 provided for thefollowing amounts during the same period: $51.5 (BA) and $42.8 (BO). In a related development, on June 9, 1998, President Clinton signed the Transportation Equity Act for the 21st Century (TEA 21) into law ( P.L. 105-178 , H.R. 2400 ). The law provides authorization for appropriations forDOT's agencies and programs for fiscal years 1998 through 2003. TEA 21 affectsvirtually all of the Department's surface transportation agencies, ranging from theNational Highway Traffic Safety Administration to the Coast Guard. The impact ofits provisions have been addressed in other sections of this report. On July 15, 1998, the Senate Committee on Appropriations reported out S. 2307 , Department of Transportation and Related AgenciesAppropriations Bill for 1999 ( S.Rept. 105-249 ). The report recommends$13,694,249,000 of new budget obligational authority for the Department ofTransportation. This amount represents approximately $340,000,000 more than theAdministration's request, and almost $1 billion more than the enacted amount forFY1998. In conjunction with $32,234,800,000 estimated obligation limitations(generated from trust funds), the total obligational authority is approximately $45.9billion. On July 24, with few substantive floor amendments, the Senate passed its version of the DOT appropriations for FY1999. One provision, relativelycontroversial between the Administration and Congress, however, was dropped fromthe legislation. That provision, which drew a veto warning from Administrationofficials, would have barred the use of federal funds to impose "project laboragreements" on highway and transit fund projects. A substitute amendment appearsto have served as a compromise, permitting passage. On July 22, 1998, the House Appropriations Committee reported H.R. 4328 ( H.Rept. 105-648 ) The bill provides for a total of$46.9billion (new budget authoruty, guaranteed obligations contained in the TEA-21,limitation on obligations and exempt obligations) for FY1999. This amount is $4.8billion greater than FY1998 enacted levels, and $3.9 billion greater than theAdministration's FY1999 request. On July 30, 1998, the House passed H.R. 4328 , also with few substantive amendments. H.R. 4328 was referred to the Senate, whichamended the bill by inserting S. 2307 after the enacting clause. On September 17, 1998, the House and Senate passed H.J.Res. 128 , a continuing resolution to fund, until October 9, 1998, any government activitythat would have otherwise been funded by an annual appropriation. Following the enactment of five subsequent continuing resolutions, the House passed the Omnibus Consolidated and Emergency Supplemental Appropriations Act,for Fiscal Year 1999 on October 19, 1998. On October 21, the Senate passed thesame measure. The conference agreement provided approximately $47 billion in FY1999 for federal transportation programs -- an amount 12% greater than the FY1998funding, 9% more than requested by the Administration, and about$150 million morethan that included in the House bill. The amount for some DOT programs (includingFederal Highways and Mass Transit) was virtually insured by funding "firewalls"that had been placed in the Transportation Equity Act for the 21st Century (TEA-21). For the complete legislative text of the Omnibus Act as it appears in the October 19, 1998 Congressional Record, Members and staff should see the followingInternet Web site: http://www.clerkweb.house.gov. Introduction Transportation budgeting uses a confusing lexicon (for those unfamiliar with theprocess) of budget authority and contract authority -- the latter, a form of budgetauthority. (1) Contract authority, provides obligationalauthority for the funding of trustfund financed programs, such as the federal-aid highway program. Prior to TEA-21,changes in spending in the annual transportation budget component had beenachieved in the appropriations process by combining changes in budget/contractauthority and placing limitations on obligations. The principal function of thelimitation on obligations is to control outlays in a manner that corresponds tocongressional budget agreements. Contract authority is tantamount to, but does not actually involve, entering into a contract to pay for a project at some future date. Under this arrangement, specifiedin Title 23 U.S.C., which TEA-21 amends, authorized funds are automatically madeavailable to the states at the beginning of each fiscal year and may be obligatedwithout appropriations legislation. Appropriations are required to make outlays atsome future date to cover these obligations. As will be discussed, TEA-21 greatlylimits the role of the appropriations process in core highway and transit programsbecause the Act sets the limitation on obligations level for the period FY1999through FY2003. Highway and transit grant programs work on a reimbursable basis: states pay for projects up front and federal payments are made to them only when work iscompleted and vouchers are presented, perhaps months or even years after the projecthas begun. Work in progress is represented in the trust fund as obligated funds andalthough they are considered "used" and remain as commitments against the trustfund balances, they are not subtracted from balances. Trust fund balances, therefore,appear high in part because funds sufficient to cover actual and expected futurecommitments must remain available. Both the highway and transit accounts have substantial short- and long-term commitments. These include payments that will be made in the current fiscal yearas projects are completed and, to a much greater extent, outstanding obligations tobe made at some unspecified future date. Additionally, there are unobligatedamounts that are still dedicated to highway and transit projects, but have not beencommitted to specific projects. Two terms are associated with the distribution of contract authority funds to the states and to particular programs. The first of these, apportionments, refers to fundsdistributed to the states for formula driven programs. For example, all nationalhighway system (NHS) funds are apportioned to the states. Allocated funds, arefunds distributed on an administrative basis, typically to programs under directfederal control. For example, federal lands highway program monies are allocated;the allocation can be to another federal agency, to a state, to an Indian tribe, or tosome other governmental entity. These terms do not refer to the federal budgetprocess, but often provide a frame of reference for highway program recipients, whomay assume, albeit incorrectly, that a state apportionment is part of the federal budgetper se. For FY1999, the DOT requested total funding of $43.259 billion, about a 1.0% increase from the FY1998 enactment of level $42.828 billion. The Department'sFY1999 budget request was similar in many respects to the FY1998 appropriation. The agencies targeted for gains include (in descending order): the MaritimeAdministration (+35.3%); The National Highway Traffic Safety Administration(+21.92%); Research and Special Programs Administration (+16%); FederalAviation Administration (+7.0%); Federal Railroad Administration (+2.6%); Officeof the Secretary (+2.4%); and the U.S. Coast Guard (+2%). Those whose budgetrequest were reduced for FY1999 included (in descending order): St. LawrenceSeaway Development Corporation (-100%); Federal Transit Administration(-1.38%). The budgets for the Office of the Inspector General and the SurfaceTransportation Board are set at the FY1998 level. This report analyzes the FY1999 budget request and final action from a numberof perspectives. First, funding proposals for several national transportation priorities,such as safety, national security, infrastructure needs, and technology development,are highlighted and selected policy issues associated with these are presented. Second, historical funding trends are analyzed. Third, highlights of the FY1999budget request for several key modal administrations, such as the Federal HighwayAdministration, the Federal Aviation Administration (FAA), and the U.S. CoastGuard, are summarized. Status Table 1. Status of DOT Appropriations,FY1999 Key Policy Issues One of the major challenges facing appropriators continues to be the allocationof funds for the U.S. Department of Transportation among numerous competingnational interests. Competition for these funds stems from various transportationinterests, and from the modal administrations themselves seeking portions of the"transportation pie." Monies have been allocated for a diverse array of purposes, forexample, to pay for the expenses of the U.S. Coast Guard, to improve safety acrossthe transportation system, and to help finance various infrastructure needs. In theDOT and Related Agencies Appropriations Act, monies are also provided to supportthe National Transportation Safety Board, and the Surface Transportation Board(STB), and several other transportation-related agencies. (2) The perennial question of priorities surrounds the appropriations process. Throughout its budget request, the DOT continues to emphasize several prioritiesincluding: safety, infrastructure, innovative financing, environmental enhancement,technology, and national security. Much of the appropriations process must take place within the newly enacted framework of the Transportation Equity Act for the 21st Century (TEA-21), signedinto law on June 9, 1998 ( P.L. 105-178 , H.R. 2400 ). The act, whichauthorizes appropriations for key transportation programs through the fiscal year2003, emphasizes certain programs and de-emphasizes others. The general sense ofCongress appears to be that, although transportation trust funds are not sacrosanct,proceeds from the gasoline tax must be targeted towards the maintenance of the vastU.S. highway and transit network, and not viewed as a source of revenue for thegeneral treasury. Although attempts to move highway and transit programs"off-budget" were unsuccessful, Congress did insert language within TEA-21toprotect specific funding by creating "fire walls" around programs. In addition tospending ceilings, the fire walls effectively create floors. The creation of thesedevices emerged as a point of contention between authorizers and appropriators. Surface Transportation Infrastructure Policy The Administration requested a total of approximately $30.0 billion for FY1999. This requested increase occurred in spite of the limitations placed on domesticdiscretionary spending by the Balanced Budget Act of 1997. Since manydiscretionary budget allocations were reduced, the increase in transportationinfrastructure spending is regarded as a strong policy statement on the part ofCongress and the Clinton Administration that infrastructure is a policy priority. In each of its budget submissions, the Clinton Administration has sought to emphasize its commitment to improving the nation's infrastructure. Increasedinfrastructure spending to enhance national productivity and competitiveness was a policy feature of both of the President's election campaigns. The Administration'sFY1999 budget request is predicated on a continuation of this policy at least in spirit. The Administration makes the case in its budget document that the FY1999 budget request would compliment the spending increases that have occurred earlierin this decade. (3) The Administration view is thattransportation infrastructurespending at the $30.0 billion level envisioned in its request would provide the highestlevel of infrastructure spending in DOT history. In addition, the Administration takesconsiderable credit for some improvements in transit capacity, airport capacity, and highway condition that have occurred in recent years. Finally, the Administrationcontends that it has accomplished all of these advances and provided for futureimprovements in a fiscally responsible manner. In reality the Administration's FY1999 request is very similar to the levels of funding provided in the FY1998 Act. This is very much the result of the BalancedBudget Act of 1997. The Administration request has now been somewhatsuperceded by passage of TEA-21. By signing this legislation the Administration hasagreed to a somewhat higher level of spending for surface transportation in FY1998then it had proposed earlier in the year. In addition, the Administration has agreedto much higher levels of spending in the period FY1999-FY2003. One of the principal provisions of TEA-21 is a change in the budget treatment of the highway and transit programs. This new legislation sets a limitation onobligations for program spending in each of the next 6 fiscal years and does so bycreating "fire walls" that prevent reductions in spending below agreed upon levels. This action deprives the House and Senate Appropriations Committees of theirtraditional authority to determine the absolute level of spending for these programs. Instead the committees now control spending of only a small portion of the highwayand transit programs. Over the last several years the Administration has attempted to find more funding for infrastructure by changing the way infrastructure was financed. Toaccomplish this objective in FY1999, the DOT proposed to continue supporting StateInfrastructure Banks (SIBs) at the $150 million level and to finance a newTransportation Infrastructure Credit Program at the $100 million level for FY1998. The SIB program combines federal/state/private funding to help finance a variety of transportation improvements, such as toll roads and intermodal terminals. Although the SIB program had been adopted by 10 states, with an additional 15expressing interest, the program was reduced to four states by language in TEA-21. Examples of innovative financing include a proposed new TransportationInfrastructure Credit Program intended to leverage federal dollars and encourageprivate sector investment in projects of national significance that may be too large toattract local capital. (4) The Administration also istrying to improve the efficiency offederal funds distribution. In dollar terms, however, the Administration's efforts topromote innovative financing represent a small portion of the total DOT budget. Technology The Administration proposed to spend about $1.1 billion on transportation research, development and technology activities during FY1999. This amountrepresents about a 10% increase over the FY1998 level for those activities. Thesupport of research and technology activities is not a goal in and of itself, but itunderpins the other functions of the Department. For example, DOT seeks to applythe results of its research and development activities to improve safety, enhancemobility, further an intermodal transportation system, promote economic growth andtrade, and support national security. The three largest components of the FY1999Research, Development and Technology budget request are for: FHWA's program($582 million), FAA's program ($334 million), and NHTSA's program ($53 million). Increased investment in research and development continues to be a keytheme of the Clinton Administration and this emphasis has been reflected in theDepartment's budget during the last few years. It remains difficult to decide on theamount of funds for the numerous R&T activities at the Department, especially whenthese decisions are considered within the context of the other funding needs. DOT is involved in a variety of technology programs, including the Partnership for a New Generation of Vehicles, the National Advanced Driving Simulator, and theAdvanced Technology Transit Bus. One of the largest R&T activities is the Intelligent Transportation Systems (ITS) program. The FY1999 request for thismultifaceted activity that involves each of the surface transportation modes withinthe Department is $250 million. These funds would support a comprehensiveresearch and demonstration program and deployment initiative. That initiative isdesigned to stimulate investments in a variety of ITS technologies, such as trafficsurveillance, crash avoidance systems, and safety monitoring for commercial motorvehicles. The actual amount of FY1999 contract funds authorized for ITS is set inthe TEA-21 law. For FY1999, that act provides $95 million for research,development, operational tests and other activities considered to be part of the coredepartmental ITS program. TEA-21 also authorizes $105 million of contract fundsfor ITS integrated deployment projects. The overall highway obligation limitationwill reduce the amount of funds actually made available for those activities. P.L.105-277 provides a total of $200,000,000 to be available for implementation of thevarious ITS program specified in TEA-21. With an obligation limitation of 88.3percent for FY 1999, that amount is effectively reduced to $176.6 million. The Federal Railroad Administration requested that funding for the Next Generation of High Speed Rail Program be reduced from about $20 million inFY1998 to about $12.6 million in FY1999. The Senate Appropriations Committeerecommended $28,494,000 for this program. For FY1999, the Coast Guardrequested $18 million for research, development, testing and evaluation. Funds wererequested for technologies, materials, and human factors research to improve theCoast Guard's mission performance and delivery of services to the public. Safety Safety continues to be claimed as the Department's highest priority. DOT's request for various transportation safety programs for FY1999 is $3.1 billion, an 11percent increase over the FY1998 level. Substantial increases are requested for thesafety activities of several modal administrations, including: the Federal AviationAdministration, the National Highway Traffic Safety Administration (NHTSA), andthe Federal Highway Administration. Each year debate continues over the perennialquestion regarding funds for safety relative to other functions of the DOT. DOT sought to promote public health and safety by working toward the elimination of transportation-related injuries, deaths, and property damage. Fundingwas requested to increase safety using a variety of approaches, including: rulemaking,compliance efforts, public education and outreach, and direct operations (such asvessel traffic services). In FY1999, some of the activities intended to achieve theDepartment's safety goals include: requesting additional personnel for the FRA'sOffice of Safety, promoting public-private partnerships to demonstrate cost-effective,safety technologies, such as intelligent vehicles; and advancing research exploringcauses of, and countermeasures for, transportation incidents in all modes oftransportation. Spending for NHTSA's highway safety programs was intended to increase by 22%, from $333 million in FY1998 to $406 million in FY1999. Increased fundingfor grants and research to improve the protection of automobile occupants wasrequested: $31 million was proposed for the President's initiative to increase seat beltuse; and $10.2 million was proposed for safety systems research which supportsimprovements in vehicle structures and occupant protection. The 1998 Departmentof Transportation Appropriations Act provided $186,500,000 for obligations forhighway traffic safety grants, and $146,962,000 for operations and research, for atotal of $333,462,000 for NHTSA's activities. The conference bill ultimatelyprovided $159.4 million for NHTSA operations and research, and $361.4 milliontotal for all of NHTSA's activities. TEA-21 sets specify contract funding levels forthe various traffic safety grants administered by NHTSA. TEA-21 also sets anauthorization level for NHTSA Section 403 research program and for NHTSA'svarious motor vehicle-related activities, which together form much of the Operationsand Research account of NHTSA. Consequently, TEA-21 will likely have asubstantial impact on setting the overall NHTSA budget and appropriation duringFY1999 through FY2003. P.L. 105-277 provides $ 159,400,000 for NHTSA'soperations and research account and $2,000,000 for the National Driver Register, andlimits obligations for highway traffic safety grants to $200,000,000. Other Factors The debate on the FY1999 budget request has focused partly on the Administration's funding priorities. Some Members, however, chose to focus theirinterests on other priorities, such as local needs for roads, transit and airports. Thedebate leading to passage of TEA-21 is indicative of these concerns. Passage of thislegislation has created new issues for the appropriations process. Primary amongthese is the new budgetary treatment of highway and transit spending. The TEA-21 limitation on obligations for these activities restricts the ability of the transportationappropriations committees ability to meet their 302(b) goals by requiring all that alladjustments in spending be made in other program categories. Finally, enactment of the Government Performance and Results Act (GPRA) has compelled DOT, along with other agencies, to reconcile their spending requests andprograms/projects with their more fundamental strategic and performance goals. Major Funding Trends Table 2 shows historical funding levels for FY1988 through FY1998 (actual and enacted) and FY1999 request for the Department of Transportation. Almost allof these funds are provided by new budget authority or a limitations on obligationsin the DOT appropriations act. (5) Total DOT funding increased approximately 66%from FY1988 through FY1998 (enacted). The following information from DOT shows actual, estimated, and requested appropriations, obligations limitations, DOD transfers, and exempt obligationssubject to the appropriations process (in millions of dollars). According to a DOTspokesperson, this information does not include user fee collections; consequently,program totals may vary from other figures cited in the text. Table 2. Department of Transportation Appropriations, Obligations, Limitations, DOD Transfers, and Exempt ObligationsSubject to the Appropriations Process (in millions of dollars) Coast Guard http://www.uscg.mil/ The Administration requested $4.1 billion for the Coast Guard in FY1999. This was up 2.2% over FY1998 and maintains the same trend since FY1996. The budgetrequest would have allowed the Coast Guard to continue its activities against drugsmuggling and to recapitalize aircraft and vessel fleets to meet the President'snational security goals. Of this amount, $2.8 billion would have been for operationand maintenance of a wide range of ships, boats, aircraft, shore units, and aids tonavigation, including $309 million in defense-related funding. The Administration requested $67 million to train, support, and sustain a ready military Selected ReserveForce of 7,600 members for direct support to the Department of Defense and toprovide surge capacity for responses to emergencies such as clean-up operationsfollowing oil spills. Other Coast Guard requested funding included $61 million for spill clean-up and initial damage assessment, available without further appropriation from the OilSpill Liability Trust Fund. No funds were requested for boat safety grants becausethese would be funded from appropriations from the Aquatic Resources Trust Fund. The Senate Appropriations Committee recommended $3.7 billion for the Coast Guard, 1.1% less than the budget request, but 0.9% more than enacted for FY1998. Of this amount, operating expenses would be funded at $2.8 billion, including $300million in national security activities scored against defense funding. Environmentalcompliance and restoration ($21 million), retired pay ($684 million), and reservetraining ($67 million) would be funded at the level of the request. Acquisition,construction and improvements would be decreased from the request (from $442.6million to $388.7 million) and research, development, test, and evaluation would bedecreased from $18.3 million to $17.5 million. The House passed an appropriation of $3.887 billion for the Coast Guard which is $29.4 million less than FY1998. Operating expenses were funded at $2.7 billionincluding $300 million in national security scored against defense spending. Thiswould also include $406 million for drug interdiction activities, which is an increaseof $33.8 million over the President's request. Increases in this area would be offsetby reductions in fisheries law enforcement and polar ice breaking. Acquisition,construction, and improvements were funded at $389 million and environmentalcompliance and restoration at $21 million. $684 million was appropriated for retiredpay and $69 million for reserve training. Research, development, test and evaluationwould receive $12 million. The conference agreed to an appropriation of $3.9 billion for the Coast Guard, which is $21.0 million less than FY 1998. Operating expenses were funded at theHouse level of $2.7 billion of which $300 million shall be available fordefense-related activities This is $15.4 million less for operating expenses than FY1998. However, the Secretary may transfer funds from the Federal AviationAdministration "Operations" account, not to exceed $71.7 million, for druginterdiction activities. Acquisition, construction, and improvements is funded at$395.5 million, of which $20 million shall be derived from the Oil Spill LiabilityTrust Fund. There was no disagreement between the Houses over eitherenvironmental compliance and restoration or retired pay. The House-approved levelsof $69 million were appropriated for reserve training and $12 million for research,development, test, and evaluation. Alteration of bridges received $14 million and nofunds were appropriated for boat safety. Federal Railroad Administration (FRA) The Administration requested $751 million for the Federal Railroad Administration for FY1999, compared to a FY1997 actual obligation of $1.1 billion,and an FY1998 enactment of $937 million. The most notable reduction, $172million from the FY1998 amount, was the lower request for funding Amtrak (CRSIssue Brief 97030) and the Northeast Corridor. The Northeast Corridor is the railroute from Boston to Washington, DC. The House Appropriations Committeerecommended $729.3 million for FRA for FY1999, including $609.2 million forAmtrak. The Senate recommended $707 million, including $555 million for Amtrak. Congress appropriated $749.8 million to FRA for FY1999, including $609.2 millionfor Amtrak, and allowed Amtrak to decide how much of its appropriation will beused to upgrade the Northeast Corridor. Amtrak http://www.amtrak.com Amtrak (see CRS Issue Brief 97030) receives its funding as part of the FRA account. The Administration requested that FY1999 funding for Amtrak come fromthe Federal Highway Trust Fund, rather than from the general fund as in past years. The Administration requested $621 million for capital grants to Amtrak, of which notless than $200 million would have been for the Northeast Corridor, and $12 millionfor Penn Station in New York City. The Administration requested no funding foroperating grants for Amtrak for FY1999, proposing that sufficient operating fundscould come from capital grants. The House recommended $609.2 million for Amtrak for FY1999, plus $2 million for a third freight track in Rhode Island to give Amtrak a separate line fromfreight, and $15.3 million for "next generation high speed rail" that would removegrade crossings on rail passenger routes and provide other funding that benefits railpassengers. The Senate recommended $555 million for Amtrak for FY1999. This was a total of $1.6 billion when coupled with the $1.1 billion Amtrak will receive inFY1999 without further legislative action as a result of the Taxpayer Relief Act of1997 ( P.L. 105-34 ). The committee bill ( S. 2307 ) included language toallow the capital funds provided in the bill to be spent under the same definition ofcapital expenses that currently pertains to federal capital funds provided for othertransportation modes. This use of capital funds for capital expenses could come to$400 million during FY1999, according to the committee report ( S.Rept. 105-249 ,pp. 120-121). The committee recommended that $200 million of the $555 millionbe used for upgrading the Northeast Corridor. The New York Pennsylvania Stationis to get $40 million as a result of the TEA-21 highway reauthorization legislation( P.L. 105-178 ). Congress appropriated $609.2 million to Amtrak for FY1999, andallowed Amtrak to decide how much of that will be used to upgrade the NortheastCorridor. The Committee report rejected the proposal to allow Amtrak to use capitalgrants for equipment maintenance in the same way federal transit funds can be used,but the report set no specific limit on the amount of federal capital grants that Amtrakcan use for equipment maintenance during FY1999. The funds are to come from thegeneral fund, as in past years, rather than from the Highway Trust Fund, as proposedby the Administration. Congress appropriated no funds for the Penn Stationredevelopment in New York City. Congress appropriated $20.5 million for "nextgeneration high speed rail" and $5 million for the Rhode Island freight rail project. Amtrak Reform Council. The Amtrak Reform Council, established by the Amtrak Reform and Accountability Actof 1997 ( P.L. 105-134 ), is given additional responsibility by the report language ofthe Senate Appropriations Committee for FY1999. The Council is directed to helpAmtrak reach its financial goals and decrease reliance on federal aid by identifyingwhich Amtrak routes are candidates for closure or realignment, and the Council isdirected to report this information to Congress annually (p. 25). The Council isprohibited by the committee report language from using any of the Council'sappropriation to pay for outside consultant services, since, the report states, themembers of the Council were selected because of their technical qualifications,professional standing, and demonstrated expertise in areas related to the needs of theCouncil (p. 24). Congress appropriated $450,000 to the Amtrak Reform Council forFY1999. The conference report is silent on the above issues that are addressed in theSenate committee report. Federal Highway Administration (FHWA) http://www.fhwa.dot.gov/ The highway section of the FY1999 Appropriations Act provides an obligation limitation of $25.5 billion for highway program activities. This is an increase of over$4.0 billion over the FY1998 Act and is consistent with the levels authorized by theTransportation Equity Act for the 21st Century (TEA-21). An additional $1.2 billionin exempt obligations is provided by the Act. (6) The FY1999 Act provides for a few modest changes in the highway program, but generally follows the program guidance provided in TEA-21. One importantprovision in the Act is a clarification of TEA-21's distribution of high priority projectfunds. The Act gives the states considerable leeway in their treatment of these fundsand allows the states to set overall priorities without having to treat each high priorityproject as a separate pot of money. Finally, the Act provides no funding in thetransportation section for the Appalachian highway program. The Act also provides some highway funding in the emergency supplemental portion of the omnibus act. These provisions provide an additional $100 million forAlabama and Massachusetts that had been promised to these states during theTEA-21 conference. Further highway funding from this section is provided for WestVirginia and Arkansas. Some of these funds are for the Appalachian highwayprogram. The total level enacted for FY1999 is well above what had been proposed by the Clinton Administration, $23.5 billion, with a limitation on obligations of $21.5billion is identical to the FY1998 level. As mentioned above, TEA-21, and its accompanying technical corrections, establish an FY1999 limitation on obligations for all highway activities, includingsafety, of approximately $25.5 billion. The limitation on obligations could not bechanged by the appropriations process and the Act provided specific unamenablefunding levels for all major highway programs. Appropriators's had the ability tomake specific decisions about a number of smaller highway and highway safetyprograms. The Senate Committee on Appropriations bill set core spending at the TEA-21 limitation on obligation level. Total FHWA spending was just over $27.0 billion. The committee did make a number of recommendations about spending for particularactivities. For example, FHWA operating expenses were increased over the FY1998level, but not to same degree as proposed by the Administration. The committee alsomade a number of recommendations about the ITS program aimed primarily atincreasing spending for actual ITS projects, as opposed to ITS promotion. Finally,spending for the Appalachian highway system was set at $200.0 million. This is$100.0 million less than the FY1998 level and below the spending level that couldbe supported by TEA-21. The House Committee on Appropriations also respected the TEA-21 fire walls for core highway spending. Total funding for FHWA was set at $26.7 billion, whichis somewhat below the Senate level. Much of this difference can be accounted forby the committee's decision to zero out funding for the Appalachian highway systemand a new transportation infrastructure credit program that had received $80.0million in the Senate bill. Federal Transit Administration (FTA) http://www.fta.dot.gov/ The FY1999 Act provided a total of $5.39 billion for the FTA. This exceeded FY1998 funding by $549.0 million, an increase of more than 11%. Almost all FTAprograms, with the significant exception of the operating assistance program,received funding increases. Operating assistance funding was eliminated underformula grants by TEA-21. However, preventive maintenance previously eligible forfunding from operating assistance is now an eligible use under an expanded capitalgrants program. Several transit programs have been controversial almost since their inception, especially the operating assistance program. Recent Administrations, beginning withthe Reagan Administration, have proposed reductions and/or outright elimination ofthese programs. Transit tends to be supported on a local basis, with the majority ofsupport coming from urban areas. Support for sometimes competing highwayprograms is seen as having a much broader base, especially because of the absenceof transit systems in rural areas. Transit programs have continued largely, due tostrong congressional support from Members representing urban areas. For FY1999, the Clinton Administration proposed a slight decrease in total FTA funding over FY1998 levels, $4.78 billion. Essentially, the Administration's proposalwould have consolidated most of the existing programs into a $3.6 billion formulaprogram. The Administration's proposal would have consolidated the discretionarybus and bus related program and fixed guideway modernization program into theformula grants program All funding for this program would have come from thetransit account of the Federal Highway Trust Fund. Only the fixed guidewaymodernization formulas would have been retained as a separate component of theconsolidated program. The new starts programs, renamed the Major CapitalInvestment Program, would have continued to allocate discretionary funds for fixedguideway systems. New start funds would have been increased to $876.0 millionover the FY1998 level of $800.0 million. The Clinton Administration proposed onenew initiative for access to jobs and training, which was included in therecently-passed TEA-21. The full Senate and House Appropriations Committees passed their versions of the FY1999 Transportation Appropriations Act, respectively on July 14, and July 22,1998. The House and Senate transit proposals recommended the same fundinglevels for FY1999, $5.39 billion, an increase of $549 million over FY1998. Thesefunding levels were enacted into law on October 21, 1998, under the OmnibusAppropriations Act of 1999 ( H.R. 4328 , P.L.105-277 ). The Majorcapital investment program was increased to $2.3 billion from the FY1998 level of$2.0 billion, an increase of 12.8%. This included $902.8 million each for new startsand fixed guideway modernization and $451.4 million bus/bus facility for FY1999.The formula grant program was set at $2.85 billion, or $350 million over the FY1998level of $2.5 billion, an increase of 14%. This included $2.5 billion for urbanize areagrants, $50 million for clean fuel vehicle grants, $67 million for elderly and disabledgrants, $188 million for nonurbanized area grants, $2 million for rural transportationgrants, and $4.8 million for the Alaska railroad for FY1999. Other funding included$75 million to the new access to jobs/reverse commute program, $98 million forplanning and research, $6 million for university centers, $54 million for the FederalTransit Administration, and $50 million the Washington Metropolitan TransitAuthority. Federal Aviation Administration (FAA) http://www.faa.gov/ P.L. 105-277 appropriates $9.6 billion for the FAA in FY 1999, up 5% from the $9.1 billion provided in Fiscal 1998. The appropriation is about $85 million morethan the amount recommended by the House, but $300 million less than the Senatemark and $150 million less than the Administration's request. Division C -- OtherMatters, provides for the reauthorization of the FAA for a period of 6 months. (7) Airport Improvement Program (AIP) spending is limited to half the annualauthorization level, which could affect approved airport construction work. Separate provisions in Division C give DOT the authority to intervene earlier in airlineconsolidation proposals and halt DOT rulemaking on airline competition until atleast the middle of 1999. Operations. FAA's Operations account is funded at $5.563 billion, which is $25 million less than theAdministration's request. The conference assumed, however, that $17 million of theOperations account will instead be provided in the Facilities and Equipment account,making the net reduction in this account $8 million. This account funds air trafficservices, aviation regulation and safety certification, and aviation security activities. Facilities and Equipment. This account is funded at $2.0 billion (including $100 million from the supplementalappropriations title), which is $130 million below the budget request. Funds fromthis account provide for the modernization of air traffic control and other facilities. The Act fully funds the Administration's $168 million request for several programscollectively described by the FAA as the Free Flight Phase I program. (8) It alsoincludes $100 million (in Title II of the Supplemental Appropriation) requested bythe Administration for explosive detection devices. However, the FAA is prohibitedfrom obligating funds for explosive detection systems until 30 days after theAdministrator certifies to Congress that the major air carriers agree to fund operationand maintenance of the systems in FY 1999 and substantially increase their use of themachines. Programs to address the Year 2000 computer problem are funded in the Act at $25 million, $14 million below the Administration request. Additional funds,however, are provided on a government wide basis as a result of Title III of theEmergency Supplemental Appropriations section of the Omnibus bill. An unspecified amount is likely to be available for FAA FY2K activities. Research, Engineering, & Development. This account is funded at $150 million, which is$140 million less than the budget request. Most of the reduction is the result ofCongress denying $90 million in direct funding and approximately $45 million inindirect funding for the Flight 2000 program. (9) Thedecision to not fund this programwas based on a determination that the FAA was not yet ready to begin "such anambitious and expensive undertaking, had not decided on the sites for the project,and had not achieved industry consensus." (10) Fullfunding is provided for aircraftsafety technology, including $15 million for aging aircraft research. Also in thisaccount is $41.7 million for explosives and weapons detection research, which is$2.2 million more than the request. Grants-in-Aid for Airports. Airport grants are limited to $1.95 billion, which is $250 million above thePresident's request. Only $975 million of the limit is available, however, until anFAA reauthorization bill is enacted in the next Congress. The FAA is directed togive priority consideration to grant applications for projects listed in the House andSenate bill reports and in the conference agreement. Airport Improvement Program(AIP) contract authority for the first six months of FY 1999 (a total of $1.205 billion)is included in the Act. Peanut-Free Buffer Zone. The Act prohibits the FAA from providing a peanut-free buffer zone or any otherpeanut-restricted area, or from restricting the distribution of peanuts, until 90 daysafter the agency has conducted a study that shows that some passengers may suffersevere reactions from the mere smell of peanuts (sec. 372). National Highway Traffic Safety Administration (NHTSA) http://www.nhtsa.dot.gov/ The National Highway Traffic Safety Administration was established as a separate organizational entity in the Department of Transportation in March 1970. The agency's responsibilities include establishing minimum safety standards forautomotive equipment, serving as a clearing house and information source fordrivers, identifying and studying emerging safety problems, and encouraging stategovernments to enact laws and implement programs to reduce drunk driving, andencourage the use of safety devices. For FY1999, the agency requested an appropriation of $406 million, up from $333 million enacted for FY1998. Of the total, about $233 million (a 25% increaseand this year expressed as an "obligation limitation") will be devoted to HighwayTraffic Safety Grants. Although the appropriation for the NHTSA represents a smallportion of the total DOT budget, successful implementation of its programs could beinstrumental in saving a significant percentage of the $150 billion lost to highwaydeaths, injuries, and property damage annually. One of the agency's programs to encourage the use of seat belts has been bolstered by the recent presidential seat belt initiative. Also, NHTSA has encouragedthe establishment of a uniform 0.08 blood alcohol concentration (BAC) level. Senateand House reauthorization proposals took significantly different approaches forconvincing the states to enact 0.08 BAC levels. The Senate ( S. 1173 )recommended a more stringent approach by reducing the basic allocations andapportionments (for construction projects) to the states. The House, however,recommended a safety grant program to induce states to adopt 0.08. The Houseprevailed in conference. The Senate Committee on Appropriations, in its report on S. 2307 , acknowledged a number of NHTSA initiatives, including the (state) alcohol incentiveprogram mentioned above. Other programs included increased seat belt use, sideimpact standards, and other occupant protection programs. Although air bags are notspecifically mentioned in the committee's report, it does encourage continuing workto develop an appropriate child crash dummy to better assess the effectiveness ofcrash protection devices, which would include air bags. In conference, Congress provided a total funding for NHTSA of $361.4 million, an amount $28 million greater than the FY1998 enactment, but $44.5 million less than that requested by the Administration for FY1999. The conference bill gives theagency $159.4 million for Operations and Research. This represents an amount$12.4 million above its FY1998 amount, but less than half of its requested $25million increase for this program. It also permits additional obligations (from theHighway Trust Fund) of $13.5 million ($200 million total) for Highway SafetyGrants versus the $33 million requested; and provides $2 million for the NationalDriver Register, although no funding for this program was requested by theAdministration. Table 3. Total Budgetary Resources of SelectedAgencies/Offices (in millions of dollars) Sources : * Figures for enacted FY1998, and requested FY1999 were taken from S.Rept. 105-249 , various pages. **Surface Transportation Board estimated offsetting collections for FY1999. Note : Numbers within this table may differ slightly from those in the text due tosupplemental appropriations,rescissions, and other funding actions. Columns may not add due to rounding. For Additional Reading CRS Issue Briefs CRS Issue Brief IB97030. Amtrak and the 105th Congress , by Stephen J Thompson. CRS Issue Brief IB97029. Supplemental Appropriations and Rescissions for FY1997 , coordinated by [author name scrubbed]. CRS Reports CRS Report 98-749(pdf) E, The Transportation Equity Act for the 21st Century (TEA-21) and the Federal Budget , by [author name scrubbed], September 4, 1998. CRS Report 98-593E. Airport Improvement Program: Airport Finance Issues for Congress , by [author name scrubbed] CRS Report 96-67E. The Surface Transportation Board (STB): An Overview and Selected Public Policy Issues , by Stephen J Thompson. CRS Report 96-901. Automobile Air Bags: New Issues/New Research , by [author name scrubbed]. CRS Report 97-271. Federal Traffic Safety Programs and Grants: Issues and Options for Reauthorization , by [author name scrubbed] and Brad A. Trullinger. CRS Report 97-516E. ISTEA Reauthorization: Highwway Related Legislative Proposals in the 105th Congress, 1st Session , by [author name scrubbed]. CRS Report 98-221E. ISTEA Reauthorization: Highwway Related Legislative Proposals in the 105th Congress, 2nd Session , by [author name scrubbed]. CRS Report 96-803. Reauthorization of the Motor Carrier Safety Assistance Program: Options to Promote Flexibility and Performance , by Paul F.Rothberg, et al. CRS Report 98-63E. Transportation Trust Funds: Budgetary Treatment , by [author name scrubbed]. CRS Report 97-691. Intelligent Transportation Systems Program: Importance, Status, and Options for Reauthorization , by Paul Rothberg, Frederick W.Ducca, and Brad A. Trullinger. CRS Report 97-951. Traffic Safety Provisions in Various Highway Reauthorization Bills , by [author name scrubbed]. Selected World Wide Web Sites Department of Transportation Site http://www.dot.gov/ Department of Transportation, Chief Financial Officer http://ostpxweb.dot.gov/budget/ House Appropriations Committee http://www.house.gov/appropriations Maritime Administration (financial reports) http://marad.dot.gov/ National Highway Traffic Safety Administration (budget & planning) http://www.nhtsa.dot.gov/nhtsa/whatis/planning/perf-plans/gpra-96.pln.html Office of Management and Budget http://www.access.gpo.gov/omb/omb003.html Senate Appropriations Committee http://www.senate.gov/~appropriations/

For FY1999, the U.S. Department of Transportation (DOT) requested total funding of approximately $43 billion, a 1% increase over the FY1998 enacted level of $39 billion. The FY1999budget request for the DOT was similar in many respects to the FY1998 appropriation. There are many "macro" issues or factors that are influencing the debate over the Administration's FY1999 budget request. Some of them have been carried over from the previousfiscal year. Complicating the budget process had been the delay associated with reauthorizing manyof the Department's programs. The recently concluded reauthorization of surface transportation programs will dramatically effect the FY1999 appropriations process. The Transportation Equity Act for the 21st Century ( P.L.105-178 , TEA-21) provides for an increase in spending at a level above that contemplated in theAdministration budget request. In addition, the new legislation provides a new budget environmentfor highway and transit programs that limits the ability of the appropriations process to alter spendingfor these activities. In its FY1999 request, the Administration reiterated that safety is its highest priority, followed by technology development, environmental enhancement, infrastructure needs, and innovativefinancing. The budget proposal included requests of: $3.1 billion for direct safety funding; $30.0billion for infrastructure investments; $1.1 billion for transportation research and development(R&D); and $0.6 billion for Amtrak (See CRS Issue Brief 97030). On July 15, 1998, the Senate Committee on Appropriations reported S. 2307 ( S.Rept. 105-249 ). The committee recommended total funding of approximately $47 billion forFY1999. S. 2307 was passed by the Senate on July 24, 1998. Few amendments weremade, excepting one controversial proposal to bar the use of federal funds to impose "project laboragreements" on highway and transit fund projects. A compromise substitute was offered. The House Appropriations Committee reported its own bill ( H.R. 4328 , H.Rept. 105-648 ) which would have provided a total of $46.9 billion, an amount $4.8 billion greater thanFY1998 and $3.9 billion greater than the amount requested by the Administration. The committeevoiced its objections to the impact of TEA-21 legislation, whose "firewalls" significantly limited itslatitude in funding. According to the report, "These 'firewalls' make it virtually impossible for theAppropriations Committee to make downward adjustments to those funding levels in the annualappropriations process over the next 5 years." By July 31, both the House and Senate had passed their respective bills; the House bill was referred to the Senate; the Senate substituted its own language; and the House requested a conferenceon the substitute amendment. See the "Most Recent Developments" section of this report for thelatest legislative action. Key Policy Staff Division abbreviations: E = Economics; STM = Science, Technology, and Medicine.

Introduction Spending programs and tax expenditures are the two primary ways that the federal government provides benefits to the public. Though each type of intervention increases net budget deficits, differences in the budget process, saliency, and targeting of each may have ramifications for usage across different types of services. This report briefly describes spending programs and tax expenditures, observes a few ways that they differ, and discusses how those distinctions may inform the relative use of each type of intervention across the government portfolio. Description Spending Federal expenditures (or spending) are transfers from the federal government to individuals, firms, or institutions that do not draw directly from individual or corporate tax liability. Federal spending programs fall into three broad categories: (1) discretionary spending, (2) mandatory spending, and (3) net interest payments. The Congressional Budget Office (CBO) estimates that federal spending will total $3.897 trillion in FY2016, or 21.1% of annual gross domestic product (GDP). Federal discretionary spending activity describes expenditures that are controlled by appropriation acts. Discretionary spending includes most of the expenditures devoted to the general operations of federal agencies, including the Department of Defense, Department of Homeland Security, and Environmental Protection Agency. CBO estimates that the federal government will devote $1.196 trillion to discretionary spending in FY2016, or 6.5% of GDP. Mandatory spending represents expenditures that are controlled by laws other than appropriation acts. Also known as direct spending, programs that are exclusively or primarily funded through mandatory spending include Social Security, Medicaid, and Medicare. CBO estimates that the federal government will devote $2.449 trillion to mandatory spending in FY2016, or 13.2% of GDP. Net interest payments equal the total payments made to federal debt holders, less payments on interest received by the federal government. The magnitude of net interest payments is determined by the size of the federal debt and the interest rate of outstanding debt instruments. CBO estimates that the federal government will spend $0.253 trillion on net interest in FY2016, or 1.5% of GDP. Tax Expenditures Tax expenditures are revenue losses attributable to federal tax provisions. There are three main types of tax expenditures: (1) exclusions, exemptions, and deductions from gross personal or corporate income; (2) preferential tax rates for certain programs; and (3) refundable and nonrefundable tax credits. The Joint Committee on Taxation (JCT) estimates the revenue losses attributable to certain programs. Tax expenditures were projected to increase net deficits in FY2016 by $1.521 trillion, or 8.2% of GDP. Exclusions, exemptions, and deductions lower the taxes paid through reductions in the amount of income that is eligible for taxation. The financial value of exclusions, exemptions, and deductions is a function of the amount of income subject to the rule and the tax rate that would have otherwise been paid on the income. All else equal, an exemption that reduces an individual's taxable income by $1,000 is more valuable than an exemption that reduces individual taxable income by $500. Similarly, a deduction from income that would have otherwise been subject to a 39.6% income tax rate will lead to a greater revenue reduction than a deduction from income otherwise treated with a 15% income tax. Thus, the value of exclusions, exemptions, and deductions generally increases with income. Preferential tax rates represent levies on parts of personal or corporate income that are lower than their normal rates, as defined by law (but which are nonzero). As with exclusions, exemptions and deductions, the value of preferential tax rates is a function of the amount of income affected and the rate of tax that would otherwise be applicable. Preferential tax rates will only have value in cases where the rate of tax would otherwise have been higher than the preferred rate. For instance, a law placing a tax rate of 30% on income will have value (be preferential) for an individual who otherwise would have been taxed at a 35% rate, but will have no value (or be harmful, if forced to adopt) to an individual otherwise subject to a 25% tax rate on the income. Tax credits directly reduce the tax liability of an individual or corporation. Unlike other types of tax expenditures, tax credits do not modify the definition of income in the federal tax code. Tax credits may be designated as non-refundable or refundable. Nonrefundable credits cap benefit claims at the amount of remaining tax liability, while refundable credit benefits are not inherently limited by the tax liability threshold (and thus can also affect federal outlay projections). For a more detailed inspection of tax expenditures and related issues facing Congress, see CRS Report R44012, Tax Expenditures: Overview and Analysis , by [author name scrubbed]. Program Comparison Differences in the construction of spending and tax expenditure programs have direct ramifications for their treatment in the legislative process, for budget outcomes, for targeting and enforcement, and for the distribution of benefits. This section examines these differences and discusses how those distinctions may influence the use of each intervention across the budget process. Legislative Process Treatment in the way that spending programs and tax expenditures are legislated depends on a number of factors, including the expiration (or lack) of legislative authority and committee assignment. These factors may have implications for the relative usage of spending programs and tax expenditures in meeting certain policy objectives. Spending Programs Discretionary spending programs are funded through the appropriations process, which often involves input from several working committees in each chamber. The appropriations committees are tasked with allocating discretionary budget authority across 12 spending categories, which are responsible for further allotment to agencies and programs. For more information on discretionary spending legislation, see CRS Report 98-721, Introduction to the Federal Budget Process , coordinated by [author name scrubbed]. The federal budget process provides for allocation of discretionary budget authority through annual appropriation acts, which expire at the end of each fiscal year. In the event that a discretionary budget has not been agreed to as a new fiscal year approaches, Congress and the President have two choices: (1) enactment of a continuing resolution, which provides temporary budget authority for discretionary programs (typically as a function of the budget authority available in the previous year until permanent authority is passed); or (2) allow discretionary budget authority to lapse. The lapsing of budget authority can produce a "government shutdown," which involves the closure of some federal operations that rely on discretionary funding. Unless designated otherwise, mandatory programs are permanently funded by the federal government. Therefore, the funding provided for mandatory programs is typically not affected by the annual appropriations process. Absent the enactment of modifying legislation, the eligibility and benefit rules governing mandatory spending programs remain constant across budget years. Much of the legislative process surrounding such programs falls to issue-specific committees. Most mandatory spending programs are either permanent or, if temporary, handled by legislative committees on an alternative schedule to the annual appropriations process. Tax Expenditures Tax expenditures are similar to spending programs in that their legislative processes vary with the type of program under consideration. However, unlike with spending programs, the process surrounding tax expenditure legislation is not typically reliant on the benefit allocation mechanism (i.e., exclusions, exemptions, and deductions; preferential rates; or tax credits). In this case, whether the tax expenditure is permanent or expiring is the biggest determinant of the legislative role in its maintenance. Many tax expenditures have been permanently incorporated into the tax code. In those instances, legislative action is required to change the implementation and benefits provided by the tax expenditures. Moreover, the level of their benefits is not subject to change based on the state of the appropriations process, which is similar to the treatment of mandatory spending programs. Tax expenditures may also serve as temporary provisions, with a scheduled expiration after a certain date or tax year. Such cases introduce increased uncertainty, as temporary provisions may be allowed to lapse, expire, or change in legislation that extends their inclusion in the tax code. In this way, temporary provisions may be comparable to the uncertain outcomes that are part of the legislative process for discretionary spending. Recent legislation changed the length of effectiveness for a number of tax expenditures that recently expired. Division Q of the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) extended 56 tax expenditure provisions that expired in 2014. Of those provisions, 30 programs were extended for two years, through tax year 2016; 4 were extended for five years, through tax year 2019; and 22 were made permanent. Budget Outcomes Holding other activities constant, increases in resources devoted to spending programs and tax expenditures lead to increases in net budget deficits—spending programs through increases in federal outlays, and tax expenditures through reductions in federal receipts. However, congressional control over budget outcomes may differ both across and within spending and tax expenditure programs. Spending Programs Generally, discretionary spending affords Congress with a high degree of certainty over budget outcomes, as it directly controls the amount of money available for such programs. Any uncertainty with budget outcomes for discretionary spending is typically the result of debate over discretionary budget authority allocation extending into the beginning of the fiscal year under discussion. In those cases, funding lapses, continuing resolutions, and congressional action may lead to changes in the resources available for such programs from year to year. Mandatory spending programs are legislated outside of the appropriations process. For these programs, Congress may use legislation to control the eligibility criteria and benefits afforded. However, the amount of resources devoted is a function of program participation and usage, which means that Congress has no direct control over final spending amounts. The degree to which this lack of discretion adds to the uncertainty of budget outcomes depends on how unanticipated public changes translate into variation in the popularity of mandatory programs. Tax Expenditures Congressional discretion over the budget outcomes of tax expenditures is similar to its control over mandatory spending programs. For both permanent and temporary tax expenditures, the eligibility and benefit levels are controlled by federal legislation. However, the exact amount of resources allocated to expenditures depends on public take-up, which can be influenced by a number of outside factors. A further constraint on budget certainty for tax expenditures is the fact that changes to one type of expenditure can have budgetary ramifications for all other expenditures. For all tax expenditures except refundable tax credits, the ability and intensity of tax expenditure adoption is dependent on the amount of tax liability "available" to each potential participant. That liability is affected by participation in other tax expenditures; reductions in the usage of one tax expenditure may increase participation levels in a different tax expenditure program. Targeting and Enforcement Before transferring resources to the public, the government must first identify eligible parties for the transfer, and in some cases, address improper benefit claims. The ease and ability to complete this process may differ across spending and tax expenditure programs. Spending Programs The financial costs of targeting and enforcement may vary significantly across spending programs. Some spending programs may have straightforward means of identifying eligible recipients for resources. For instance, income resources for active military servicemembers use military employment records already available to the federal government. Other types of programs can require additional steps to ensure that resources find their way to eligible parties. For example, the Supplemental Nutrition Assistance Program (SNAP) has net and gross income eligibility requirements that depend on a number of household characteristics. The mechanisms for targeting and enforcement implemented by spending programs are dependent on context. Tax Expenditures Targeting mechanisms are already in place for the personal and corporate income tax system, which may minimize the additional resources needed to perform such targeting activities for tax expenditures. This is because the criteria for tax expenditures are often already reported on income tax returns. For instance, one restriction for earned income tax credit eligibility is based on household income, which is also used in gross income tax liability calculations. Additionally, enforcement for program eligibility may be conducted through the tax auditing system run by the Internal Revenue Service (IRS), which is designed to encourage accurate income reporting on tax returns. The use of this service to enforce eligibility for tax expenditure programs may add to the budgetary importance of accurate tax reporting, however, and increase the complexity of the auditing system needed by the IRS. Distribution While utilization of the tax code may help the government efficiently target recipients and address improper benefit claims, it may also limit the types of households such programs can reach. This section explores the distributional implications of spending programs and tax expenditures. Spending Programs Since spending programs do not adhere to a uniform method of benefit allocation, there are no theoretical restrictions on the individuals, households, and firms that can be reached by such programs. In practice, individual spending programs can and often do place restrictions on eligibility, though those limits are generally the function of policy goals and not typically influenced by the spending mechanism. The recipients of program benefits may be affected by the type of spending used. Discretionary spending programs usually allocate benefits to federal agencies, which have the autonomy to spend those funds as needed (within the limits provided in the authorizing statute). In many cases, these programs are used to finance spending on "public goods." Public goods are defined here as goods that are non-rival (their "use" by one person does not reduce amounts available to others) and non-excludable (benefits are available to everyone, regardless of payment contribution). Providing public goods by levying fees on individuals or firms in return for service may allow for the possibility of "free-riding," where some market participants benefit with no or reduced payment for services paid for in full by other actors. For example, national defense is commonly thought of as a public good. In that case, payment by one group of people for defense services is likely to have benefits for all individuals in the local area—including individuals who did not contribute payments for those services. The potential for free-riding may be one reason why discretionary spending is used for most national defense programs, as benefits can be applied broadly by the government and paid for through general tax revenues. Conversely, mandatory spending programs, including Social Security, Medicare, and Medicaid, typically provide benefits directly to individuals and households. This direct means of financing generally excludes such programs from funding public goods. Tax Expenditures The adoption of tax expenditure programs may be restricted by the use of income tax returns to allocate benefits. Specifically, tax expenditures may have distributional limitations in two major areas: (1) serving portions of the population that do not file tax returns, including low-income households; and (2) financing public goods. Tax returns are typically completed by employed individuals and firms. Therefore, for policy issues targeted to individuals, tax expenditure programs may be best targeted to households with at least one employed person, and which are thus much more likely to fill out a tax return than the population at large. However, populations that have below-average employment, such as low-income and elderly households, may be less likely to participate in tax expenditure programs, as the lower filing rate of tax returns could reduce their exposure to such programs. As with mandatory spending programs, individuals must claim tax expenditures to receive benefits. This process typically makes it difficult to use tax expenditures to finance public goods, as the benefit allocation process allows for excludability that is not available in public goods. Usage by Budget Function The following tables identify the largest spending and tax expenditure programs in eight categories of federal activity: (1) defense and international affairs; (2) general science, space and technology, natural resources and the environment, and agriculture; (3) commerce and housing, community and regional development, and transportation; (4) education, training, employment, and social services; (5) health, including Medicare; (6) income security; (7) Social Security and veterans' benefits; and (8) administration of justice and general governance. For the purposes of this study, spending programs will be distinguished by type (i.e., discretionary or mandatory) and by budget subfunction, in accordance with the March 2016 CBO baseline. Expenditure items will be identified as they appear in two December 2015 JCT publications. These tables do not include three types of federal interventions: net interest (budget function 900), federal allowances (budget function 920), or undistributed offsetting receipts (budget function 950). Net interest, the largest of the three functions, is omitted from this analysis because it is a function of previous spending and tax expenditure decisions in the other categories, and thus does not afford Congress with the control provided by other types of programs. Allowances and undistributed receipts are not included here because the nature of those types of programs makes their beneficiaries hard to determine, rendering it difficult to make comparisons with tax expenditure programs. Importantly, while spending and tax expenditure programs both increase net deficits, the mechanisms that allocate resources for each program type are different. Specifically, spending programs rely on funds that are collected by the federal government, while tax expenditures are typically financed through forgone revenues, or money not collected due to the creation of the program. This difference may have policy implications that are not addressed in this report. Defense and International Affairs (Budget Functions 050 and 150) Budget functions 050 and 150 cover activities related to national defense and international affairs, respectively. Table 1 shows the projected costs of operations classified as national defense and international affairs, as estimated by CBO and JCT. Defense and international affairs spending programs devote most of their outlays to military activities. Other spending activities include engagement in international relations and nonmilitary defense programs. In contrast, the largest tax expenditure programs devote resources to foreign-based individuals and households with interests in the United States, while also offering some tax benefits to active military servicemembers. National defense and international diplomacy are some of the more notable public goods typically regulated by governments. Programs that call for more frequent congressional action (such as discretionary spending programs and expiring tax expenditures) may also be useful for defense and international affairs activities, as the location and intensity of resource demands may be highly dependent on international events that are not always foreseeable. General Science, Space and Technology, Energy, Natural Resources and Environment, and Agriculture (Budget Functions 250, 270, 300, and 350) Budget functions 250, 270, 300, and 350 are devoted to government activities related to science and technology, energy, natural resources, and agriculture, respectively. Table 2 shows the CBO and JCT projections of the cost of such programs. Both spending programs and tax expenditures devote the most resources in this area to support scientific and technological research and for agricultural services. These interventions also offer a wide range of programs, as the amount of resources devoted to "Other" policies is greater than the combined resources spent on the largest three programs in each case. The complementary nature of spending programs and tax expenditure programs in the science and technology, energy, natural resources, and agriculture sectors may reflect an intention to offer support to both government agencies and private firms in these areas. Commerce and Housing, Transportation, and Community and Regional Development (Budget Functions 370, 400, and 450) Budget functions 370, 400, and 450 capture government activities related to commerce and housing, transportation, and community and regional development, respectively. Table 3 provides information on the costs of these programs as estimated by CBO and JCT. The largest shares of spending resources are devoted to air and ground transportation programs. Spending programs in these areas are also related to providing assistance in response to unexpected events. Meanwhile, a variety of tax expenditures are used to offer incentives for activities related to homeownership, business activity, and community development. The combined resources devoted to tax expenditures listed as "Other" in Table 3 are larger than any single tax expenditure. Education, Training, Employment, and Social Services (Budget Function 500) Budget function 500 is devoted to government activities related to education, training, employment, and social services. Table 4 provides the projected costs of these programs in FY2016, as estimated by CBO and JCT. Federal spending resources in these areas are focused mostly in the education sector, particularly in higher education financing (state and local governments are responsible for much of the policies for elementary and secondary schools). Conversely, tax expenditure programs for budget function 500 activities provide much of their resources to supporting social services. Compared with total federal spending levels, interventions in these areas are more likely to come from tax expenditure programs. Health, Including Medicare (Budget Functions 550 and 570) Budget functions 550 and 570 are devoted to government activities related to health (excluding Medicare) and Medicare, respectively. Table 5 shows the projected resources allocated to health and Medicare programs in FY2016, as estimated by CBO and JCT. Spending programs devote the vast majority of their health resources to Medicare and other health services, with the mandatory components of budget subfunctions 571 and 551 alone accounting for more than $1 trillion worth of projected FY2016 outlays. Tax expenditure programs are targeted to incentivize health insurance enrollment and to encourage certain types of health care consumption. Income Security (Budget Function 600) Budget function 600 is devoted to government activities related to income security. Table 6 provides CBO and JCT estimates for the resources devoted to income security programs. Federal spending on income security programs is used to finance payments to current and former federal employees and to certain low-income households. Tax expenditure resources are devoted primarily to private retirement contributions, and to income support for low income families. Social Security and Veterans' Benefits (Budget Functions 650 and 700) Budget functions 650 and 700 are devoted to government activities related to Social Security and veterans' benefits, respectively. CBO and JCT estimates of the cost of those programs in FY2016 are shown in Table 7 . Nearly 80% of the resources devoted to any type of federal program in these budget categories are spent as outlays on Social Security. Other federal spending is allocated to income security and health care programs for veterans. Tax expenditure programs use the Internal Revenue Code to devote resources to Social Security and railroad retirement benefits and to exclude certain benefits for military veterans from taxation. Administration of Justice and General Governance (Budget Functions 750 and 800) Budget functions 750 and 800 are devoted to government activities related to administration of justice and general governance, respectively. Table 8 shows CBO and JCT estimates of resources devoted to those programs. Federal spending programs for budget function 750 and 800 are primarily focused on funding government services, including law enforcement, judicial, and fiscal activities. Tax expenditures in these areas devote the majority of their resources to exempting certain state and local government activities from federal taxation.

Spending programs and tax expenditures are the two primary ways that the federal government provides benefits to the public. Though each type of intervention represents a transfer from the government to individuals and firms, differences in the budget process, saliency, and targeting may have ramifications for usage across different types of services. This report briefly describes spending programs and tax expenditures, observes a few ways that they differ, and discusses how those distinctions may inform the relative use of each policy across the government portfolio. Federal expenditures (spending) are transfers from the federal government to individuals, firms, or institutions that do not draw directly from individual or corporate tax liability. Federal spending programs fall into three broad categories: (1) discretionary spending, (2) mandatory spending, and (3) net interest payments. The Congressional Budget Office (CBO) estimates that federal resources devoted to spending programs will total $3.897 trillion in FY2016, or 21.1% of annual gross domestic product (GDP). Tax expenditures are revenue losses attributable to federal tax provisions. There are three main types of tax expenditures: (1) exclusions, exemptions, and deductions from gross personal or corporate income; (2) preferential tax rates for certain programs; and (3) refundable and nonrefundable tax credits. The Joint Committee on Taxation (JCT) estimates the revenue losses attributable to certain programs. As of December 2015, projected revenue losses due to tax expenditures in FY2016 summed to $1.521 trillion, or 8.2% of GDP. Holding other activities constant, an increase in spending programs or tax expenditures will increase net budget deficits. However, differences in the characteristics and composition of spending and tax expenditures may have implications for the way each is used across major sectors of the federal budget. Federal spending programs may be better able to target groups that are unlikely to file federal tax returns, like low-income and elderly households. Tax expenditures may be more likely than spending programs to utilize targeting and enforcement services already undertaken by the federal government. Other differences important to federal usage occur within certain types of federal spending and tax expenditures. Discretionary spending and, in some cases, expiring tax expenditures typically involve more frequent legislative action than mandatory spending and permanent tax expenditure programs. Discretionary spending programs also provide increased budget certainty to Congress through the use of budget authority, while mandatory spending and tax expenditure resources depend on the participation and benefit choices of program recipients. This report identifies the largest spending and tax expenditures across eight major categories of federal activity: (1) defense and international affairs; (2) general science, space and technology, natural resources and the environment, and agriculture; (3) commerce and housing, community and regional development, and transportation; (4) education, training, employment, and social services; (5) health, including Medicare; (6) income security; (7) Social Security and veterans' benefits; and (8) administration of justice and general governance.